JD’s New 101HOME and Why Warren Buffett Loves Furniture Retail (2 of 2) (Tech Strategy)

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In Part 1, I went through the basics of JD’s new 101HOME flagship in Shanghai. It’s an experiential approach to furniture retail.

And that brings me to Warren Buffett. Furniture retail is one of the few retail business models he invests in.

Furniture retail can be a powerful business model. It can have competitive advantages that follow from economies of scale. The argument goes like this:

  1. If you are larger than your competitor, you can offer more in-person selection. More sofas to sit on means a better store.
  2. Having more sofas means you must have a larger retail space, larger warehouse space and inventory. You also have larger logistics and delivery throughput.
  3. These are barriers to entry. They are hard for a new entrant to match.
  4. They are also fixed costs, which can be spread across your larger sales volume. Your per unit costs are lower.
  5. You can also probably get purchasing economies of scale (you are a big seller so you can negotiate lower furniture costs).
  6. Because of this, your cost structure is lower. You can offer both lower prices and greater selection.
  7. This makes you take market share and grow even larger. Which repeats the cycle.

This is why Warren Buffett bought a majority stake (80%) in Nebraska Furniture Mart in 1983. It was the largest furniture retailer in the city. He purchased it directly from the store’s founder, Rose Blumkin (“Mrs. B”), in a famous deal sealed with a simple handshake and a one-page agreement.

And he bought it without ever seeing the financials. He understood the business model.

And the above cycle has played out over time.

For decades, this Omaha store held the record as the #1 single-store location by sales volume in the United States. Today, it is second nationally only to the mega-location it opened in Dallas, Texas.

If you want to know more, you can read about my visit (and lunch with Warren) here.

However, keep in mind, Nebraska Furniture Mart is about having the largest selection at unbeatable prices. 101HOME is more of a premium experience. So that strategy is a bit different.

101Home Is About Increasing Customer Value and Customer Engagement

Furniture stores have a weakness: Low frequency.

The average furniture customer in China spends 5-6 weeks working on their order and visiting the store frequently.

And then they buy and disappear. For years.

It doesn’t matter how powerful your value add is in furniture if your customers only show up every 2-3 years.

To increase value, you need people to come to the store more frequently.

And you need more engagement. They need to try things and buy things.

You need lots of frequency and lots of touch points.

Without this, you don’t have the opportunity help your customers.

And you also don’t get any data, which is critical for personalization and other improvements.

Without lots of engagement and data, you are blind as a digital-first business.

Now look at 101Home again.

You can see this is what they are going after:

  • They focus heavily on new brands and products being released. So, you stop by to see what’s new.
  • They have lots of art and smaller furnishing items for your house. You might want to change your art and pottery every month. These are small purchases that get you to come in more frequently.
  • They also have coffee shops. They want you to come in and hang out. They also have a French bistro and nice restaurants.
  • And they have a huge selection of burgundy wines, that is constantly changing selection. So, you come back and try others.
  • They have a bookstore and it’s a pleasant place. Stay and read.

Listen to how they talk about it:

“101HOME is designed to go beyond traditional home retailing, bringing together home design, lifestyle trends and social experiences under one roof,”

“101HOME combines shopping with design discovery, exhibitions, dining and social experiences. It’s a dynamic retail environment that evolves…”

Businesses Need Margins, Engagement and Data

Why do shopping malls have children’s areas? Why do they have food courts?

Neither of these make any money.

It’s so people come in. And spend time.

I always tell businesses you need a portfolio of products and services. You need:

  • Margin products. These are what get you cash. Most businesses focus entirely here.
  • Engagement products. These are what get your interactions. That’s what 101Home is focusing on.
  • Data products. These are what generate a real-time data pipeline about your customers.

Sometimes one product can get you all three (think TikTok). But usually, it requires separate products and services.

And you really do need all three. Especially as everything goes to data-intensive AI.

101Home Is Also Increasing Value to Merchants and Brands

Back to my earlier point.

There is also a lot of value here for merchants and brands.

Think about trying to sell as a domestic or international brand in China today.

Everyone lives on their phones. Your main channel to reach customers is a small screen on a smartphone. That means your products are reduced thumbnails on a screen. And you are yet another video in a newsfeed.

  • How can you tell your brand story?
  • How can you explain why you are different?
  • How can you explain why you are worth a higher price?
  • And how can you get attention when you launch a new product?

That’s hard to do on a smartphone screen. It’s also hard to do when you are just one of a hundred products in a store.

But experience-focused retail spaces (like 101HOME) are designed to let brands tell their story.

  • You can let people sit on your sofa.
  • You can decorate an entire space to let people feel your aesthetic.
  • You can show comparisons with other products. To show why you are different. Why your price is worth it
  • You can launch your new events / products as big events.
  • And you get direct, in person access to customers. Qualitative data is as valuable as quantitative data.

We’ve seen this approach by JD before with their E-Space in Chongqing (launched in 2019).

E-Space is a 50,000-square-meter mall focused on “experiential retail”. It has three floors with lots of product categories. It was definitely tech-heavy with lots of electronics and digital lifestyle products. They opened a second E-Space in Hefei in 2021.

I visited the Chongqing store and wrote about it here.

You could try out everything. You could take photos with the cameras, use the vacuums and ride around in the go-karts.

E-Space later evolved into JD MALL, of which there are now 30 in China. They are 50,000-70,000 sqm meter upgrades.

It’s a similar approach. But neither of these are focused on furniture.

But we’ve actually seen JD try this in furniture before, with their JD-Qumei store in Beijing.

Last Point: 101HOME Is an Upgrade of JD-Qumei

In 2018, JD opened a Beijing store with furniture manufacturer and retailer Qumei. I went and visited and wrote it up.

The Qumei JD Home flagship is a smaller 12,000 square meters store with three floors. The core Qumei business (furniture) was on the second floor. The walls, flooring, lighting and such (everything around the furniture) was on the third floor.

But they had the same problem I mentioned. No real contact with customers except for every 2-3 years.

JD solved that problem with the first floor. It was filled with small items designed to get customers to visit frequently. Art, flowers, nicknacks, etc.

And it had a bookstore, café and play areas for the children. Just like 101HOME.

You can read about that here.

***

Ok. That’s it. I’m heading to this store in a few weeks. But I thought there were some good lessons in:

  • Why furniture retail is a surprisingly good business.
  • Why experiential retail is particularly powerful in some categories.
  • Why margin, engagement and data are all critical.

Cheers, Jeff

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Related articles:

From the Concept Library, concepts for this article are:

  • Ecommerce / Retail
  • Logistics

From the Company Library, companies for this article are:

  • JD: 101HOME
  • JD: E-SPACE
  • JD-Qumei
  • Warren Buffett / Berkshire Hathaway
  • Nebraska Furniture Mart

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I am a founder, consultant and keynote speaker specialized in digital and AI agentic strategy.

I am the founder of Agentic Org Now, a firm that helps leadership teams launch AI and agentic initiatives fast.

I write (a lot) about digital and digital AI strategy (3 best selling books, +2.9M followers on LinkedIn). You can get a free book at the email sign-up below.

My Moats and Marathons book series is a framework for building and measuring competitive advantages in digital and AI businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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