Interview: Smart home drive to turn interior decoration red hot
The smart home drive will likely become the next accelerating point for housing decoration industry, as more Internet giant competitors get "on-board", said an industry veteran.
"Competition will turn 'red' [hot] in two years," said Ma Ziqiang, CEO of 525j.com.cn, adding that the introduction of smart home devices will accelerate the industrial growth.
Housing decoration, now one of the few less competitive fields within e-commerce, is the best time to lay the foundation work for a smart home drive, and it has vast potential, said Ma.
Founded in Shanghai in 2002, 525j has transformed along the Internet era from a vertical membership-based website into an e-commerce and O2O platform.
The user scale of mobile O2Os in China reached 610 million by the end of 2014, according to a research compiled by Internet data service provider TalkingData, but housing decoration was falling behind, with most market participants still relying on personal computers, rather than mobile ends.
So, what does an interior decorating O2O look like? To what extent, will the O2Os reshape the traditional painting and furnishing businesses? And as more Internet giants join the competition and the smart home concept gains popularity, how will the industry evolve?
To answer these and other questions we sat down with Ma Ziqiang, CEO of 525j.com.cn for an interview.
Q: What is the company's business mode? What service does 525j.com.cn offer to customers?
Ma: Interior decoration is a business with high price and low consumption frequency. Lessons learnt among consumers tend to stay as lessons. Therefore, our first step is to help customers better understand the industry and provide them sufficient knowledge.
Second, consumers with such needs can see a 3D-effect presentation of the decoration plan before signing contract with companies on our platform. The free-of-charge service will allow them to have a clear picture about the design and reduce the chance of future disputes.
Customers at the same time can download 525j's application named Zhuangxiubao, where they will find a timetable guideline for their decoration project and can upload pictures upon the finish of each step to ask for a quality check.
Third, the platform provides customers with package offers, such as 666 yuan per square meter or 888 yuan per square meter, catering to various decoration styles.
What's more, the 525j also has a third-party payment platform, where banks will act as trustees and transfer the money from customers' accounts to decorating companies once the project is completed and accepted.
Q: Which party pays for the services such as advanced design and budget planning? To what extent has the birth of O2O platforms been reshaping the interior decoration sector?
Ma: Furniture producers and material providers nowadays have slim margin due to the increasing promotion and sales costs. Online package sales can help them better plan ahead their production scale, reduce stocking costs, and therefore promote more efficient use of funds. Stock keeping units (SKU) within the industry can be lowered from 300 to 40.
A number of housing decoration companies in the past made profits based on asymmetric information, while the e-commerce platform is the other way around. We first teach customers and provide them with a transparent shopping environment to gain their trust. Costs will be lowered after consumers choose to shop for multiple times on our platform for products ranging from building material to furniture and home appliances.
E-commerce in the housing decoration sector can be a win-win, as the platform can have a larger customer base and a more complete product chain, while market participants can have a lower business cost.
The 525j now shoulders the advanced service costs with housing decoration contractors. It's affordable given our large customer base, and the conversion rate is high. More than 60 percent customers signing up for such advanced services will finalize the contract in the end with the companies on our platform.
Q: Given its low-frequency consumptions, how do you and your competitors retain customer base? What has been the driving force behind the company's transformation from a vertical website into an e-commerce and O2O platform?
Ma: Customers who want to renovate their homes have strong tendency to ask others who have done renovation for lessons and opinions. It's for example unlike shopping for clothes where people out of character may make the purchase directly. Therefore, if the experience is good, they tend to share with others. A good review will bring you business. It's proved in the traffic volume, as a certain percentage of our website traffic is out of natural growth, other than promotion.
Innovation is one of the irreplaceable genes for e-commerce. The 525j, now with a 12-year history, started as a vertical website, sharing knowledge and useful tips with customers. The profit then was generated by membership fees.
525j began e-commerce businesses in 2006 as our customer base grew into next stage, starting with the B2B. However, the business environment then for e-commerce was not as good as now. Initial development was constrained by the settlement gap of payment and cash flow. In 2008, the company adapted to the market change and turned to B2C, and the development since then has been healthy and fast.
Our O2O nature has been decided since day one, long before the word was invented, because housing decoration isn't a business that can be solved with pictures. It weighs in the texture quality, comfort level and softness. It sells the experience at the same time. The industry belongs to O2O, whether they are listed as or not.
Q: How does 525j plan to outsmart its Internet giant competitors such as Taobao and Xiaomi? Will the competition become more intensified?
Ma: We are more familiar with this specific industry. Housing decoration is completely different from fast-moving consumer goods business. For example, in terms of delivery, fast-moving consumer goods focus on speed. Tmall can make one-day delivery two times per day, and some can even make it three times per day. But the housing decoration delivery values timing most. If you deliver bathtub days before it can be installed, it will take up room and cause inconvenience.
The wear loss can be also high for inexperienced ceramic deliveries. The ratio can vary from 3 percent to 17 percent. And furniture deliveries include on-site installation. Internet giants like BAT may not care to go as specific as that. However, their advantage is also obvious, that is the incomparable traffic they have. Therefore, our reputation has to be better to retain our traffic visits.
Housing decoration is one of the few blue oceans (less competed) remaining within e-commerce, therefore I believe big players will join the competition after all.
One of great potential lies in smart home drive and the best layout time is in the middle of the housing decoration. Smart home devices by Found Group, for example, require two null lines, which should be better reserved in advance. It's a broad market, containing all sorts of home appliances. That’s also why the housing decoration businesses attract player like Xiaomi.
The market will turn "red" (hot) in two years. Not all participants can invest heavily on research and development, but frontrunners will be those equipped with a complete industry chain, catering to customers' one-stop needs including building materials, furniture, home appliances as well as interior decoration services.
Q: Does the company plan to acquire other players specialized in smart home devices? As 525j's parent company just completed share structure reform, will it seek public listing?
Ma: The company will mainly focus on cooperation. Because once we build smart home devices ourselves, the e-commerce platform might compromise its inclusiveness and fairness. Self-operated businesses only account for a small portion, and mainly appear in the large-scaled package sales.
The 525j has generated positive earnings for four consecutive years and completed two rounds of financing. We should roll out the listing plan later this year.