Ikea opened the doors of a 400,000-square-feet store in southern India on Thursday morning, the culmination of a 12-year struggle to set up shop in a market that the Swedish furniture group sees as one of the world’s most promising growth opportunities.
Ikea is investing $1.5bn to develop a retail business in India, where it will woo cost-conscious consumers with its familiar sofas, beds and bookshelves — and some products with an Indian flair, like brightly coloured textiles, a selection of pressure cookers and spice jars.
Its first store sits in Hyderabad’s Hitec City — a zone where global tech companies such as Amazon, Google, Oracle and Microsoft have huge premises employing hundreds of thousands of people, and where numerous apartment buildings are under construction to house the urban migrants.
Among the enthusiastic people filing into the store was Prerna Gupta and her five-year-old daughter Anoushka. The IT professional travelled with her family from Chennai, about 630km (390 miles) south of Hyderabad, to attend the Ikea store opening.
“I am looking at doing my kids’ room so we came,” she said. “We have been waiting too long [for Ikea to arrive].”
But Ikea executives admit they face challenges in catering to the masses in a market where aspirations are high, but discretionary spending is still limited. “People in India have thin wallets,” said Peter Betzel, CEO of Ikea India. The mission, he added, is “how to create an affordable range in India”.
The company, with its global supply chain, must also comply with tough local sourcing requirements, which mandate that within five years, 30 per cent of all goods sold in its Indian stores be made in the country.
While Ikea has sourced cushion covers, rugs and other textiles from India since the 1970s, the country accounted for just 3 per cent of the company’s global supply chain in 2012. But it is now working frantically to develop Indian supplies of other products.
Ikea in India will feature some locally made sofas and mattresses, which are also being exported to Ikea stores elsewhere in Asia and the Middle East.
Juvencio Maeztu, Ikea’s deputy CEO, said India’s local sourcing rules will help the company keep product costs down. “India is making Ikea better — helping us to stretch ourselves to be as affordable as possible,” he said.
Ikea first applied for permission set up shop in India in 2006, but gave up three years later, after New Delhi refused to amend its requirement that foreign retailers enter the market as joint ventures with local partners.
It reapplied in 2012, after the Indian government finally agreed to allow full foreign ownership of “single-brand retail” business, and also relaxed the requirement that the 30 per cent local sourcing be only from small and medium-sized enterprises.
After the long wait for its first Indian store, Ikea aims to expand quickly into other cities, with work already under way on three more flagship stores on the peripheries of Mumbai, Delhi and Bangalore.
But Ikea is also planning to launch smaller format stores— of about 4,000 square feet — in more central urban locations, a nod to the accessibility challenges of Indian cities, with their notorious traffic, poor public transport, and car ownership restricted to a narrow elite.
Within 10 years, Ikea hopes to have a presence in 49 Indian cities, 30 of which will have some physical stores, either large or small, while others will be served by ecommerce and support services, including carpenters trained to help customers assemble their new furniture.
“Our vision is to create a better life for as many people as possible,” said Mr Maeztu.
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