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Ikea bets big on India, plans first Hyderabad store in 2017

Ikea plans to open as many as 25 stores in India within a decade.

NEW DELHI -- Home furniture in India increasingly is changing from a nondescript utility item into a classy lifestyle product.

Ikea sees this massive opportunity in Asia's third-largest economy, and the Swedish furniture giant is set to roll out its quality, affordable home furnishings for the country's huge middle- and low-income population next year.

The company last week began construction of its first Indian store in the southern city of Hyderabad, more than three years after the Foreign Investment Promotion Board approved Ikea's long-term India investment plan of 105 billion rupees ($1.56 billion) to open up to 25 stores.

The Hyderabad store, which will be ready by autumn 2017, is to host 5 million to 6 million customers annually and create 500 direct and 1,500 indirect jobs. Spread over 400,000 square feet, the store will feature nearly 7,500 home furnishing products and house parking for 2,000 cars as well as a 1,000-seat restaurant serving Swedish and Indian dishes.

The company aims to employ women in half of the store's jobs, said Juvencio Maeztu, Ikea India chief executive. The store will be equipped with solar panels, LED lights, water treatment plants and modern waste management systems.

Ikea earlier said purchasing the land in Hyderabad last year and now building the store will cost around 5 billion rupees.

'Very important' market

"This is a big milestone for us today, and all of us are very proud that the first Ikea store in India seems very close to reality now," Maeztu said on the sidelines of the groundbreaking ceremony Aug. 11.

Describing India as a "very important" market for Ikea, he said, "We hope to bring our unique home furnishing products and solutions along with modern retail experience to the people of Hyderabad."

Ikea also has procured land in Navi Mumbai in western Maharashtra state and is evaluating sites in Bengaluru city in the south as well as in the Indian capital and regions around it. The Navi Mumbai store will be ready by 2018, the company said.

The Swedish company eyes turnover of 50 billion euros ($56.6 billion) by 2020 from 35 billion euros at present and aims to raise the number of stores globally to 500 from the current 365.

India will play a vital role in this growth, Navin C. Rao, Ikea India's service business leader, said at an event of the Indian Furniture and Fittings Skill Council here.

"We are already present in China [and] have very ambitious plans for India," he said. "We expect the growth in Asia-Pacific to be much larger as there are more people living in this circle than outside it. In the next 10 years, we plan to open 20-25 stores in India, and each store will average a turnover of 100 million euro."

Ikea first wants to understand how Indian people live in their homes so that the company can make its products relevant to them. "We would [also] like to expand the interest in home furnishings," Rao said. "It is already increasing. People are beginning to have more and beautiful homes."

"One of the keys of Ikea is we would be very affordable, have huge volumes and low prices," he said. "This is what drives the Ikea sales."

The company also looks to increase exports from India, and once Ikea starts operations in the country the firm intends to expand its supply chain in a big way.

Sourcing

The Swedish company has been sourcing for about three decades from India, where it has 50 suppliers with 45,000 direct employees and 400,000 people in the extended supply chain. Ikea sources products worth 315 million euros from India and plans to double this by 2020 to cater to stores both locally and globally.

"As per sourcing norms in India, we must source locally 30% of the furniture, but we intend to go even beyond that level -- up to 50% -- eventually. It will help us in profitability," Rao said.

At present Ikea mostly sources textiles, plastic and metal products, rugs and carpets as well as some lighting items from India. "In the future we intend to source furniture and other products," Rao said. "We also intend to source a lot of bamboo, and are in the process of working with a couple of suppliers and industry bodies."

Ikea sees the biggest potential in India for increasing its overall bamboo sourcing. The company sources about 14 billion euros worth of products, and bamboo accounts for less than 100 million euros -- contributing just about 0.5% in terms of global purchasing value. Ikea sources most of the bamboo from China, Vietnam and Indonesia.

Customers worldwide increasingly prefer eco-friendly furniture made of natural and sustainable materials like bamboo and cane, and Ikea seems to be tapping into this trend.

Challenges

Ikea still faces the challenge of finding the right suppliers in India. With its vision of being "people and planet positive," the company wants to ensure that suppliers are environmentally friendly and look after their workers.

"It is essential that the suppliers that work with Ikea pay the right level of wages, overtime, etc.," Rao said. "We have extremely high levels of compliances."

Indian customers, meanwhile, are unused to Ikea's core concept of "do it yourself" -- buying furniture, taking it home and assembling it on your own.

"This is the space where Ikea will have to offer a lot of services -- delivering goods to customer homes, assembling furniture and installing it in the right way," Rao said. "These services will be crucial in India."

Ikea will need to adjust to local requirements if it wants to grab a slice of India's mammoth retail market, which is expected to nearly double to $1 trillion by 2020 amid rising disposable incomes, urbanization and behavioral shifts.

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