August 8, 2018 / 4:44 AM / 11 days ago

IKEA strives to keep prices low as it opens first store in India

HYDERABAD (Reuters) - IKEA will set some prices even lower in India than elsewhere when it opens its first store in the country on Thursday, as it woos cost-conscious shoppers unaccustomed to DIY furniture.

Over a decade since floating the idea of Indian expansion, the Swedish retailer will finally mark its entry with a 400,000 square foot (37,160 square metre) store in the southern city of Hyderabad, where 1,000 of the items, including some cutlery and stuffed toys, will be priced at less than 200 rupees ($2.91).

IKEA is pushing into Asia and South America as growth slows in Europe and North America. It is betting on India with its growing middle class, but mindful of the relatively high pricing that hit sales when entering China and Australia.

The company has said it could take years to reach major profits in India. Raising the proportion of locally sourced goods will help in mitigating high import costs.

Known for its giant out-of-town warehouse stores, IKEA is in the early stages globally of moving towards smaller inner-city showrooms as it adapts to the rise of online retailing. While the initial plan in India was for 25 traditional stores by 2025, the country will now get some of the smaller outlets.

IKEA India finance chief Preet Dhupar told Reuters that in Mumbai, where the next traditional store is planned for summer 2019, a city-centre format could open in the same year. And in third-out town Bangalore, the first traditional store, planned for 2020, could even be preceded by a city-centre format.

Regulation dictates IKEA must source at least 30 percent of materials locally within five years of starting operation. It already sources about a fifth of its global supplies from India.

Group Chief Executive Jesper Brodin, at a news conference on Wednesday, said India would become one of IKEA’s biggest sourcing markets in the future. At present, its top suppliers are China, Poland and Italy.

Per Hornell, IKEA’s market manager for the Indian state of Maharashtra, said a big opportunity laid in establishing large-scale production in the country of board-on-frame, a recent and lighter alternative to particle board, to stop having to import it from Europe and China.

“Board-on-frame is used to make bookshelves or wardrobes. That is a component to make most of our furniture range,” Hornell told Reuters.

IKEA India boss Peter Betzel said products and materials that IKEA was currently looking to source more of locally were textile, metal and wood such as bamboo and acacia.

IKEA’s newly launched Indian website showed popular products at lower prices than in the United States. The white variation of its best-selling Billy bookcase is cheaper by a fifth and the dark-grey Ektorp sofa is priced 30 percent lower.

Nevertheless, analyst Sowmya Adiraju at researcher Euromonitor International said the target audience for many current IKEA products, especially big-ticket items, seemed to be the wealthier end of India’s middle class.

“It would be interesting to see how IKEA does justice to its vision of ‘furniture for all’,” she said.

NAMASTE INDIA!

IKEA will not only have to win over tastes in India, but also change a culture. Driving to a shop for do-it-yourself (DIY) interior goods is a novel concept in India, where made-to-order furniture is delivered to the customer fully assembled.

IKEA has therefore taken the unusual step of setting up a 150-member in-house task force to help with assembly. Overall, the Hyderabad store will directly employ 950 people and another 1,500 indirectly for various services, it said on Wednesday.

So far, IKEA has spent half the 105 billion rupees ($1.5 billion) earmarked for investment in the country, and plans to spend 10 billion rupees setting up each store.

Competition in India includes startups Pepperfry and UrbanLadder, which offer free delivery and furniture assembled on site at no extra cost. The overall market, however, is dominated by a multitude of vendors selling ready-made or made-to-order furniture.

“Even though winning customers in the highly fragmented, untapped and unorganised Indian market will not be easy for the Swedish home furniture giant, it will surely accelerate a shift to organised space (market),” market researcher GlobalData said in a note.

GlobalData forecast a compound annual growth rate of nearly 11 percent over 2016-2021 in India’s furniture and home-improvement market, reaching 4,979.3 billion rupees.

The logo of IKEA is seen outside its under construction store in Hyderabad, India, July 18, 2018. REUTERS/Danish Siddiqui

Reporting by Subrat Patnaik; Additional reporting by Swati Bhat and Anna Ringstrom; Writing by Sayantani Ghosh and Anna Ringstrom; Editing by Christopher Cushing and Mark Potter

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