Ikea’s India plan: Lower product cost
Ikea, the world’s largest furniture retailer, is working to squeeze costs further to make its furniture and home décor products available to a larger Indian audience before opening its first store in the country early next year in Hyderabad, a top company official said.
“In the cities where we will be present, we want everyone who has a home furnishing need to come to our stores,” said Patrik Antoni, deputy country manager at Ikea India Pvt Ltd.
Organised home furnishing retail in India is relatively exclusive, said Antoni, adding the company is cutting costs to make products affordable.
Antoni admitted that where the company will make money is the middle class rather than the lower class; however, he claimed that at Ikea stores, there will be great designs and products at prices lower than elsewhere.
In India, Ikea will have a product range that starts at ₹150 for a pack of two light-emitting diode (LED) bulbs and ₹500 for a pack of 100 tea lights. In the furniture category, a table from its Lack series can cost ₹500-600 and a complete Ikea kitchen can be assembled on an average for ₹2.5-3 lakh.
The retailer is interested in the bottom of the pyramid, because it believes the less affluent today will become more affluent tomorrow. “That is why it is important to get them in early,” said Antoni. For instance, in Hyderabad, there are eight million people and two million households. “We believe we should penetrate one million households,” said Antoni.
Antoni is referring to India’s rising affluence. Of India’s five household income categories, the top two income classes are the fastest growing. From 2016 through 2025, the share of the top two household segments will increase from 8% to 16% of the total while the share of the bottom most will drop from 31% to 18%, according to a March study by Boston Consulting Group (BCG).
However, to get the people from the bottom of the pyramid Ikea will have to rework its supply chain, design and overall thinking, said experts. Even if one leaves the bottom most segment out and look at the segment above known as the next billion with household income $25008000 annually, costs have to be reworked for India, said Amitabh Mall, partner and director, BCG.
After the launch of its first store, Ikea will expand to have 25 stores by 2025.
There are currently 389 Ikea stores in 46 countries with a sales volume of 34.2 billion euros.