IKEA may have to overcome infrastructure bottlenecks

Bindu D Menon
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Who is afraid of IKEA?

Not us, claim Indian furniture retailers. Swedish furniture retailer IKEA may have got the nod from the Foreign Investment Promotion Board to start its venture in India, but furniture retailers who are already in the business, say that besides playing on the price point and product range, IKEA will have to overcome real estate and infrastructure bottlenecks.

IKEA has already stepped up its hiring activities and vendors negotiation to help it kick-start its operations in India.

But, it will have to work hard on making the format tick in India, trade players say. The company plans to invest Rs 10,500 crore to set up 25 stores over the next few years.

The estimated $8-billion plus (Rs 44,000 crore) Indian furniture and home improvement retailing business is largely in the un-organised sector.

While the organised business is growing at 20 per cent, the un-organised is market is growing at 10 per cent according to various industry estimates. Organised players include the Landmark-owned Home Centre, Hindware-owned Evok, Future Group-promoted Home Town, Godrej-owned Interio and K. K. Birla-owned Style Spa, among others. “There will be initial euphoria on IKEA’s entry into India. However, they will have to work hard on getting market share in India. They will definitely give impetus to the home décor and assortment business,” Anil S. Mathur, COO, Godrej Interio, said.

Infrastructure issues

While noting that IKEA still commands single-digit market shares in most countries except Germany and Sweden, he said infrastructure issues and slow pace of development may mar its growth.

IKEA recently appointed Juvencio Maeztu as its India Country Manager, signifying its intent to expand its presence soon.

Recently, at the India Retail Forum, Juvencio Maeztu was quoted as saying that IKEA would look to develop a new product range for the Indian market. “Maybe we need to tweak the style but will never compromise with price. We will make affordable products,” Maeztu had said.

D. K. Jairath, Deputy Managing Director of Style Spa, notes that, “There is no collision course with IKEA. It will definitely add competition to the market as IKEA is an ultra big-box retailer. If it has to survive in India, it will have to play on the volume metrics. Real estate costs are highly prohibitive and they will have to create products suited for the Indian climate and style.”

IKEA stores are typically housed in an area of around 2.5 lakh sq. feet and are traditionally located in suburbs. “This kind of land tract will only be available on the city outskirts and IKEA will have to join hands with land parcel owners if it is keen to acquire such large land parcels for its use,” Jairath points out.

Analysts note that in India the company may position itself as a value and lifestyle-driven brand targeting the middle income group.

Also, Indian consumers may still need education in ‘do it yourself’ (DIY) techniques as IKEA stores have high degree of self-service in their retail formats.

One of the biggest furniture belts in the country at Kirti Nagar in the Capital, however, remained optimistic. Most furniture retailers said pockets like Kirti nagar catered to value-conscious buyers.

“Since this is not a Chinese company, we will not be affected because only Chinese companies sell low priced products. European companies have high labour costs so they cannot sell cheap furniture,” Nirmal’s, a furniture retailer, said.

(This article was published on November 20, 2012)
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