Zhao Lei of Red Star Macalline: In the era of the existing stock, new residential consumption demands still contain huge business opportunities | WISE2024 Future Consumption Conference

On November 29, the WISE2024 Future Consumption Conference was officially held in Beijing. This conference is hosted by 36Kr Future Consumption, with the theme of "Always with You", focusing on hot topics in the consumption industry. It invites more than 20 investment institutions, platform sides, brand sides, and service provider executives to jointly explore new trends and opportunities in the consumption industry.

In recent years, the home furnishing consumption market is undergoing changes. The "2024 China Home Furnishing Market Consumption Insight Report" shows that in the second half of 2023, the sales area and sales volume of commercial housing in China continued to show negative growth. At the same time, in order to boost consumption and promote the stable and healthy development of the real estate market, a series of favorable policies have been introduced to promote the recovery of the industry. Against this macro backdrop, Red Star Macalline, as a traditional giant in the home furnishing industry, is also facing new challenges and opportunities.

Zhao Lei, Vice President of Red Star Macalline Home Furnishing Group, summarized at the 36Kr Future Consumption Conference that the main changes in the home furnishing market are consumers' judgment on consumption and the transformation of the offline consumption market. Consumption is not actually completely downgraded, but rather stratified; moreover, the demand for local renovation and refurbishment is bringing new consumption, and young consumers are also emerging. Consumers' rigid demand and emotional consumption coexist, and the gap in high-end consumption in different-level cities is approaching zero.

On this basis, Red Star Macalline has proposed the "3 + Star Ecology" new strategy for the integrated development of home furnishing, home appliances, and home decoration, and conducts ecological iterations on this basis. These three categories are mutually accessible, mutually extensible, and mutually incremental. Design is positioned as the entrance of traffic and the connector of categories, while electrical appliances are the scene chips of smart life and the ecological engine.

"Red Star Macalline wants to explore providing one-stop home experience, one-stop home consumption, and one-stop home service, exploring the organic integration of home furnishing, home appliances, and home decoration to promote the integration, co-creation, and coexistence of the industry, and build a comprehensive service platform that best understands Chinese people's living needs." Zhao Lei said.

Zhao Lei, Vice President of Red Star Macalline Home Furnishing Group

The following is the verbatim record of Zhao Lei's speech, edited and organized by 36Kr:

Hello, dear friends at the scene! I'm very happy to be invited by 36Kr to make this sharing. The organizers are very attentive. The previous speakers come from all walks of life. As an offline traditional home furnishing mall, Red Star Macalline has been deeply cultivating in the home furnishing field. Since its establishment in 1986, it has been 38 years.

As of June 2024, Red Star Macalline has 439 malls nationwide, managing an offline operating area of over 21 million square meters, which can be called an offline "giant". In the past few years, affected by the real estate market and consumption changes, the home furnishing industry has been under obvious pressure. Facing this situation, Red Star Macalline has chosen an innovative development path of ecological iteration and industry integration, and integrates more organically with business partners.

In recent years, the consumption market has obviously changed. The main reasons for the changes are consumers' judgment on consumption and the transformation of the offline consumption market. Taking the home furnishing industry as an example, consumers' changes can be observed from several aspects:

First, consumption K-shaped stratification. I fully agree that the entire consumption is not completely downgraded; in fact, it is stratified. On the one hand, there are consumers with financial freedom who have an increasing demand for aesthetics. They have more aesthetic propositions and are willing to make new explorations in the aesthetic aspect. On the other hand, many consumers are affected by the economic situation, giving up their aesthetic propositions and choosing a more efficient and lower-cost alternative.

Second, local renovation and refurbishment. Taking Beijing and Shanghai as examples, in Shanghai, about one-third of the houses sold and delivered this year are new houses, and two-thirds are second-hand houses. In Beijing, the proportion of second-hand houses currently reaches 83%, and only 17% are new houses. This represents a series of changes in the entire market and the consumption concept of the consumer group. After the transaction of second-hand houses, some people may choose to renovate the entire house, and many others choose to renovate partially, bringing new consumption.

Third, the coexistence of rigid demand and emotional consumption. Home furnishing consumption is a rigid demand. After all, people need to live and have a relatively difficult time doing it themselves. This is a relatively good point for this industry. At the same time, the overall consumer group has become more rational. We have seen that many consumers in the past must have seriously exceeded the budget in home furnishing consumption. But now, consumers have diverse sources of information, and many people have become expert consumers, knowing more and more about the industry, strictly following the budget, and becoming more rational. Similarly, in rationality, there is no exclusion of some emotional consumption.

Fourth, the rise of young consumers. Red Star Macalline's research shows that the young consumer group has become the main force in the entire decoration industry. Consumers born after 1985 and 1990 account for 60%.

Fifth, the gap in high-end consumption in different-level cities is approaching zero. In our research, we found that with the progress and development of various cities, the layout and changes of offline channels, the consumption habits, concepts, products, and ideas of the consumer groups in Beijing, Shanghai, Guangzhou, high-energy-level and even mid-level cities are becoming more consistent.

Overall, home furnishing consumers are more savvy within their financial capabilities, and their yearning for a better life remains unchanged. They hope to enjoy more and more things that are more suitable for them.

Considering the huge changes in consumer demand. Red Star Macalline has made strategic adjustments in recent years. After all, with a volume of more than 21 million square meters, how to better serve the new human settlement consumption needs is a very realistic problem. For this reason, we have proposed the "3 + Star Ecology" new strategy for the integrated development of home furnishing, home appliances, and home decoration, and conduct ecological iterations on this basis.

In the past, Red Star Macalline has been deeply cultivating in the field of home furnishing and building materials. Many consumers, when mentioning Red Star Macalline, first think of buying furniture and building materials. However, currently, Red Star Macalline is also a mainstream channel for home appliances and home decoration products and services.

Why do we choose home furnishing, home appliances, and home decoration as the most core categories for the entire reconstructed ecology? Because from the perspective of product structure, these three categories are mutually accessible, mutually extensible, and mutually incremental. Taking home appliances as an example, it is generally understood that home appliances are consumed after home furnishing. People buy home furnishing and building materials products first, and then buy electrical appliances at the last step. But in recent years, consumers with decoration experience will find that with the increasing popularity of embedded electrical appliances and whole-house customization, many people need to determine the refrigerator before the whole-house customization because it needs to be embedded. It is necessary to know exactly how large the size to be reserved for customization. Similarly, due to the iterative popularization of whole-house water purification and whole-house air technology, the purchase and decision-making of all electrical appliances have become more upfront. Even in the home decoration design stage, it is necessary to consider in advance which electrical appliances will be used in the future and how to arrange the sockets and wiring.

Red Star Macalline's "3 + Star Ecology" new strategy has two major fulcrums. The first is the home appliance strategy. The home appliance industry has always been very competitive, and the competition is very fierce. In recent years, the profit situation of the home appliance industry has been under pressure, and home appliance brands are also looking for new profit breakthrough points to adapt to the new changes in the market. Especially considering the development direction of high-end, set-based, upfront, and scene-driven of home appliances, Red Star Macalline entering the home appliance track can be said to be a two-way choice with home appliance brand factories.

Red Star Macalline's initial slogan was "Buy high-end appliances at Red Star Macalline". Since the official implementation of the home appliance strategy in 2021, in more than three years, the operating area ratio of home appliances in Red Star Macalline malls has rapidly increased from 4% to nearly 10%. From the initially strategically cultivated and developed category, it has become the first category to be built, which is the core change. The rapid change in the offline electrical appliance market sales pattern has indeed given Red Star Macalline a relatively large market space. We have seized the opportunity and had a good interaction with some electrical appliance brands.

This year, the national subsidy policy for home appliance products has received widespread attention in the market. Red Star Macalline has also benefited from this. Taking Shanghai and Beijing as examples, from September 15 to November 24 this year, Red Star Macalline in Shanghai used 74.33 million yuan in government subsidies to drive 594 million yuan in electrical appliance sales. From August 28 to November 24 in Beijing, Red Star Macalline used 35.53 million yuan in government subsidies to drive 243 million yuan in electrical appliance sales.

What does this number represent? In the competition with professional electrical appliance malls in Shanghai, Red Star Macalline has ranked third in the all-channel ranking in Shanghai. If considering the subsidies for all categories (including home appliances, home furnishing, aging-friendly products, etc.), it has ranked first. In Beijing, the ranking is also relatively high.

Currently, Red Star Macalline has 150 10,000-square-meter smart electrical appliance halls nationwide. Next, we will also carry out the 2.0 version upgrade. At the same time, we are exploring new home appliance models, such as e-sports rooms, household appliances, 3C, etc., which have become one of our exploration directions.

The other major fulcrum of the "3 + Star Ecology" is the home decoration strategy. In the past two years, we conducted a nationwide survey and found that more than 80% of young consumers are willing to pay for design. Our survey scope is the post-90s customers who come to the store, that is, the younger group of Red Star Macalline customers. Based on this conclusion and judgment, Red Star Macalline needs to integrate more designers and design studios that meet their needs and have design capabilities into our system. This can also empower and attract traffic for the sales of home furnishing and building materials in the mall.

In 2023, Red Star Macalline launched the M + High-End Home Decoration Design Center, a new field species. At the beginning of this year, we further proposed the "Hundred Mall Strategy" of the M + High-End Home Decoration Design Center. In the construction of the M + High-End Home Decoration Design Center, we have introduced various types of home decoration studios, including whole-house design, partial design, e-sports room design, audio-visual design, lighting design, courtyard design, and sunlight design. Now the market is becoming more and more segmented. We hope to work with more professional partners to meet consumers' diverse and most suitable design needs for their current needs.

As of October this year, the total operating area of home decoration design nationwide for Red Star Macalline has reached 648,000 square meters, and 1,000 design studios have been gathered. We hope to respond to the new needs of consumers, match better designers, and propose a better life for consumers.

In addition to reconstructing the big home furnishing ecology, Red Star Macalline is also trying to explore new fields based on our detailed insight and understanding of future consumption to better serve consumers. For example, we are exploring and promoting the offline C-end retail business of aging-friendly home furnishing.

With the accelerating process of aging, this year we saw that the country defined the meaning of the silver-haired economy for the first time and issued policy documents to encourage the development of the silver-haired economy, emphasizing a series of life services and social security such as home-based elderly care and aging-friendly. In 2023, among the registered population in Beijing, the proportion of the elderly population exceeded 30% for the first time. And among the registered population in Shanghai, the proportion of the population over 60 years old reached 37.4%. Aging-friendly home furnishing undoubtedly contains huge business opportunities.

In June this year, Red Star Macalline's first 1,000-square-meter "Aging-Friendly Home Furnishing Experience Center" opened in Beijing Supreme Mall. Currently, we are also building a nearly 2,000-square-meter "Health and Care Center" in Shanghai to promote the accelerated movement of aging-friendly products to the C-end.

The above are some of the opportunities that Red Star Macalline has seen in exploring the layout of the future. The core is to explore providing one-stop home experience, one-stop home consumption, and one-stop home service, exploring the organic integration of home furnishing, home appliances, and home decoration to promote the integration, co-creation, and coexistence of the industry, and build a comprehensive service platform that best understands Chinese people's living needs. Thank you all!