Decoro: The rise and fall of an Italian Leather upholstery producer in China

23 February 2009

Decoro: The rise and fall of an Italian Leather upholstery producer in China

Posted by Roger under: Industry News & Events .

The well known upholstered leather furniture manufacturer Decoro, recently closed it factory in Shenzhen, China after encountering liquidity problems. More then 2000 workers lost their jobs which lead to protests. Eventually, the local government stepped in and paid two months worth of the worker’s back salaries. Yet over the years, this was not the first time Decoro was in the headlines and the table below charts some of the larger headlines over the past few years.

Italian style takes root in China	DeCoro faces labor dispute in China	Workers protest alleged abuse at factory producing Italian furniture in China, reports	DeCoro plans new China factory, High Point showroom	DeCoro obtains new financing	Workers protest as Italian sofa maker folds in China
October 20,Â 2003	November 4, 2005	January 4, 2007	April 28, 2008	November 25, 2008	Thu Feb 5, 2009
When Luca Ricci sold his first batch of leather sofas in 1998 he told the North American distributor they were made in Italy”	According to news reports, factory workers at the Italian-owned, China-based company went on strike to protest an alleged attempt by management to cut pay	The newspaper reported that employees alleged that 100 security guards wielding iron bars attacked workers after a Tuesday meeting with management over layoff payments.	The 968,000-square-foot plant set to open in May joins DeCoro’s 2 million-square-foot upholstery operation in Shenzhen, China.	Leather upholstery producer DeCoro has reached an agreement with China Construction Bank to provide capital for ongoing operations.DeCoro has been experiencing difficulties due to global business conditions and reduced access to capital,	“Hundreds of workers in the factory blocked roads as soon as they were aware that their Italian boss had fled in mid-January,” an unnamed Shenzhen official told the paper.

Customers of Decoro include Levitz Furniture Company, Wickes Furniture, Jennifer Convertibles, Z-Gallerie, BEJ Wholesale and many others. Decoro was billed as “revolutionizing the industry” with quality Italian leather upholstered furniture being made in China and sold abroad for comparatively low prices. Note that both Levitz Furniture and Wickes Furniture are now out of business.

Even more interesting is a quote from an article about Decoro on Home furnishings business:

“Corso also indicated that DeCoro founder Luca Ricci, plans to reopen with a new factory in the near future, but had no further details as to location, size, capacity, and whether it will operate under DeCoro or another name. Ricci had not responded to an e-mail by publication time.”

For companies already faced with rising costs, tightening labor laws, and reduced government incentives, you have to wonder – is Decor fleeing to Vietnam? Brazil? (Decoro already has two factories in Brazil).

Experience of Investing in China

There is quite an interesting article on a Chinese furniture industry website www.365f.com about Decoro and its story, which I will reprint here (Chinese websites are not know for maintaining links, and I would not surprised if the article disappears due to poor site management). The author appears to be a Decoro employee. Its not clear when the article is written. Very interesting perspective….

Introduction

Investing in China, like in any other country, is not easy. There are many in which a company can invest in a country, all have positive and negative aspects, and there are always successful companies or failures.

Today I am presenting you the example of DeCoro, the way that Luca Ricci decided to operate in China, the developments of it and, from my personal point of view as worker in DeCoro, the history of this incredible company.

The sotry of DeCoro

As for many privately held company, the history of DeCoro is also the history of its President and founder.

Business idea of Luca Ricci

Luca Ricci has grown up and worked several years in his father factory in Italy, the name is Tre Erre. Tre Erre is a producer of High End sofas, producing mostly for Roche Boibois, a very high-end worldwide chain, of which Tre Erre was the biggest supplier. Luca has been President of Tre Erre for 3 years before creating DeCoro. During these years I had the brilliant idea and vision of understanding that the future of mass-market sofa manufacturing was moving out of Italy. So he looked for other countries where to invest and creste a new company. The strategic idea being that was of saving costs on manpower but invest in the quality of the materials, that in a mass-market sofa are among the most important thing.

Opportunity in China and the beginning of DeCoro

Luca was in informed at the beginning of 1997, that there was a group of Hong Kong investors, owing a small sofa manufacturing company in China, willing to sell 51% of the company to a foreign investor.

Luca together with other Italian people immediately went in China to evaluate the possibility and then Luca bought 51% of this existing company.

So DeCoro was born. But it was not an easy start. The existing company was a factory of around 100 workers, disorganized and with little stable business. First step was to send over a team of production managers, designers and prototypists to start creating appropriate models, develop them and teach the existing work force how to produce quality sofas.

It was necessary to recruit more workers, establish production procedures, organize different departments, and set up everything. At the October 1997 High Point Furniture Market was presented the first collection, but is only after the April 1998 High point Furniture Market the DeCoro receive the first order. ã€€ã€€During both Markets Morty Seamans, owner and President of, at that time, a rising furniture Retailer, Rooms to Go, now the biggest furniture retail chain in USA, visited DeCoro showroom. Rooms to Go became the first customer of DeCoro and it has been since that first order, the biggest customer for us. Then other big retail groups started to buy and the company had sales of US$ 11 million in 1998.

Full ownership

But in that period started some management problems with the Hong Kongese parthers. They aimed to have short-term business plans and to make quick money. Luca Ricci wanted Decoro to become a leading manufacturer of upholstered sofas. He and the Italian Management had long-term view, keep producing quality sofas, increases capacity, establish durable relationship with its customers, and establish a worldwide sales network, with offices and personnel working directly for the company. These ideas of course had to be supported by investments and hard work.

As the partner were not willing to do so and Luca had in any case the intention to become the only owner of the company in 1999, after difficult negotiations, he bought out the Hong Kongese parners and became the only owner of DeCoro.

Development of DeCoro

DeCoro then started to open an office in High Point USA, talk with several managers, agents or distributors in various markets. Entry strategies in different countries had to be managed and organized indifferent ways.

During these intensive years from 1997 to 2003 DeCoro relocated 4 times to bigger factories. As sales continuously increased, and demand has always been higher than production, there have been also delays and long delivery times. Customers where not happy of this of course, but they all have been patient and now with the new factory operating DeCoro production lead time is down to 8 weeks. And the production management and staff now is concentrating even more on quality. New production procedures, more Italian Managers working in China, increased professional training of the Chinese workers, new machineries and electronic systems being used and developed in this period, are all helping DeCoro to produce better quality products, increase production and also concentrate its effort in the new successful DeNovo line of High End sofas.

Today DeCro has offices in USA covering the American market, UK, France, Benelux, Scandinavia, Japan, Australia, New Zealand, South Africa, Israel and more will be opened in the future, main one that is still under development is the office in Germany. This is taking longer than forecasted to open due to the time needed to understand this market and also the several other things that keeps us busy all the time, one being the opening of the new factory.

The new factory

In June 2003 DeCoro opened its new factory in an area of 200,000 sqm. It is the biggest sofa-manufacturing factory in the world, producing al components of a sofa under one roof.

This new factory started producing 33 containers per day from July and soon will reach a capacity of more than 50 containers per day.

It has been constructed is a special Export Processing Zone. In the area there is a customs office so all containers are checked and cleared as soon they leave the factory, facilitating the logistics.

Also, if on the other side, we had to triplicate our staff in the logistic and custom office to take care of all the paperwork needed. Also not definitive rules were present and at the beginning was problematic dealing with the new custom office.

The future

For us working in DeCoro, with the motivation given by Luca and the continuously positive result the future looks very bright! Is difficult to say it now as there are no clear data yet, but probably already this year, 2003, DeCoro is already the biggest leather sofa producer in the world. This as we expect to reach sales of US$ 250 millions and for us leather sofa sales are 82% of total sales, the rest is microfibre and fabric sofas.

In any case in 2004, when we forecast sales of more than US$ 300 millions, we are confident that DeCoro will be the biggest leather sofa producer in the world.

As DeCoro was born to cater especially for the American market the two new directions in which the company is already working is to develop modes more suitable for the Japanese market, that are also suitable for other Asian markets and sometimes Europe, and more contemporary models for the European market, the DeNovo line has been developed for this reason.

DeCoro is also consolidating its position in the market in view of expanding its production capacity. Soon will start the construction of another 13,000 sqm warehouse behind the offices, and these are projects to build more warehouses in some land on the side of the factory.

Conclusion

In this year of working with DeCoro I met several people from other companies in the furniture business, some locals some foreigners. All doing business or set up businesses in China. Several of them also motivated by the success of DeCoro. In effect listening to this history and seeing the success of this company all seems easy. It is not like this. There are also several cases of unsuccessful stories.

The recommendation I make here is always to consider carefully all the aspects of this, and also try to understand more the market. In any case, especially with the entrance of China in the WTO and the efforts to create a more clear and better business environment by the Chinese Government, it is today easier to start business in China and there are also a lot more organization specialized to give consultancy and help to set any business here.

And in any case China is every beautiful country in which to live.