IKEA’s India foray, a boost for single-brand retail

Swedish furniture retailer IKEA’s plans to invest about €1.5 billion (Rs 10,500 crore) may have a trickle down effect on other single-brand retailers wishing to come to India. Retail experts said that besides signalling India’s commitment to boost investment, it is also indicative of the Government’s “willingness” to relax the stringent local sourcing clause.

A clutch of international retailers had apprehensions regarding the mandatory local sourcing clause which requires companies with over 51 per cent FDI to source at least 30 per cent from domestic cottage enterprises.

Mr Abhay Gupta, CEO, Luxury Connect, a consultancy which offers assistance to international luxury brands in sourcing products and services from India, said, “ It is quite clear that Government is keen to boost investments into India. The meeting between Commerce Minister Anand Sharma and the IKEA chief could also signal that the Government is not too stringent on the local sourcing clause and may look at it on a case to case basis. We hope to a see surge in single brand fashion retailing as lot of companies are waiting to enter India.”

FDI inflows

Earlier this year, the Government had relaxed the single-brand retail norms from 51 per cent to 100 per cent, as only $44.45 million of foreign investments were received by the sector, constituting barely 0.03 per cent of the total FDI inflows.

The world’s largest furniture retailer — Inter IKEA Systems BV (popularly known as IKEA) — had been vocal about the local sourcing clause saying that the rider is might be difficult to comply with.

IKEA on Friday said, “India is a very interesting and important market for the IKEA Group and we are eager to set up our first store in the country. We wish to establish a fully owned subsidiary in India and we have therefore submitted an application to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy and Promotion (DIPP).”

IKEA said it at present it is working with 70 suppliers and 1,450 sub-suppliers and its presence in India will contribute to growth and development in production and marketing, besides improving availability of high-quality low-price products.

Textiles and carpets

Reports note that India has been on IKEA’s drawing board for years as a destination for textiles and carpets. The company is interested in tying up with Indian suppliers in the plastics, steel, lighting and natural fibre categories as well.

In 2010, IKEA’s sales increased to €23.1 billion, an increase of 7.7 per cent, compared to the previous year, with Asia and Australia contributing about 6 per cent. It has presence in 41 countries.

Ms Saloni Nangia, President, Technopak Advisors, notes, “We understand IKEA would have had some discussions on how to source from the Indian market. Overall for the retail sector it would be a step in the right direction and our belief is that sourcing would also increase.”

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