Furniture is one of the oldest and the largest industries in Egypt, employing over 13 per cent of the country's industrial workforce, accounting for 0.3 per cent of its gross domestic product (GDP) and 2.2 per cent of its industrial production. As a sector, it is shaping up to be one of the country’s most important, with a large internal market to cater for and increasingly, an export opportunity for Egypt.
But furniture production in has been reeling under the lingering unfavourable macroeconomic situation in Egypt, exacerbated by the Covid-19-induced supply chain challenges, and rising prices of raw materials as well as a murky employment picture, with many workers being forced to migrate to other sectors to make a decent living. In an aim to help the industry regain its footing and bolster its growth, Egypt established Damietta Furniture City (DFC) in 2019, with an investment of EGP 4 billion.
Despite these holdups, Egypt remains the largest manufacturer and exporter of furniture items in the Middle East and North Africa region (Mena), with Saudi Arabia and the UAE making up its top importers. With this in mind, the sector has recently been a target of local tech startups, looking to tap into the $5 billion market while zeroing in on the accelerating customer shift towards online shopping, boosted by the increased adoption of flexible payment options such as buy now pay later (BNPL).
Coupled with the growth of e-commerce, the need for solutions that digitise this traditional sector has driven the rise of a new spurt of vertical marketplaces specialising in furniture and home decor.
“In the past, retailers and furniture brands used to invest around 90 per cent of their revenue streams on brick and mortar business. Suddenly Covid came and they had every offline channel shut down for a few months. They were bleeding capital expenditure and operating expenses. We had a lot of supply coming from those big bands that wanted to work with us to achieve more revenues. And from here, awareness came about,” says Mahmoud Ibrahim, CEO and founder of Homzmart, a furniture marketplace based in Cairo.
Investor interest has also been heating up in the furniture marketplaces sector. Last year, Homzmart, raised one of the country's largest rounds of 2021 totaling $15 million last year. Similarly Kemmitt, another furniture marketplace, also raised a Seed round last year and currently is in the process of raising a Series A round. The two startups raised funding to accelerate expansion into the Saudi market, where there is a more robust e-commerce infrastructure and higher purchasing power.
"The furniture and home decor segment has been gaining traction among customers for a while; it has been already subsumed in the horizontal e-commerce marketplaces operating in the country but it has not been given adequate attention in terms of operations and the variety of times," says Adham Bediwy, co-founder and commercial manager of Kemmitt.
"[We] started at a time when buying a sofa online did not make sense to anyone. Now, people can buy furniture for their entire home online. The furniture industry’s ecosystem is a full circle, but it lacks the supply chain that connects all the dots together. That's in part the reason why we launched our B2B solution that aims to link multiple stakeholders through one place," he adds.
Bediwy further explains that online sales currently account for 16 per cent of the company’s total furniture revenues, a figure that is expected to double within the next couple of years.
As a result of the increased user adoption of marketplaces, many logistics companies came into being, focusing primarily on heavy shipments like furniture, with many working only with such marketplaces.
In a similar vein, shortly after raising its Series A round, Homzmart launched its own logistics arm. The company said the move was aimed at optimising movement of the items and ultimately reduce the cost of its logistics.
"Moving a sofa is different from moving a mobile phone or a t-shirt or a meal. The logistics behind the bulk product is different than the logistics behind other medium and small items. We saw a clear gap in logistics and we've tried to solve it to better serve our partners and customers,” says Ibrahim. “We did a lot of case studies before launching, because we wanted the whole thing driven by data. The routing engine that we're building in between supply and demand helps in the optimisation of the movement of the items.”
As e-commerce infrastructure continues to improve, customer demand is bound to grow. But, general consumer awareness remains an issue. This can boil down to the fact that customers still largely lack confidence in the online buying experience, and marketplaces still cannot create an online experience similar to the one that takes place in store.
For example, to cater to the ever-cost-conscious customer, furniture marketplaces become more inclined to list cheap, substandard items up for sale. Due to operational inefficiencies, customers sometimes can get ghosted by the seller, receive items that do not match the respective picture on the website or have their orders cancelled at the last minute.
For Manzzeli, a digital furniture marketplace and manufacturer, these issues arise from the fact that the sector is still at its early stages of development, making it hard for online marketplaces to “have full control of vendor partners and the whole procurement process”.
"Price is a faring factor when operating in a market like Egypt. There is no way to deny this fact. But customers are becoming more digitally savvy and well educated; they check reviews, do research, and compare prices before making any purchase. There is a balance that must be struck between reliable and affordable service,” says Ahmed Nabil, e-commerce operations manager at Manzzelli.
To gain customer trust, these marketplaces are also focused on engaging their customers through offline channels, which includes the establishment of retail showrooms and design houses.
“For furniture retailers and manufacturers, e-commerce has proved to be a better channel for acquiring furniture. But we are considering going for offline retail, not in the traditional sense. We are talking offline retail experience driven by technology," Bediwy concludes.