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The Furniture Industry in Poland – From Boom to Crisis

INDUSTRIESThe Furniture Industry in Poland - From Boom to Crisis

The Polish furniture industry, rich in history and tradition is currently facing significant challenges due to dynamic economic, technological, and geopolitical changes. Previously the undisputed leader in furniture production and export in Europe, the industry must now adapt to new market realities shaped by the economic slowdown. For the past year and a half, furniture companies have been battling a crisis, grappling with high production costs, new competition, and mounting debt.

The year 2023 was particularly challenging for the furniture industry. Furniture production declined, which was directly related to decreased demand, a slump in the housing construction sector as well as rising energy prices, raw materials costs, and wages. Furniture companies began laying off workers, further deepening the industry crisis. According to data from the Central Statistical Office of Poland (GUS), furniture production dropped by 12% in the first nine months of 2023 compared to the same period in 2022.

The furniture market began facing problems shortly after the COVID-19 pandemic, as households, which had been buying a lot of durable goods during the pandemic, reduced their spending following its end. The onset of the war in Ukraine, increased uncertainty, intensification of inflation, interest rate hikes, and the housing market crisis further cooled demand. Energy prices (the furniture industry is very energy-intensive) and raw material prices skyrocketed.

According to data from the Polish Chamber of the Wood Industry, the average sale price of pinewood timber in state forests increased from PLN 260/m3 in 2019 to PLN 425/m3 in the first half of 2023. Additionally, high wood prices have been exacerbated by the Chinese market, which has massively increased imports from Europe. The situation was worsened by the decision of state forests to phase out FSC certification, indirectly affecting the competitiveness of Polish furniture firms in Europe, where such certification is valued by customers.

For many years, Poland was one of the largest furniture exporters in the European Union and globally. This position was owing to the affordable prices and high quality of Polish-made furniture products. In 2019, the furniture industry accounted for nearly 6% of exports, but currently, according to the Polish Development Fund, it’s just 4.5%.

This record drop in market share results from the contraction of European markets and pessimistic sentiments among consumers therein. The year-on-year dynamics of furniture exports in euro became negative after September 2023, with a -1% decrease. A decline was also seen in value in kilograms: -10.3% after June 2023. This points to a rise in prices alongside a limitation of demand.

An especially harsh blow was the economic slowdown in Germany, our main export market, with over one-third of our exports in most categories going there. Already in 2020, China took over our position as the leading furniture supplier to the German market. In the third quarter of 2023, furniture exports to Germany fell by 6.2%, delivering a significant blow to the industry.

Despite rising costs, furniture manufacturers are unable to raise prices accordingly, as demand is already very low. As a result, the industry is beginning to grapple with serious financial issues. According to data from the National Debt Register, the sector’s debt stood at about PLN 111 million at the end of the third quarter of 2023, a surge of PLN 21 million compared to the previous year. Since October 2022, the number of debtors has grown by 6.6%. From July 2022 to July 2023, 249 companies with overdue liabilities were added to the BIG InfoMonitor and BIK databases. This led to an increase in active, suspended, and closed companies with arrears to almost PLN 2.8 thousand, i.e., 5.5% of the entire industry.

The scale of the situation in the industry is indicated by data collected by Dun & Bradstreet. In the first six months of 2023, 39 bankruptcy filings were declared in commercial courts, compared to 12 in the same period of the previous year – a 225% increase. The number of bankruptcies for the whole of 2022 was 39, compared to 23 in 2021, and 14 in 2020. The increase in bankruptcies over the five years before the pandemic was around 10, showing the sharp rise in the number of companies disappearing from the market.

According to data published by GUS, the value of sold furniture production in the first three quarters of 2023 was 6% lower than in the same period of the previous year. Estimates indicate that 2023 saw a decline in the value of sold production by 3-5%, and a staggering 20% decrease in the volume of produced furniture. Unfortunately, the prospects for the Polish furniture industry are not very optimistic. An increase in production costs, including from high minimum wage increases and the strengthening of the zloty, reduces the competitiveness of Polish manufacturers compared to other Central and Eastern European markets – especially Bulgaria and Romania – and Asia (Vietnam, India).

In the slightly longer term, a forecasted revival of the economic cycle and rebound in the real estate market provide hope for improvement, but overseas, this revival will come with some delay compared to the economic cycle in Poland. A positive signal for the furniture market is also the new government’s approach to the use of timber. Planned restrictions on timber export and a ban on its use in the energy sector should bring relief for Polish manufacturers battered by high raw materials costs.

However, the industry will need to adjust to new realities. To meet new challenges, furniture companies in Poland need to focus on innovation and adaptation. The development of e-commerce channels, investments in sustainable production technologies, and automation of production processes are steps that can enhance the competitiveness of Polish furniture companies in the global market.

An accumulation of problems – ranging from weak demand to unfavorable conditions for raw material sourcing – places the Polish furniture industry in an extremely difficult situation. While grappling with these adversities, the industry needs to showcase innovation and flexibility in order to regain a strong position in both the international and domestic markets. The convergence of traditional advantages, such as production quality and price competitiveness, with modern economic challenges, a focus on ecology, and growing international competition requires rapid adaptation, seeking new solutions (like e-commerce and production automation), and development opportunities (new markets). Factoring and other financial tools can be helpful in this respect.

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