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IKEA begins work on second store in India, a 'market with huge needs'

Patrik Antoni, deputy country manager, India, tells Forbes India about the Swedish furnishing retailer's plans to open 25 stores by 2025, and its pricing and expansion strategy in the country

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mg_96339_patrikantoni_bg_280x210.jpgPatrik Antoni, deputy country manager, India, IKEA

Taking another step towards an ambitious target of opening 25 stores by 2025, Swedish home furnishing retailer IKEA on Thursday began work on their second store in India. The 430,000 square foot store is located in Turbhe, Navi Mumbai, and will involve an investment of Rs 1,000 crore.

“The Mumbai store will open by early 2019, a few months after our first store in Hyderabad starts operations, and we expect a footfall of 4 million Mumbaikars every year,” says Juvencio Maeztu, CEO of IKEA India.

Maeztu says IKEA views Mumbai as a multi-store city and in parallel to the store openings, the company is looking to double the sourcing from India by 2020 to 600 million euros for its India and global stores. “For instance, we have a dealer in Kerala who has been our supplier for 40 years. They make doormats from coconut for us. So the same suppliers can also supply for IKEA India, plus we are also looking for new suppliers,” he tells Forbes India. The Mumbai store will employ around 700 direct workers and create 1,500 indirect job opportunities.

Chief Minister Devendra Fadnavis, who attended the ground-breaking ceremony for the store on Thursday, says India is happy to welcome more Swedish companies. “IKEA’s entry makes me particularly happy as we in the state strongly believe that IKEA will have a positive impact. This store is a result of the MoU signed earlier by IKEA with the government of Maharashtra as a major step towards establishing retail stores in the state and we will extend full cooperation to enable ease of doing business every day in our state,” he said.

Forbes India caught up with Patrik Antoni, deputy country manager, India, on the sidelines of the event to discuss what prompted the company to enter India, and their plans for the Indian market. Edited excerpts:

Why did IKEA decide to enter the Indian market in 2013?
IKEA was actually trying to enter India in 2007, but at that time, it wasn’t possible for owning the company through 100 percent FDI. So we went back. Then the rules changed in 2013. So back in 2007 itself, we knew India is ready for IKEA.

Three things are driving India’s attractiveness for IKEA. One is there are many needs and a young population. We see a country which will have a lot of young people with changing lifestyles. So there is a whole generation of young people which will require a company like IKEA. Second we also see good economic development over time. There might be an occasional bump, but in the long term, we see good growth in this market. Third is urbanisation. Chief minister Devendra Fadnavis earlier talked about 2 million homes, affordable housing programmes for all. And these people will also need affordable furnishing. That’s what IKEA is about–it is inclusive. We have a range that is very wide.

You have a target of 25 stores by 2025. Is opening multiple stores quickly the usual strategy for any new market you enter? Also, what is the total investment required for opening the 25 stores?
No. The strategy for India is unique. We see India as a potential future market with huge needs and therefore we need to be very affordable from the beginning. For that, we need some bit of scale, especially in our supply chain. We have products made in India in addition to imports and can thereby make it affordable. In terms of investment, we have an FIPB clearance of investing Rs 10,500 crore. But over time, it will be more, depending on land prices. 

Why did you decide to open the first store in Hyderabad?
We wanted to open in India. We didn’t mind any of the four big cities–Delhi, Mumbai, Bengaluru or Hyderabad. We will open in all of them in relatively fast sequence.

Between getting the licence to retail in 2013 and opening the first store in Hyderabad by end of 2017, it has been a long period.
This is in fact quite usual for us. We invest a significant time in market research, to know what people use and prefer, what are the solutions that we need to build–because we are not selling individual products, we are selling solutions to someone’s problems–so this took some time. Plus the land purchasing process here too took time to figure out whom to buy from, where, traffic issues, and so on. So we were not pressured to open fast.

Where would the products be sourced from?
IKEA sources from 50 countries. Today, in India, we have 50 suppliers, 45,000 people making IKEA products. In Maharashtra, we have 5 suppliers. We are working with 8,500 cotton farmers in Maharashtra, so there is already a lot of connection with the state and we will build this over time. By 2025, we hope to source 30 percent of our products from India, made in India. But there will always be components from other countries because in some cases, the raw material do not exist here.

How have you localised the products and solutions for the Indian market?
That’s interesting. IKEA has more than 9,500 products that are enough for every need. What we do is customise the solution for every market. For instance, Sweden is a place where, in the bedroom, you sleep, store some clothes and that’s about it. But in India, from watching TV to eating, everything can be done in the bedroom sometimes. This we have to reflect in our store. The room settings are designed for the India market. The Mumbai store will have 60 room settings and 3 full-size homes.

Would the pricing of the products be in line with international markets or would it be comparatively lesser?
India will have a very good pricing. I cannot reveal the pricing today. But we are aiming at being truly affordable in the Indian market. The pricing will be based on willingness to pay and ability to pay. One thing I can tell you is that we are a company that builds trusts and relationships in our customers. So we don’t go down the discount route. We have a sale only twice a year, to sell out models that are going to be discontinued.

You announced plans to start an ecommerce channel after the Hyderabad store opening. So would that also not have any discounts?
Yes. The pricing will be consistent. We are not pushing sales through discounts.

Is it challenging to operate a big box retail format in a world where online sales are increasing rapidly?
We believe that there is a big element of touch and feel. The customer wants to see if this sofa is for me. Online and offline complement each other. You will look and feel in the store and order online only because you don’t want to stand in the queue at the cash counter.

Could you explain the Hej homes concept and whether you would be bringing those to the Indian market?
The Hej homes are essentially our experience centres. We introduce it before the store opening. So it is not a sales channel as such. It is temporary. Over time, we are looking at smaller formats. Because of course in a city like Mumbai, we want to be accessible to people in South Mumbai, West Mumbai and so on. To buy this kind of land, it is not possible. But traditionally this–large format store–is IKEA. Internationally, these small format stores are around 15,000-30,000 square foot. Mainly used as pick-up points for products you order online.

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