Will the first Ikea in India succeed?

Swedish furniture giant Ikea has opened its first store in India in the southern city of Hyderabad.

Source: Financial Times

 
With a growing middle class, India could be a big opportunity for the company, but it’s also a market with many quirks.

Ikea’s giant blue store sits on a 13-acre campus, by the side of a busy road, in HITEC city.

The technology hub in Hyderabad that is also home to global firms like Microsoft, Google and Facebook.

The scale of the shop is something that has never been seen in India before.

Its size alone has piqued curiosity among those who may have never heard of the brand.

And then of course, there are so many who have.

Upwardly mobile, well-travelled Indians have known Ikea for a while now.

In fact, with the number of global retailers who’ve come to India over the past decade, some would say Ikea has taken its time to set up shop here.

The company’s global chief executive Jesper Brodin said: “The market of India for us is a dream.

“But to be honest, some years ago, when we looked into the business case of India, we felt it was too high risk from the cost perspective [of] not meeting our targets.”

So, what changed? Government policies, for one. In 2012, India allowed 100% foreign direct investment in single-brand retail.

This was important for Ikea, because it didn’t want to go down the joint venture route.

The emergence and rapid growth of e-commerce is another reason why Ikea sees more of an opportunity in India now.

In fact, even as it works on expanding its brick and mortar presence, the company wants to start selling its wares online in the country by next year.

“They’ve been very patient about India. In terms of the amount of effort and time that they have taken to launch the first store, it’s unusual actually,” said Arvind Singhal from consulting firm Technopak Advisors. “It shows to me a determination to get it right in the market.”

And Ikea has taken care to adapt to India.

Around the world, Ikea purchases arrive in customer homes in the famed “flat-pack”.

Stripping out the parts and assembling the furniture is a “do-it-yourself” job. That’s not something Indians are used to. The availability of cheap labour in the country means people here rely on workmen or carpenters to do that.

“We will argue a little bit with our customers to say – would you please consider the do-it-yourself model?

“And the whole point of that is that you save money by doing that,” says Mr Brodin. “But we are not naive, and also in other markets we offer services, for home deliveries, for kitchen installations. and in India we believe that need will be slightly more than the average market.

“So here we have signed up with companies, experts, but also a social entrepreneurship network with people that will be able to get great jobs in serving customers with assembling.”

They’ve also changed the other thing Ikea’s so well known for – Swedish meatballs.

At the store’s 1,000-seater restaurant – its largest in the world – they are available.

But they aren’t traditional meatballs made of beef and pork. That could offend religious sentiments here, and so there are chicken and vegetarian meatballs on offer.

As are some Indian dishes like biryani and dal makhani.

But finally, whether or not people will actually shop at Ikea all comes down to one thing – price.

“Indians are very price sensitive, but they’re also value sensitive. You can’t give them substandard quality at cheaper rates. They want both,” says Paresh Parekh, partner at Ersnt & Young.

“Indians lose trust very fast, so I think they will have to get it right the first time, in terms of price, quality and experience.”

It’s something Ikea’s leadership seems to have taken into account.

“In India, we’ve gone all in as much as we can, and that means out of the 7,500 products that we have here, we’ve worked very hard, to have 1,000 products with a price of Rs. 200 ($3, £2.30) or less and 500 products for less than Rs. 100′, said Mr Brodin.

“With that offer, this is one of the price-attractive markets that we’re opening.”

But India throws up other challenges. Huge tracts of land, to offer the true Ikea experience, are hard to find in most big cities.

If they are available, they’re expensive.

High import duties are another problem. And keeping prices low means it’ll take longer to make money back.
Ikea has so far said it’s investing $1.5bn in India.

Mr Brodin admitted it’s going to be hard. “The investments are high and the time until which you reach an economy of scale will be a stretch for us, but we will try to endure,” he said.

From Thursday, they’ll be watching with bated breath to see how India reacts to Ikea.

Source :

BBC

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