IKEA India Chief is Finding it Tough to Build a Store in India. Here's Why
Globally, India stands at 3 percent of the total Ikea sourcing which constitutes 350mn Euros worth of resource
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IKEA India, the local subsidiary of Swedish furniture retailer IKEA of Sweden AB, plans to invest INR 3,000-4,000 crore to set up multi-format stores and experience centres in Maharashtra. With this investment, the company is planning to launch two large stores in Mumbai, few experience centres and the first fully owned distribution centre in India over the next 2-3 years. It is also planning to launch its own eCommerce portal in 2019 to offer omni-channel service to the end consumer. In an interview with Entrepreneur India, Patrik Antoni, Deputy Country Manager, IKEA India elaborated on the company's future plans for Maharashtra and the country.
Q. What are Your Plans for the Maharashtra Market?
A: IKEA is now about to intervene in the Indian market. We see a big market opportunity in Maharashtra. The state will play a very central and a long-term role for IKEA in India. In Mumbai, we are planning to launch two stores in the next two to three years and a handful of experience stores and IKEA India's first fully owned distribution centre in Pune. Our first store will be opened in Turbhe, Navi Mumbai in 2019 to be followed by Bangalore and Delhi. The first store in Hyderabad will be functional in mid-2018.
We have four pieces of land so far in Hyderabad, Mumbai, Bangalore and in Delhi. Further, we are looking at more land in Chennai, Pune, Surat, Ahmedabad and Kolkata as these are the potential places for business. The Navi Mumbai store will be of 4, 30,000 sqft. The size of Hyderabad store will be 4, 10,000 sqft. We are also launching an experience center in Hyderabad which will be 5000 sqft.
Q. Please Tell us About Your Smaller Stores Expansion Plan?
A: We will also launch the small format stores which will be much smaller. Smaller stores, in addition to experience centres, will contribute more to the company's "25 stores by 2025' goal, a downward revision from the earlier ambition of 25 large stores. The reason for the modification is to reach more customers by opening smaller stores closer to their residences in India's space-constrained cities
We will also launch our eCommerce portal by 2019 and also exploring to launch our experience centers, because we want our brand and our solutions to become accessible for customers. In Maharashtra, we have 11 suppliers across categories like textiles to plastics to other categories and overall 55 local suppliers across the country.
Q. The Store Properties will be Leased One or Company Built?
A: Our ambition has always been that we own the land and building. The reason being is that we can be here for 100 years and that's the point of view we have. We believe in being secured. In case of places which are difficult or impossible to buy, we look at leasing them for 60 or 90 years as a second option.
Q. Please Give Us a Sense of the Amount of Investment You are Putting in for the Expansion of Stores?
A: In total, we are investing around INR 3000 to INR 4000 crores in Maharashtra. Delhi too will have a same amount of investment and then the other states will follow. Each large store will typically require about INR 1,000 crore of investment
Our overall investment in India is of INR 10,500 crores which was the initial approval from FIPB in 2013. Hence the number will significantly go higher as we have a much better understanding of the potential that India has and we will invest more than INR 10,500 crores.
Q. What Could be the Investment for Logistics Centers?
A: We are also investing INR 750 in our logistics and distribution centre in Pune which will be further expanded and will be the hub for logistics for the whole country. It will cater to Mumbai and Hyderabad stores. Apart from the Pune logistic centre, there will be small distribution centers outside of bigger cities. These small logistic units will be used for the deliveries of orders placed in offline stores and e-commerce deliveries.
Also, there will be big logistic footprint around Mumbai and Pune because we want to be as lower priced as possible for the customer and we don't want to lose our money on logistics. The more we are open to omnichannel, the more logistic centres we will have close to the cities.
Q. For this Value for Money Market, what are the Strategies you have Devised?
A: In our store or on our e-commerce platform, you will find everything at as low prices as possible. We will have 700 to 800 articles comprising of 9500 products in our stores and price range starts from INR 200. Initially, there will be smaller products on offer and later, we will move into bigger solutions like sofa, chair or table. One of our focus is that how can we create solutions in the smaller apartments like in Mumbai. Thus, we want to offer space efficient yet multifunctional solutions to the consumers. Therefore, the Mumbai store will re-describe the different living conditions in the city. To further make it easy, we are making furniture that are easy to assemble.
Initially, our e-commerce portal will not cater to pan India pin codes. In order to deliver the customer experience, we will not deliver to too far away places from our set up of stores. We want to expand our e-commerce operations phase by phase.
Q. According to You, Which are the Major Factors that will Drive the Demand?
A: Countries growth rate, population and urbanization are the major factors that drive the demand in India. It is a place for our type of products and it's our proposition for value for money products.
Q. To be Relevant to the Customer, have You Studied the Mumbai Market?
A: We are visiting homes across Mumbai and have visited more than 100 homes as we need to learn to understand how we can come with good solutions which reflect the need of the home.
Q. How Much does India Contribute to Your Global Sourcing?
A: Globally India stands at 3 percent of the total IKEA sourcing which constitutes 350mn Euros worth of resource. We are sourcing from 55 countries around the world. In Europe, around 60 percent of the sourcing comes from the same market. In China, we source 70 odd percent of the resources. In India, if we open the store, we will source may be 5-6 percent locally and that number is about to grow more than 30 percent. Overall, we have around 9500 product but currently make only 200 of them in India and we have to increase it. For us, manufacturing of our furniture is based on global competitiveness and India as a market at the moment is not big enough to have a manufacturing factory.
Q. What are the Challenges that You See in the Indian Market?
A: One of the challenges is to find a good location to build a store of IKEA here in Mumbai.