New opportunities for Ukrainian furniture industry

Furniture retail and trade is an important part of the global economy. The furniture industry is comprised of the production, distribution, and retail of furniture for residential and commercial use. According to Statista, the United States is the largest furniture market in the world in terms of revenues ($240 billion), as followed by China ($82 billion), Germany ($56 billion), France ($27 billion) and the UK ($23 billion). As of 2022, russia accounted for $17 billion revenues and Ukraine – for nearly $1 billion.

Statista reports that the global market value of furniture was estimated to be $510 billion dollars in 2020, and was expected to increase every year to reach a forecasted value of approximately $651 billion by 2027. However, this trend may reverse due to fallout of russia’s invasion to Ukraine.

Global furniture market response

The Furniture market is mostly driven by consumer spending in general. Consumer spending takes various factors into account; such as per-capita income, household debt levels, and consumer expectations. The steady increase in disposable income and the consequent rise in living standards was responsible for the continuous growth of the market, as was the constant demand for furniture.

The war in Ukraine has caused world furniture prices to soar after the Forest Stewardship Council suspended all trading certificates in Russia and Belarus, in protest at the invasion by Russia. This has blocked all controlled timber sourcing from the two countries leaving companies looking for alternatives and hiking prices. Fuel and labour costs are other factors which are compounding the current situation. The British Furniture Manufacturers (BDM) – industry’s national trade body – reports that prices for a wide range of materials used in furniture are rapidly increasing, including hard woods such as birch, beech and oak, along with fabrics, foam, fibre, steel, MDF, plywood and OSB.

Higher furniture prices are already feeding into higher living costs in the UK. As of April 2022, inflation is running at 9%, the highest level in three decades, with furniture prices up 17%. The invasion of Ukraine is heaping more pressure on British furniture makers who had been sourcing timber from Russia.

Poland’s furniture industry ($14.2 billion exports in 2021), which relies on Ukraine for human and natural resources, is now assessing just how significant war impact may be. For the past several years, Polish furniture factories have counted on workers from Ukraine. Industry experts assess that at least 10%, or 20,000 of the 200,000 individuals working in Poland’s furniture industry, come from Ukraine. But with men 18 to 60 no longer allowed to leave Ukraine and when nearly half of the Ukrainian workers in Poland have returned home, Poland’s furniture industry workforce is in a state of flux. Apart from labour shortage, Polish furniture manufacturers expect the situation to impact fixed costs, especially because of rising energy prices coupled with limited wood supplies.

Global furniture companies’ response

The main key player in the Furniture market with regards to market share is the Swedish company, IKEA. With more than US$45bn, IKEA has by far the highest sales among furniture companies. On June 15, 2022 IKEA announced its plans to sell plants in Russia after three-months` halt of retail and manufacturing activities. This adds the world’s largest furniture brand to the list of Western corporations fully exiting Russia as the war in Ukraine grinds into its fourth month.

Ukrainian furniture market

Before the war, Ukrainian furniture industry demonstrated its global competitiveness and was steadily increasing its export potential. The furniture industry is included in country’s Export Strategy, which, among other things, provided the opportunity for furniture makers to participate in government trade missions. According to Ukrainian Association of Furniture Manufacturers (UAFM) that represents 60% of the Ukrainian furniture industry, furniture exports reached $1.05 billion in 2021 with 40% increase as compared to 2020. Over the last 6 years, furniture industry in Ukraine demonstrated growing trend. This led to the formation of furniture cluster among major national and foreign furniture-making companies active in Ukraine.

In January and February of this year, Ukraine’s furniture industry was on an upswing, exporting 7% more than it had in those same months a year ago, which was part of an ongoing surge that had seen exports rise 17% annually for the past five years. Representing more than 10,000 small-and-medium sized enterprises (SMEs) with more than 100,000 employees, Ukrainian furniture industry was immediately affected due to rusia’s invasion. This includes production halt, logistics disruption, raw materials shortage and loss of production facilities, in particular in Gostomel, Irpin, Chernigiv, Kharkiv, Sumy.

One major shift for furniture companies has been with the plywood supply. About 65% of the plywood sourced in 2021 came from Belarus, which is an ally of Russia in this war. With Ukraine’s refusal to buy from Belarus, furniture manufacturers have increased plywood imports from Latvia, Estonia, Poland and other countries. Belarus was also a supplier of paper for chipboard manufacturing, MDF, oak and some chemicals. Those items are now being sourced from Romania, Poland, Austria, Turkey and elsewhere.

Also, Ukraine’s modernized furniture manufacturing isn’t reliant on a lot of handwork, and the shift away from producing for the domestic market has allowed some SME workers to take over jobs in larger factories. While furniture manufacturers have cut off exports to Russia and Belarus, they still export to 120 countries. Poland is the country’s largest export partner for furniture, accounting for more than 34%, followed by Germany at about 16%. According to ITC data, the markets with greatest potential for Ukraine’s exports of Wood products are Germany, United States and Poland. United States shows the largest absolute difference between potential and actual exports in value terms, leaving room to realize additional exports worth $32 mn.

But at the same time, some new opportunities opened up for woodworkers and furniture makers. In particular, opportunities to join projects that are implemented for the needs of wartime, as follows:

1) RE: UKRAINE modular town project for refugees and displaced persons by the Balbek bureau. The authors of the project propose to use a wooden-frame modular system for the construction of such temporary housing. Balbek bureau is currently looking for furniture companies that could join the project as contractors.
2) Shelter 22 project by Hochu Rayu design bureau is a long-term temporary housing option in the form of a personal housing module with basic elements for families of four. As well as the so-called basement security module, which would shelter people in case of shelling or bombing.
3) LIM Capsule project by Hochu Rayu design bureau provides a different approach to the creation of temporary housing – using existing buildings (usually designed for non-residential use), organizing them with the help of capsule modules’ interior living space.

In addition, there are several export opportunities for Ukrainian furniture producers. As far as the main importing countries of Russian and Belarusian furniture, such as – Lithuania, Poland, Germany, USA, Sweden, France, the UK and the USA – will face the need to find new suppliers and Ukraine can seize the moment to take new export niches.