Che Jianxing: From Carpentry to the First Name in Chinese Furniture
Born in a laboring family in pre-reform Changzhou, east of Nanjing, Che Jianxing took up carpentry instead of completing high school. As China was changing in the 1980s, that skill allowed him and others in his collective to take 500 pieces of furniture into a store that made him a small fortune–nearly $80,000.
It was the first step to being, at age 48, the “home-improvement” king of urbanized, affluent China. Che’s Red Star Macalline–the last word was conjured to suggest gilded comfort–is the country’s largest mall chain for furnishings, accounting for more than a third of sales at the country’s larger furniture stores. In top-tier cities like Beijing and Shanghai, Che’s malls are hulking structures, out of proportion to their dense environments. They cater to customers wanting room to look, feel and buy for keeps. Red Star at midyear operated 163 of them in more than 120 cities across China; Red Star has 51 itself and manages the rest for other parties.
“Furniture stores are usually small and messy, and you never see anything like Red Star,” says Hao Xiubao, general manager of Datong Haoda Real Estate, who does business with Che in central China’s Shanxi Province. By thinking big, and this year capitalizing on his ambitions with an initial stock offering, Che emerges as No. 56 on the latest China Rich List, with a $2.9 billion estimated worth.
For all the reports of China’s slowdown, what’s happening in the world’s great emerging economy is as much a shift to various forms of consumption as a middle class steadily fills out. The cooling of real estate speculation, which means more buyers are actually living in their new properties, is additionally bullish for a mall chain like Red Star. First-half profit this year rose 31% year-over-year to $188 million, on revenue that increased by 17% to $674 million. China’s furniture market should still grow 10% annually. they will mostly be owned by others. Avoiding real estate ownership risk, he will just manage them.
That’s the cautious side of him, sharing and spreading risk just as Che did when, in 1996, he opted to bring other sellers into the store that had grown out of the original collective enterprise. That strategy has evolved into primarily housing other furnishing retailers, or operating such properties–Red Star today does not peddle its own stuff.
And when expansion nonetheless began to push up Che’s modest debt-to-equity ratio in recent years, from a bit over 20% to near 30%, the big Hong Kong IPO took it back to 21.6%.
Brick-and-mortar survivor: the early generation of the Red Star Mall.
“There is no one that’s going to match their brand anytime in the near future,” says Hu Weidong, chairman of Scihome, a furniture maker that operates 300 shops–focusing on a variety of products–in some 130 of Red Star’s malls. Monthly sales promotions help bring in shoppers.
At an interview at company headquarters in Shanghai, Che was eager to talk about the results from China’s long National Day holiday in October: Sales were up 15%, and nearly 2 million people visited Red Star stores during the holiday–better than three times the visits to the Imperial Palace in Beijing, one of China’s top tourist attractions. He enthuses, “Our malls were an ocean of people!”
To keep them coming, Che is still fanning out across China. When he does, he’s looking for a growing part of town and a locally connected partner like Derun Real Estate in populous Henan Province’s capital of Zhengzhou. The city’s population is expanding by thousands a month. Derun and Red Star have a new project in the booming southern side of town close to a new airport. Local governments sell land expecting that Red Star will attract other, more run-of-the-mill commerce.
Brick-and-mortar survivor: today’s version of the Red Star mall.
China’s furniture business is dominated by local companies, because the cost for overseas furniture is high and the marketing has strong domestic flavor. Whereas Ikea, which has 18 stores in China, has focused on the lower-cost, do-it-yourself market, Che aims at the higher end. Selling remains selling, however, and Red Star over the years has used celebrities to get traffic to its emporiums. This year it has two new ones: Angelababy, a 26-year-old actress from the 2015 FORBES CHINA celebrity list, and Gao Yuanyuan, an older spokeswoman for Olay cosmetics who attracts more established patrons.
Che’s focus on quality fare, worth one’s time to examine, cuts his vulnerability to the Web upheaval that has sunk so many brick-and-mortar companies as China leads the world in Internet and mobile phone users. Red Star is working on an online-to-office strategy, but it’s clearly a work in progress. Che doesn’t believe the Web will have a big impact on his furniture trade for several years.
Meantime, the weakening in Chinese asset prices, even in the consumer sectors, may yield opportunities for further consolidation of showrooms under Red Star’s one roof. “We’re always looking,” says vice president of finance Sharon Tong. “There will be a lot of headwinds” for mall developers in China as GDP growth slows, says Carlby Xie, head of China research at real estate brokerage Colliers. Red Star “isn’t a traditional shopping mall” and so doesn’t fit into that box.
As Che the youthful carpenter must have known, the hammer should fit the nail.