Livemint: May 18, 2017
New Delhi: Ahead of the groundbreaking ceremony for Swedish furniture maker IKEA’s second retail store in Navi Mumbai on Thursday, Patrik Antoni, deputy country manager at IKEA India, says the firm is working hard to meet the 30% local sourcing norm. In an interview, Antoni said land acquisition for IKEA stores in India is one of the challenges the company is facing. Edited excerpts:
How has the journey been for IKEA in India?
IKEA has been in India for almost 30 years, sourcing products for our local stores. About €300 million of products we are exporting out of India. We have 50 suppliers with us already here and around 45,000 people are employed, some 400,000 in the extended supply chain.
Since 2013, we have been working in retail; we have been allowed to do 100% foreign direct investment. During these years, we worked on two tracks—one is the sourcing side because IKEA’s vision is to be affordable to many people. We need a price point that is very affordable.
And to be affordable in India means to be able to produce locally—to find new suppliers, new materials, bring in new categories. We do a lot of textiles but we want to do sofas, mattresses, bookshelves and so on in India now. So, we are working a lot on increasing local sourcing. So that track is working well and we aim at having more than 30% of the products made in India, in a couple of years.
Then we worked on the store side and currently we are building in two places—in Hyderabad and tomorrow (Thursday) we have a groundbreaking in Navi Mumbai. We are also looking to buy more land in Bengaluru, Delhi, Chennai, Pune and a few more places. So I think it is going well. It’s quite the normal time period to establish IKEA in any country. It has not been slow and it has not been fast.
Land acquisition is a major challenge. Has that been your experience as well?
We are looking for land pieces that are quite large, about 10 acres maybe, and we would like them to be placed near public transport hubs like highways or metro stations. That is a major challenge to find. But we have been quite successful so far. The challenge is we looked at buying land from the government because we see that a trustworthy source—less complication, less litigation.
And they have been supportive. But there are some challenges when it comes to ground coverage rules, when it comes to the issue of a single bidder —if you are the only one participating in a bid, maybe it will not go through, because they do not see a single bidder as valid. But, in general, it is not a major hurdle.
IKEA’s business model is based on large volumes. Will the number of stores it is planning in India (25 in 7-8 years) give it that volume?
The idea is that we should have a lot of people coming into all these stores. We see 25 stores in eight markets—so it’s a couple of stores in Delhi, a couple of stores in Mumbai, a couple of stores in Bangalore, etc. So it is still a very possible game to do with volume. Because volume for us is important to drive the prices down and be affordable to a lot more people.
A typical IKEA journey is to try to squeeze out costs somewhere—lower the price, invite more people to come and purchase and by producing more products we can lower the price further and invite more people to come. So it’s all a downward spiralling price and volume.
You said you are looking at only two stores in the Delhi area. But isn’t northern India crucial for driving up volume?
We are looking at a number of stores around Delhi, a number of stores around Mumbai—these are our two biggest markets. Bangalore is also a good and strong market for us. We will continue with Hyderabad, Chennai, Pune, Ahmedabad, Surat—the smaller cities—but the big volumes will come from Delhi and Mumbai regions.
IKEA is planning to double its sourcing from India in the next three years. However, even that will be just about €670 million. Does that mean it doesn’t look upon India as a significant sourcing base?
India is not yet a major hub for sourcing. We believe today India stands for about 3% of sourcing for IKEA.
IKEA has pretty much localized sourcing. In Europe today, 60% is made in Europe. In China, 60% of the products are from China. So India will be an important market to source from, but not as big as China, not as big as Europe, but bigger than Spain.
It is an important market and we need to grow it, but it is not going to be a major market. We have been discussing how India can become a hub for home furnishings. For us, the biggest challenge might be raw materials – sustainably sourced raw materials.
In terms of products, will IKEA bring in its international best-sellers like the Billy bookcase?
We want the Indian consumer to meet the same cool, trendy, good-value-for-money firm in India as do the people abroad. So it’s the same range, it’s the same products, it’s the same quality.
We are bringing the totality of all that IKEA offers. We will come in with the totality of IKEA so it will be a great shopping experience for the people who come.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.