Ikea opened the doors of a 400,000 square foot store in southern India on Thursday morning, the culmination of a 1
2-year struggle to create a store in a market that the Swedish furniture group sees as one of the world’s most promising growth opportunities.
Ikea invests $ 1.5 billion to develop a retail store in India, where it will spare cost conscious consumers with their familiar sofas, beds and bookshelves – and some products with an Indian feel like colorful textiles, a selection of pressure cookers and kryddglas.
The first store is located in Hyderabad’s Hitec City – a zone where global technology companies like Amazon, Google, Oracle and Microsoft have large premises that employ hundreds of thousands of people, and many multi-family houses are under construction to accommodate urban migrants.
Among the enthusiastic people who left the store were Prerna Gupta and her five-year-old daughter Anoushka. The IT professionals traveled with their family from Chennai, about 630 km south of Hyderabad, to participate in Ikea’s business opening.
“I’m looking at making my children’s room so we came,” she said. “We’ve been waiting for a long time [for Ikea to arrive].”
But Ikea executives acknowledge that they face challenges in meeting the masses in a market where ambitions are high, but discretionary spending is still limited. “People in India have thin wallets,” says Peter Betzel, CEO of Ikea India. The mission, he admits, is “how to create an affordable range in India”.
The company, with its global supply chain, must also meet hard local purchasing requirements, which means that within five years, 30 percent of all goods sold in their Indian stores will be manufactured in the country.
While Ikea has developed cushions, carpets and other textiles from India since the 1970s, the country only accounted for 3 percent of the company’s global supply chain 2012. But it is now working frantically to develop Indian supplies of other products.
Ikea, India, will contain some locally produced sofas and mattresses, which are also exported to Ikea stores elsewhere in Asia and the Middle East.
Juvencio Maeztu, Executive Vice President of Ikea, said that India’s local sourcing rules would help the company keep product costs down. “India makes Ikea better – helps us stretch ourselves to be as cheap as possible,” he said.
Ikea first applied for a licensed store in India in 2006 but gave up three years later, after New Delhi refused to change its requirement that foreign dealers would enter the market as joint ventures with local partners.
It was used again in 2012 after the Indian government once agreed to allow full foreign ownership of the single-brand retail business and also relaxed the requirement that 30 percent local purchases only come from small and medium-sized companies.
After the long wait for its first Indian store, Ikea is aiming to expand rapidly to other cities, with work already under way at three more flagship stores on the Mumbai, Delhi and Bangalore.
But Ikea is also planning to launch smaller size stores – about 4,000 square feet – in more central towns, enjoys the accessibility challenges of Indian cities, with its infamous traffic, poor public transport and car ownership limited to a narrow elite.
Ikea hopes to have a presence in 49 Indian cities within 10 years, of which 30 will have some physical stores, either big or small, while others will be served by e-commerce and support services, including carpenters trained to help customers to gather their new furniture.
“Our vision is to create a better life for as many people as possible,” says Maeztu.