The three Xs in the name of the Austrian furniture retailer XXXLutz, that much is certain after the new takeover attempt, are the program. The Austrians dream of greatness, and so they keep buying more. The auditors from PwC have the strategy of XXXLutz in one Study from July this year described as “purchase-driven market penetration”. Due to an almost insatiable hunger for takeovers, XXXLutz has become a heavyweight in the German furniture industry: a total of 5.3 billion sales, 350 furniture stores in Europe and a constant growth in market shares. Now XXXLutz, known as a stationary retailer, wants to swallow an almost pure online furniture retailer with Home24. The company announced this on Wednesday evening. The management of Home24 agrees. The supplier industry, on the other hand, is concerned.
The manufacturers, mostly many small and medium-sized businesses, fear that XXXLutz, with its many furniture brands, could become an overpowering customer who dictates the prices, and that in times of rapidly increasing raw material and energy costs for procurement. “Only so much,” says a spokesman for the furniture industry association. “From the industrial side, we are looking closely at developments in the furniture trade and with increasing sensitivity.” In contrast to industry, concentration in retail has accelerated. “In addition to the few price-setting purchasing associations that determine the German market, the takeover of Home24 in particular has achieved impressive, perhaps already critical, market power – to put it cautiously.” The suppliers definitely see competition law problems here, which could affect consumer prices in the furniture stores.
According to PwC, the five largest furniture retailers in Germany, led by Ikea and XXXLutz, generate a 44 percent share of sales. On the other hand, there is a fragmented manufacturer market. This creates a “market power” in favor of the dealers, who could enforce them against the suppliers. A similar process of concentration has taken place in online furniture trading in recent years, intensified by the corona pandemic. According to the e-commerce association BEVH, four companies now largely dominate the market here: Ikea, Otto Living, Westwing and Home24.
The concentration is “dangerous” for manufacturers and consumers
The irony from Home24’s point of view is that the Berlin start-up started a decade ago to replace Ikea, according to its own statements. The Swedish retailer, which was hardly active on the Internet at the time, has now risen to become the largest online furniture retailer in Germany and, unlike XXXLutz, continues to focus on organic growth, i.e. without acquisitions. Home24, on the other hand, which struggled with losses right from the start, will now probably be taken over by a predominantly brick-and-mortar retailer who wants to strengthen its online business. The number two in the overall market is thus taking over number four in online trading.
The manufacturers’ association fears disadvantages for consumers. “In principle, antitrust law always acts in the interest of the end user,” says the spokesman. “But we are now reaching a level of concentration that could not only be dangerous for the manufacturers, but also questionable for the variety in the furniture trade and the pricing power towards the end user.”
Consumers are already reluctant to buy and there is no improvement in sight. Jan Kurth, managing director of the furniture industry association, speaks of a ““roller coaster ride” that the industry is going through. In the hot phase of the Covid pandemic, people working from home would have set themselves up nicely at home. The industry made good money. With Russia’s war of aggression, inflation and the energy crisis, however, the mood has now turned negative. Upholstered furniture and kitchens are slightly less affected. According to PwC, the citizens are so insecure because of the increased prices and the ongoing war in Ukraine that they are putting off buying products such as furniture for the time being or doing without them altogether.
In online furniture retail in particular, sales have fallen sharply in recent months. According to the BEVH, sales have fallen by more than 15 percent in the past three months alone. The slump in consumption also meant that the Home24 share lost a lot of value. By the end of September, it had fallen to a 52-week low of €2.50. That also made the online retailer an attractive takeover candidate for XXXLutz.