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Swedish furniture maker IKEA opens its first store in India, plans to keep prices low

IKEA is looking to keep prices lower in India.

twitter-logoBusinessToday.In | September 28, 2018 | Updated 10:39 IST
Swedish furniture maker IKEA opens its first store in India, plans to keep prices low

Swedish furniture giant IKEA formally launches its first store in India today, a massive 400,000 sq. ft. facility in Hyderabad. By 2025, it plans to take up the count to 25 stores across nine cities, and kick-off online sales when it opens its second store in Mumbai next year. And the recently-released first draft of the national e-commerce policy reportedly does not change its plans at all.

The draft bats for equal footing for domestic and international players and, hence, has sent alarm bells ringing in foreign-owned companies operating in India, like Amazon and Walmart. But according to The Economic Times, IKEA Global CEO Jesper Brodin has a different take on the situation. "Our business is long term. Of course, politics follows its own cycles," said Brodin, adding, "For me and for us, there is logic in what India is doing for [its] development and we have to trust and believe that. And it will continue to happen. So I would say we are not sleepless over that."

According to Brodin, India is one of the biggest future markets for IKEA and the company is prepared for some eventualities. "India is a big commitment for us and as a group, we are prepared to take risks for years to come," he told a select group of reporters at the new store on the eve of its launch.

How big a commitment? The world's largest furniture and home products company's Rs 10,500 crore investment plan, proposed about six years back, is the largest investment in the single-brand retailing since the government allowed foreign investment in this sector. IKEA has, so far, invested Rs 4,500 crore from that kitty on different projects, including Rs 1,000 crore in the Hyderabad store.

The Swedish major has no choice but to grow its footprint in order to make an impact and move towards profitability. In order to leverage economies of scale, IKEA would require at least need 8-10 stores in India. "Now we will try our best to speed up our expansion to move quicker than normally we do in IKEA," said Brodin.

Last month, the daily reported that the company sees potential to set up large or small format stores in at least 49 Indian cities with a population of more than a million each over the years. IKEA's India Chief Executive Officer Peter Betzel told the media that the company is "also looking at opening multiple small format stores of 1,000-5,000 square meters each in bigger cities like Mumbai for having more touch points".

Moreover, recognising that India is a very price sensitive market - annual per capita income was just Rs 1.13 lakh in the last fiscal - IKEA is deliberately looking to keep prices lower in India than it typically does elsewhere. That's not an easy task for a brand that is already associated with affordability. For instance, IKEA's newly-launched India website shows a variation of its best-selling Billy bookcase priced 20% cheaper than in the US.

"We have taken a very offensive strategy, meaning we step in bravely into low prices," said Brodin. Out of the 7,500 products that IKEA will make available in India, 1,000 are priced at less than Rs 200, and 500 of them cost under Rs 100 - a clear indication that the company is not chasing short-term profitability in India.

Significantly, IKEA is so bullish on India that it is actually looking at upwardly revising its investments here. "We see India more positive today than we thought when we arrived. We arrived with a positive outlook. But we see a very strong demographic growth and the economy is strong," IKEA India deputy chief executive Patrik Antoni told the daily. "We see bigger opportunities now," he added, explaining that the changed economic environment and exploding retail market should help IKEA India expedite the rollout of its India stores and amplify investments.

IKEA has also voiced its intentions about a multi-channel, long-term growth. According to Brodin, in the coming years, the company aims to "exponentially increase" efforts into a digital interface with customers. About 5 per cent of IKEA's 38 billion euros global revenue in 2017 came through online sales, but it expects the online pie in India to be bigger than that.

With agency inputs

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