Well-Planned En­try:

IKEA makes a strong de­but in In­dia with a tweaked prod­uct line-up and af­ford­able price points.

India Business Journal - - CONTENTS - IBJ BU­REAU

IKEA makes a strong de­but in In­dia with a tweaked prod­uct lineup and af­ford­able price points.

ISwedish KEA's grand In­dia plans are fi­nally tak­ing shape. In Oc­to­ber, the

home fur­nish­ing re­tailer cel­e­brated the ground-break­ing cer­e­mony of its store in Ben­galuru, the third one in the coun­try.

The world's largest fur­ni­ture re­tailer com­mit­ted to in­vest around Rs 1,000 crore in the new re­tail store. It also added that it would set aside Rs 2,000 crore for its op­er­a­tion in Kar­nataka on a long-term ba­sis. The 5,00,000-sq-ft Ben­galuru store, planned to open in 2020, is ex­pected to em­ploy around 1,000 peo­ple.

The work on the Ben­galuru store comes close on the heels of IKEA throw­ing open its first In­dian out­let in Hy­der­abad this Au­gust. Six years af­ter it was first planned, the 4,00,000sq-ft Hy­der­abad store marks the first step by the Swedish com­pany in ful­fill­ing its am­bi­tions in In­dia. IKEA's sec­ond store is set to open in Mum­bai soon. The fur­ni­ture re­tailer has so far in­vested Rs 4,500 crore in In­dia of the com­mit­ted 1.5 bil­lion eu­ros (over Rs 12,150 crore).

"In­dia is an ex­cit­ing coun­try and emerg­ing mar­ket with a lot of spend­ing power, growth po­ten­tial and good GDP. Be­sides, it is a young coun­try. We want to serve ev­ery­body to have a beau­ti­ful, sus­tain­able, cosy and af­ford­able home," notes IKEA In­dia CEO Peter Bet­zel.

Part show­room and part ware­house, IKEA stores are sprawl­ing out­lets that are far away from city cen­tres. Each out­let con­tains mazes of gi­ant bins and floor-to-ceiling shelves. From beds and so­fas to cut­lery and show­pieces, the Swedish fur­ni­ture re­tailer stocks al­most ev­ery­thing and of­fers a wide range of home-fur­nish­ing so­lu­tions. More­over, with am­ple car-park­ing space and a large restau­rant serv­ing Swedish and In­dian del­i­ca­cies, IKEA stores prom­ise mem­o­rable ex­pe­ri­ence for cus­tomers.

Be­sides, with so­lar pan­els, LED lights, rain wa­ter har­vest­ing, wa­ter treat­ment plants and mod­ern waste man­age­ment sys­tems, all IKEA out­lets make it a point to in­clude ecofriendly so­lu­tions in its day-to-day op­er­a­tions. The com­pany is also in the process of us­ing elec­tric ve­hi­cles for de­liv­ery of fur­ni­ture to cus­tomers and for trans­porta­tion of its em­ploy­ees.

In­dia strat­egy

Founded by Ing­var Kam­pradin in Almhult, Swe­den, in 1943, IKEA - an acro­nym de­rived from the founder's ini­tials (Ing­var Kam­pradin) and his home­town (Elm­taryd Agun­naryd) cur­rently op­er­ates 423 stores in 50 coun­tries with rev­enue of 38.3 bil­lion eu­ros (over Rs 3,10,000 crore) in 2017. The home fur­nish­ing com­pany, which has its global head­quar­ters in Lei­den, The Nether­lands, wit­nessed around 94 crore cus­tomers vis­it­ing its out­lets across the globe and more than 230 crore on­line vis­i­tors in 2017.

IKEA's re­tail ven­ture in In­dia be­gan this year. How­ever, the com­pany's as­so­ci­a­tion with the coun­try goes back to over 35 years, with

"In­dia is an ex­cit­ing coun­try and emerg­ing mar­ket with a lot of spend­ing power, growth po­ten­tial and good GDP. Be­sides, it is a young coun­try."

PETER BET­ZEL, CEO, IKEA In­dia

IKEA sourc­ing a large num­ber of prod­ucts from the coun­try for its global stores. The com­pany has been work­ing with seven sup­pli­ers in In­dia and is look­ing to sign up many more sup­pli­ers. The home fur­nish­ing com­pany aims to max­imise lo­cal sourc­ing from In­dia in the long term to make its prod­ucts more af­ford­able.

Hav­ing en­tered In­dia, the Swedish fur­ni­ture re­tailer finds the coun­try a mar­ket quite unique from the rest of the world. In fact, IKEA's em­ploy­ees vis­ited about 1,000 homes in var­i­ous cities to un­der­stand how peo­ple live and what they need. They found that In­dian fam­i­lies spend a lot of time to­gether, with rel­a­tives vis­it­ing fre­quently. In­dian house­holds gen­er­ally favour heav­ier and bulkier fur­ni­ture com­pared with light­weight and lean fur­ni­ture pre­ferred in dif­fer­ent parts of the world. "In In­dia, a lot is driven by the price of the goods and not so much about the qual­ity," notes Anil Tal­reja, a part­ner at Deloitte's In­dia arm who works with re­tail­ers.

All these typ­i­cal In­dian char­ac­ter­is­tics have forced IKEA to re­think its prod­uct line-up and store op­er­a­tions for In­dia. Al­though the Hy­der­abad store has the clas­sic IKEA lay­out, what is on dis­play there is some­what dif­fer­ent. Given In­dia's lower in­come lev­els, IKEA's stores in In­dia fea­ture hun­dreds of prod­ucts - from dolls to spice jars - priced be­tween Rs 100 and Rs 200. In some cases, IKEA is sell­ing a prod­uct in In­dia for less than it charges else­where.

In other in­stances, the com­pany is tai­lor­ing prod­ucts for lo­cal tastes. For in­stance, most In­di­ans do not use knives to eat and pri­mar­ily want spoons. So, the com­pany has ditched its chil­dren's plas­tic cut­lery packs and in­stead sells four spoons for Rs 15. Be­sides, the com­pany has added more fold­ing chairs and stools that can serve as flex­i­ble seat­ing, given fre­quent vis­its by friends and rel­a­tives in In­dia. The com­pany has also been sell­ing some very unique In­dian prod­ucts, such as cha­p­ati-maker and masala boxes.

On an av­er­age, In­dian women are also shorter than Euro­peans and Amer­i­cans. So, the com­pany has de­cided to show­case some cabinets and coun­ter­tops at lower heights. More- over, IKEA's model bed­room squeezes in a child's bed amid all the other fur­ni­ture, as chil­dren of­ten sleep in the same room as their par­ents un­til they are in ele­men­tary school.

Be­sides its big for­mat stores, IKEA will also be cre­at­ing a mul­ti­chan­nel ex­pe­ri­ence for its cus­tomers. As a part of the strat­egy, IKEA is plan­ning to fo­cus more on dig­i­tal channels and ex­pects on­line growth in the In­dian mar­ket to be higher than the global con­tri­bu­tion in its to­tal e-com­merce sales.

Huge po­ten­tial

IKEA seems to have adopted the right strate­gies to crack the In­dian mar­ket. The home fur­nish­ing com­pany is bet­ting that crores of mid­dle- and up­per­class In­di­ans will drive its growth in the coun­try. IKEA's bets do not ap­pear to be mis­placed. Most of In­dia's 130-crore pop­u­la­tion spends around Rs 2,13,000 crore a year buy­ing fur­ni­ture, light­ing and house­hold items, like bed linens and cook­ware, notes Technopak. The lead­ing In­dian re­tail con­sul­tancy fur­ther adds that with a grow­ing mid­dle class, the In­dian fur­ni­ture mar­ket is pegged at about Rs 71,000 crore.

At present, the com­pany is lo­cally sourc­ing 20 per cent of the prod­ucts and plan­ning to in­crease the lo­cal con­tent to around 50 per cent in a few years. "We are also plan­ning to have meet­ing touch points where we can in­ter­act with cus­tomers and make them ex­pe­ri­ence our prod­ucts," adds Mr Bet­zel.

IKEA has been gear­ing up to tap huge op­por­tu­ni­ties avail­able in In­dia. The com­pany al­ready has more than 55 sup­pli­ers and 45,000 di­rect em­ploy­ees. By 2025, the com­pany is look­ing to have 25 stores in In­dia, some of them in a new, small for­mat. Hav­ing made a good be­gin­ning, IKEA is look­ing to reap rich re­turns from In­dia in com­ing years.

Re­cently-opened IKEA store in Hy­der­abad

IKEA has stocked some prod­ucts priced be­tween Rs 100 and Rs 200 to tap low-in­come cus­tomers.

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