IKEA is preparing to rule India’s retail market for the next 100 years (Quartz)

IKEA is preparing to rule India’s retail market for the next 100 years

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IKEA, the world’s largest furniture retailer, is set to open its first store in India in the spring of 2018.

It’s been a long journey for the Swedish company since it first proposed to invest Rs10,500 crore ($1.9 billion) here in 2012, having to then comply with India’s demanding investment policies, and local sourcing norms. All these years, IKEA’s man-in-charge here has been Juvencio Maeztu, who’s now moving on to a more global role within the company.

In an interview, IKEA’s first chief executive officer in India spoke about how the company’s upcoming store in Hyderabad, Telangana, has been the outcome of work with local state governments, finding the right land, and setting up a robust supply chain. The process has been slow and painstaking, but Maeztu said he wasn’t particularly bothered about speed. “…but we wanted to get a solid foundation in place, because then you can go fast,” he said.

IKEA has also brought in some India-specific innovations. Its stores here will feature idli-makers, spice-boxes, and Indian pans (tawas), besides samosas and chicken biryani at its in-house restaurants. Now, as the Swedish retailer continues its pursuit of large parcels of land on the outskirts of large cities in India, where it plans to open 25 stores, Maetzu feels the pieces are all falling into place. Edited excerpts:

IKEA is set to finally open its first store next year, marking six years since you first proposed to enter India. Does it typically take that long to set up business in a new country?

It depends on the market. I had a very clear vision when we entered India. The important thing was that we were setting the foundation for IKEA in India for like 100-200 years. So in that sense, I was committed to building a solid foundation for us. Speed was not the criteria, but we wanted to get a solid foundation in place, because then you can go fast. In that process, six years has been an extremely good period in terms of getting the policy framework right and unlocking our investments here. But also building the foundation when it comes to understanding the market. Within our team, we have done over 800 visits (to Indian homes) because you need to understand the market, you need to come here with a bull’s attitude. India is big, complex, and diverse. If you come here with a copy-paste attitude, then this is not the right place for that. This is about understanding. It isn’t about buying market-research from the shelf. That’s why we have invested a lot of time, resources, and money in understanding the market.

There are also other prerequisites in succeeding here. The first one is about setting up the whole supply chain. We have been sourcing textiles from India for more than 30 years but that’s not enough, we had to do more. When you need to engage with suppliers, to build factories, you need time. You need to set that first and if you don’t…our product will be expensive. And IKEA is about securing low prices for many people. So for that, you need to set up (local) sourcing. That’s what we have been focussing on—sourcing in furniture and also food. So about 90% of our food, for instance, will be locally-sourced.

Another process is land acquisition. For us it is very important, finding the right parcel of land with the right location, right size, connectivity etc., and we don’t take any shortcuts in that. And this takes time.

To what extent will localisation be part of IKEA products in India?

I think one of the outcomes that you will see in our first store is the sweet spot between keeping the IKEA essence and understanding local needs. We will keep our uniqueness, i.e., the core of the range, as well as what you have heard about before.

And then we will have functions in that range that are very specific to India. For example, food is important to India. So, for example, the actual food range will be Swedish in style but Indian in taste. Also, we will be very active with some services, like on (time) delivery and assembly so consumers can have a hassle-free process.

What about pricing?

I can proudly say we will have extremely good prices. I can’t say anything further. We are making a massive effort to start with the lowest price as possible (compared to Indian standards), and the more sourcing we do locally, the more we can reduce prices.

The thing is, with high transport costs, customs duties, cost of land, etc., it isn’t exactly a good formula for low price. But since we are here with a long-term plan in mind for local sourcing (it will help drive costs down). That’s why we are investing in land, investing approximately Rs1,000 crore in every store, because the only way forward is to secure the right price level.

And how far along are you with your local sourcing? Will we see more Make in India products in IKEA stores here?

It is still ongoing. We are working with multiple suppliers for new categories such as mattresses, sofas, and flat-line furniture. And it isn’t just for domestic but also for our global supply chain. We have a commitment (according to the FDI policy for single-brand retail) to do 30% (of whatever is sold in the store) of local sourcing in five years (from the opening of the first store). Our plan is to achieve the 30% before the five years and, over time, we will do more local sourcing in order to offer better prices to shoppers.

How open are Indian shoppers to DIY furniture?

So, during a home visit in Bengaluru, I saw an IKEA stool that the owner had bought in Dubai. And he immediately said he assembled it himself and he said that with pride.

For us, both things will happen, there will be customers to whom IKEA will provide everything, too. And then there will be customers who will buy one chair and will want to try (assembling it) themselves.

Once you establish big-box retail here, do you sense an opportunity in experimenting with new formats?

Step one was to build the brand through the IKEA stores. What we wanted is to build what IKEA looks like everywhere else in the world. Because when we entered India many people had reservations, where they said “you cannot get big pieces of land in India, it will be too expensive” or “you have to change the business model.” But we have to start with our strength and what we are good with. Which is why we put our energy in bigger stores.

In the second level, we will add e-commerce. In Hyderabad, for instance, our priority is to open the store and then add e-commerce.

General

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December 7, 2017 at 11:06PM