Modern House, the top home decoration brand in South Korea, sticks to a unique rule for its store operations: one-third of the products on the shelves should be replaced by new items within a year, and all the products should be redesigned from the ground up every three years.
MBK Partners, the home decoration firm’s owner, is focusing on product lineups based on the rule to lure customers who seek new and well-designed items at reasonable prices.
MBK, a leading North Asia-focused private equity manager, acquired a 100% stake in Modern House for 686 billion won ($514.1 million) from Korean retail conglomerate E-Land Group in 2017. E-Land founded Modern House in 1996 and sold it during a liquidity crunch.
At the time of acquisition, MBK saw Modern House as an important cash cow for two reasons: in 2017 Korea’s gross domestic production (GDP) per capita exceeded $30,000 for the first time, and around the same period the number of one-person households in the country rapidly increased.
“When their income is very low, people only spend to survive. When they have better income, people buy new cars, TVs and refrigerators. With income above $30,000, people start to decorate their homes,” said MBK Vice Chairman Kim Kwang Il, who led the acquisition of Modern House.
“Around 2017, Korean consumers started to spend money on what they like, which can be neither necessities nor things they want to show off,” he added.
Modern House home decor items (Photo captured from Modern House website)
STRATEGIES TO ADD VALUE
MBK expected the sharp increase in one-person households to expand the home decoration market. “We believed that Modern House products, with reasonable prices and good quality, would be suitable to target middle-class, single-person households in their 20s and 30s,” Kim said.
MBK has prioritized the operational efficiency of Modern House since the acquisition. The private fund manager has focused on sales and reduced 30% of unpopular products.
The PE firm also standardized the sales processes of all stores, which boosted the productivity of employees and overcame the impact of Korea’s minimum wage hikes.
In addition, Modern House has expanded the portion of its private label products from 30-40% to 70% and aims to raise it to 76% by this year. Its private label product sales have led to enhanced profitability and increased customer loyalty to the brand.
Modern House has consistently focused on new offerings for customers, while its competitors such as Jaju, Shinsegae International Co.’s lifestyle brand, and Japanese household goods giant Muji pushed sales of their apparel.
Modern House furniture (Photo captured from Modern House website) EARNINGS UP
Modern House swung to the black in 2020 and has steadily improved its earnings, despite a prolonged slowdown in the local real estate market.
The home decoration firm is estimated to have logged 413 billion won in revenue last year, up 18.9% from 2020. Its earnings before interest, taxes, depreciation and amortization (EBITDA) reached 57.7 billion won last year, surging 40.7% from 2020.
“Even if you can’t buy an expensive sofa, you can buy a tea coaster at a relatively low price. Although home appliance and furniture companies are facing challenges amid a real estate market downturn, Modern House is thriving,” said Kim.
Modern House is managed by Oh Sang-heun, who has led various E-Land Group businesses since 1988. MBK tapped Oh as the chief executive officer of Modern House in August 2017.
Oh believes that the role of product planners is important for the newness, a major competitiveness of Modern House. To boost product planners’ dedication, he once asked the PE firm to return his performance bonus and use the money to raise the product planners' bonuses.
Write to Jong-Kwan Park at pjk@hankyung.com Jihyun Kim edited this article.
