Multiplying IKEA Experience
Having opened its first India store in HITECH City, Hyderabad, IKEA is now racing against time to open 24 more stores in nine cities over next 72 months
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What would you think of a company that takes six years to open its first outlet after getting the requisite permissions? And what would your thoughts be if the company happens to be a multinational giant that is seeking to enter the Indian market?
The company in question is Swedish multinational and the world’s largest furniture retailer IKEA, which recently opened its first store in the country, six years after getting the approvals. In the past six years, its India arm, IKEA India, has spent more than Rs 5,250 crore and opened one store, started construction of its second (Navi Mumbai) and third store (Bengaluru); acquired land for another couple of stores and is currently in the process of acquiring land across half a dozen cities for further expansion. For the record, IKEA India’s first store in HITEC City, Hyderabad, which opened in August, took two years to build.
No doubt it has taken rather long for IKEA India to get its business up and running. So what really slowed down things for IKEA? Bureaucratic red-tape and obfuscation that make it so difficult to do business in India is what you expect to hear. But you are in for a surprise.
“Time has never been the only factor while establishing a business in India. It takes time and effort to build a strong brand rooted in our values and connected to the society. There is no compromise and short cut,” says John Achillea, Hyderabad Store Manager and MD, IKEA Telangana. Agrees Peter Betzel, CEO of IKEA India. “IKEA’s decision to enter India was never dependent on time,” he adds. “India is a long-term investment and one of the biggest markets for IKEA and we are prepared to take risks for years to come,” he says.
They say the company has invested a lot of efforts in learning about “life at home” and understanding the market to be able to build a strong brand rooted in IKEA’s values and connected to the society.
The IKEA Effect
What is it about IKEA that makes it different from other companies? Besides being the world’s largest furniture retailer with nearly 420 stores across 50 countries, IKEA is one of the largest employers too—over 2,00,000 direct employees globally and nearly two/three times that number as indirect employees. Basically, IKEA stores bring in their wake a large amount of benefit to the local businesses and its presence also signifies healthier growth in economic activities of that country.
“IKEA’s ambition is to provide affordable, good quality, value-for-money and well-designed home furnishings to the people and become a truly inclusive brand. Our prices are very competitive in the market and there is something for everyone to buy for their homes. This, we believe, is what is going to encourage all kinds of people to shop at IKEA,” says Betzel.
Globally, IKEA is known for its ‘big-box’, expansive, shopping experience. “The IKEA stores are for a fun day out: easy parking, family oriented, inspirational shopping experience, play facilities, restaurant, and café. And that is what we are offering here too,” says Achillea.
The management of IKEA India says they have created a differentiated retail strategy to suit the length and breadth of India and to help them reach a large number of people. “We will a have multichannel approach as well as other smaller-format touch points to ensure that we cater to the shopping needs of the people,” says the IKEA India CEO.
That is the reason IKEA India has committed an investment of a whopping Rs 10,500 crore (1.5 billion euros). It has also earmarked approximately Rs 1,000 crore (140 million euros) as capital expenditure for each store.
“So far, we have spent around half the amount. As we see big opportunities in India, we believe that we will increase this investment as we continue our expansion in the future,” Betzel promises. And why is that? Betzel sees India to be more positive today than when his company first arrived around a decade ago. “The promise of business is much greater today,” he says.
In the run-up to the first store launch in Hyderabad, the team at IKEA India conducted extensive ‘India-centric’ research. For example, it went to more than 1,000 homes across Mumbai, Hyderabad, Bengaluru and Delhi—all the cities that will get their own IKEA stores—to know more about the challenges, needs, dreams and aspirations of the people.
“We have adapted some existing products to suit the weather and humidity conditions, and overall this has positively impacted the quality of IKEA products. India has helped IKEA become better!,” says Christian Kampe, Country Sales Manager, IKEA India.
At its Hyderabad outlet, where it sells some 7,500 products, IKEA has tweaked some of them such as the masala box, lunch boxes, tawa, etc. to become locally relevant. “Though most of our products are the same globally, our Hyderabad presentation helps provide solutions for the local market,” says Kampe.
While most of the products at the Hyderabad store are from the brand’s global range, at least 5 per cent represent the local unique range. “Some products have been adapted to suit Indian preferences such as colourful bed linen. Another interesting example of localisation stems from the Indian preference for firm mattresses, so we will develop a mattress with a coconut layer because it is firmer and cooler during the summer,” says Kampe.
On pricing, IKEA is clear that its products need to be affordable for the average person who will visit the store. “In terms of pricing, we need to be affordable for the masses,” says Kampe. In fact, IKEA plans to have “something for everybody” who walks into its stores. And it does not want to dent consumer wallets. Hence, a lot of emphasis has been placed on getting the pricing right.
“Just to give you an idea of the affordability that we have in mind for our customers — of the 7,500 products that are available in the Hyderabad store, nearly 1,000 are priced less than Rs 200. Our best price offer is for a pack of four KALAS children spoons for Rs 15,” says Kampe.
Localisation & Training
The world over, IKEA products are usually assembled at home. But many Indians are not yet used to the do-it-yourself (DIY) concept and hence it becomes imperative for IKEA to be able to provide efficient and affordable assembly support. In Hyderabad, IKEA has trained more than 150 workers with the help of DISHA skill development programme. “Fifty per cent of our in-house assemblers will be women,” says Betzel. For consumers outside Hyderabad, IKEA India has tied up with mobile platform Urban Clap where carpenters trained by IKEA will be listed. “We believe the young and progressive Indian will enjoy assembling furniture from IKEA,” says Kampe. Association with Urban Clap is not an exception. In fact, IKEA has associations with similar platforms like Task Rabbit in the US and Air Taskers in Australia.
IKEA’s association with India goes back more than 30 years as it has been sourcing products from India for the global markets. But as IKEA expands its India presence, it aims to include a healthy mix of products that are 100 per cent ‘Made in India’. At its Hyderabad outlet, there are at least a thousand products (out of 7,500) that are ‘Made in India’. “Products we export from India are available at the store too and we hope to bring more products for our Indian customers to experience and make a part of their homes,” Kampe shares. IKEA’s long-term ambition is to source more than 3,000 products from India.
For many women from Telangana district, becoming a part of the IKEA assembly team has been a phenomenal journey. “From not knowing how to operate a drilling machine to assembling an entire piece of furniture. Today they are confident that they will provide the best service possible to the customers. Many of them are recruited from the DISHA skill development programme that is run in association with IKEA Foundation and UNDP, which are committed to imparting skills to one million Indian women so that they can join the workforce,” says Betzel.
What are the other business opportunities for IKEA in India apart from opening more stores? Betzel terms India as a country with “many possibilities”. What about tying up with real estate developers for furnishing homes with IKEA products? “It’s an interesting proposition with many young people setting up homes, people moving to urban areas and a country where majority of the middle-class population is looking for affordable home furnishing solutions. We will explore the many possibilities,” he says.
But what is certain is that in the coming years IKEA will expand its India investments and accomplish the target of 25 stores by 2025. These stores, in turn, will give employment to more than 15,000 Indians.