IKEA Group CFO Juvencio Maeztu poses at an IKEA kitchen showroom in downtown Stockholm, Sweden Apr. 17, 2018. Picture taken April 17, 2018. (REUTERS/Anna Ringstrom)

With Assembly Team and Samosas, IKEA Lays Ground for India Debut

By Reuters

June 11, 2018 Updated: June 11, 2018

MUMBAI/STOCKHOLM—IKEA is set to open its first store in India next month, and the world’s biggest furniture retailer is localizing its offering – from the food menu to its “do-it-yourself” (DIY) assembly model – to ensure success in the country.

IKEA, which aims to soon open a 400,000 square feet (37,160 square meter) store in the southern Indian city of Hyderabad, is setting up its first ever in-house assembly team and offering local delicacies such as samosas to woo shoppers, at a time when growth in some of its more established markets is slowing.

“The entry point has been that the identity was going to be the same,” said IKEA’s finance head Juvencio Maeztu.

“But, for example, Indians like firm mattresses so you need to adapt the mattress offering. And we are developing a mattress that has a coconut layer because it is cooler for the summer,” said Maeztu, adding such customization would be seen in items ranging from cutlery to showroom layouts.

India’s furniture market is largely dominated by unorganized retail and local vendors, and consumers are used to enjoying the comfort of made-to-order or fully assembled furniture delivered to their doorsteps.

The “do-it-for-me” culture is very prevalent in India, said Sowmya Adiraju, an analyst at research firm Euromonitor, adding IKEA would have to look into delivery and assembly needs to woo Indians.

While IKEA’s popular DIY furniture is well known, it is also sometimes parodied as shoppers are at times overwhelmed by the task of assembling intricate units.

The Swedish retailer is setting up a 150-member team to help assemble furniture and is also partnering with UrbanClap, an app-based service that connects people with everyone from tutors to carpenters.

The IKEA in-house assembly team will be more a little more expensive than UrbanClap’s services, said Patrik Antoni, IKEA’s deputy head in India.

The companies both declined to reveal pricing details, but currently UrbanClap charges customers about 250 rupees ($3.73) for a 30-minute carpentry job, such as installing IKEA’s popular Billy bookcase. In comparison, TaskRabbit, the services platform acquired by IKEA in 2017, charges U.S. shoppers a minimum of $36 for any installation job.

LOCAL TASTES

IKEA has visited more than 800 homes in India to see how people live across the country, said Maeztu, who led IKEA’s India team before moving to take on his new global role earlier this year.

While the Hyderabad store will have spacious room designs, its Mumbai store will pack a lot more product into a smaller space to reflect the city’s apartment sizes.

“You need to understand what life’s about and then the range is presented to give solutions to the needs and frustrations,” Maeztu said.

Like many international restaurant chains in India, IKEA is also changing parts of its menu to suit local palates.

To cater to Hindu sensitivities it will not sell its beef meatballs in the country, but serve chicken and veggie balls instead, while also offering shoppers biryani, samosas and veggie hotdogs, said IKEA’s Antoni.

One winning formula that IKEA plans to stick with is low price points, by offering 1,000 products priced under 200 rupees ($2.97), said IKEA Group CEO Jesper Brodin, adding it was keen to avoid missteps made in Australia and China, where its initially higher pricing discouraged potential customers.

Although IKEA plans to gradually ramp-up local sourcing, one challenge to keeping prices low will be taxes, said Brodin. “I’d say the biggest challenge for us is (import) duties. That’s not something we can do something about.”

BIG BET, BIGGER RISKS

The foray into India comes at a time when IKEA’s growth has slowed in some of its established markets, pushing it to enter new markets such as Chile and India, while developing its digital offering and smaller city center store formats.

IKEA Group’s company-owned stores in 2017 grew retail sales by 4 percent. In comparison sales in India’s homeware and home furnishing stores grew some 9 percent, according to Euromonitor.

Still, IKEA, which has already sunk about $670 million into India, will face stiff competition in the Indian market from a slew of online furniture start-ups such as Pepperfry, UrbanLadder and FabFurnish, so success will come at a price.

IKEA’s Antoni said the company, which had initially expected to invest $1.56 billion to set up 25 traditional stores by 2025, was already looking to spend more than originally planned and eyeing experimenting with non-traditional formats too.

CFO Maeztu said some of the initially planned 25 stores would likely be in new formats. The first four would however be the classic giant out-of-town warehouse stores to cement the image.

The company, which has bought land in Hyderabad, Bangalore, Mumbai and Gurugram is also looking to expand into five other markets – Surat, Ahmedabad, Kolkata, Chennai and Pune, said Brodin.

“This is our next really big market,” said Brodin, while warning it would take years for the company to see major profits from the market.

By Subrat Patnaik and Anna Ringstrom