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Is India ready for Ikea?

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Image Credit: Yasir Iqbal

The Swedish home furnishings giant is finally ready to enter the country after years of preparation. Can it adapt to the Indian aesthetic and spread the do-it-yourself bug?

This moment has been more than three years in the making for Ikea. In 2013, the Swedish home furnishings giant sent one of its top design executives, Marie Lundström, to India with a singular mission: to understand the Indian mindset and aesthetic. Ikea wanted to learn everything it possibly could about its new customers before it opened its first store in the world’s second-most populous country.

Lundström didn’t leave any stone unturned: She visited more than 150 homes across the country, spent hours talking to family members, gleaned information from company surveys, and pored over countless market reports to understand Indian preferences. By the end of it, she had gained some key insights. Indians love colour. Their family lives centre around the sofa. They watch television while eating. And they aren’t big fans of the do-it-yourself culture.

Armed with such crucial nuggets of information, the budget furniture maker went about meticulously planning its store design and product range for Asia’s third-largest economy. “Rarely will you find any multinational company spending three years just learning about its consumers, their cultural roots, tastes and aspirations, and buying behaviour,” says Ikea India’s country marketing manager, Ulf Smedberg.

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Ulf Smedberg, country marketing manager, Ikea India.
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The €34.2 billion (Rs 2.4 lakh crore) furniture retailer, best known for its cheap but chic products, is finally ready to enter India in December. Its first store here will be a sprawling three-storey complex spread across 400,000 sq. ft. on the outskirts of Hyderabad. The outlet won’t just be stocked with international bestsellers such as the expandable Billy bookcase and stoneware Färgrik coffee mug, but will include a range of products made specially for India such as pressure cookers, idli makers, roti tawas, chakla-belans, spice boxes, and steel utensils.

Built at a cost of Rs 1,000 crore, the store with Ikea’s classic blue-and-yellow signage is expected to stock around 9,600 home furnishing products. And customers will get a chance to walk through and interact with items in what the company calls “inspiration rooms”, or bedrooms, dining rooms, living rooms, and kitchens designed according to Indian lifestyles. The Hyderabad store will have around 100 rooms centred around themes such as living with children and small-space living. “The rooms are designed to appeal to Indians, both in terms of aesthetics and functionalities,” says Patrik Antoni, deputy country manager, Ikea India. “It is all about creating an experience, and celebrating different themes like Diwali and going back to school.”

But the secret of Ikea’s success is a tried-and-tested formula—not changing its minimalist Scandinavian design, but just tweaking its products to make them more relevant overseas. Take the sofa, for example. Ikea’s research showed the sofa is central to the lives of Indians, who love to invite friends and relatives home for meals, unlike countries such as Sweden and Germany where families prefer to go out. Indians use sofas as homework zones for children in the day and seating for guests in the evening, before they turn into comfortable beds for teenagers who chat on the phone through the night. The solution was to alter Ikea’s classic Scandinavian design sofas into expandable couches that can accommodate a large number of people during weekends and are hidden at other times. “The furniture may look very Swedish, but using the right colours—dark brown instead of white (the popular choice in Sweden)—adding some curtains with vibrant shades, some strong yellow flowers here and there, can make the room look very Indian,” says Lundström, Ikea’s India creative director.

At the heart of it all lies Ikea’s main business model of volumes and economies of scale. It’s an idea that goes back to the first Ikea store that opened in a small village in southern Sweden in 1953. The name combines the initials of Ikea founder Ingvar Kamprad (IK) with the first letters from the names of the farm and village where he grew up—Elmtaryd and Agunnaryd (EA). Since then, the company has grown to 340 stores in 28 countries from Korea to Croatia, all based on keeping costs low through economies of scale. And its labyrinthine warehouse-style stores are destinations in themselves.

Still, getting into a new market is never easy. And nobody knows that better than Ikea. When the Scandinavian retail giant entered the U.S. market in 1985, it quickly realised one size doesn’t fit all. Initially, the company merely replicated its European products, such as beds and cabinets, for the U.S., but noticed sales were tepid because American customers wanted bigger beds and closets. Eventually, Ikea changed its strategy and decided to customise its products for U.S. needs. Similarly, when it entered China, it found that its prices, considered low in the West, were higher than the average in China. It promptly increased local sourcing and slashed prices.

Ikea’s experience of entering new markets has provided a steep learning curve. These lessons will certainly come in handy in India, which poses a unique set of challenges. For example, India’s price-sensitive customer won’t be easy to please. Here, Ikea’s experience in China will be of great help. “Cutting down on imports, optimising internal distribution logistics, and ensuring that stores are built at the right locations—all central tenets of Ikea’s China strategy—will be key,” says Ikea India’s CEO, Juvencio Maeztu.

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Marie Lundstrom, creative director, Ikea India.

 

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Another insidious issue from China is also likely to crop up in India: copycats. Ikea’s catalogue is widely available and it is easy to get knockoffs made by local carpenters. The Swedish retailer decided not to retaliate in China because Chinese laws weren’t strong enough to deter such activity, but it is hoping the Indian government’s focus on protecting intellectual property rights will help contain the damage. “The Chinese not only copied our products but also our stores. Sometimes, an identical Chinese store would open just opposite an Ikea store,” says Sandeep Sanan, head of purchasing for Ikea, South Asia.

Ikea’s global experience has taught it to be mindful of cultural sensitivities. For instance, in India it has decided to stay away from using leather, keeping religious sentiments in mind. The caution is not unusual: It recently recalled millions of dressers and cabinets in the U.S. and Canada after the death of six toddlers when the furniture tipped over. It wasn’t Ikea’s first brush with controversy. Three years ago, it was found to be spying on its own employees and customers in France.

But the big question that many are asking is: Is India ready for the Ikea experience of carting back flat-packed furniture and struggling to assemble it at home? Indians don’t need to fret about that; Ikea will assemble furniture and deliver it home for them the next day—for a small premium, of course. The size of its Indian warehouses will be larger than those abroad, because Ikea expects most Indians to opt for the assembly service. “While we charge 20% extra for assembling or home delivery in the matured markets, it will be far less in India,” says Antoni. “Over time, this dependence on [assembling services] will reduce, because it is so easy to put things together and because of the feeling of pride that the customer will get once he has assembled the table or chair.”

It won’t be easy. One of the biggest challenges is changing the traditional Indian aesthetic. Indians generally prefer heavier, colonial-style furniture,  not contemporary straight-line designs. They also see furniture as a life-long investment and don’t care for cheap disposable items. So, while the Billy bookcase might be a bestseller elsewhere, it might be too simple for the Indian market. But Ikea is aiming for the country’s growing young population or the so-called “millennials”, who move house frequently and are more likely to snap up its cheap and functional furniture. “Our point of view is that the home should be yours in terms of comfort and aesthetic, but we would love to help you make it more contemporary and reflective of the times that we live in,” says Lundström.

Saloni Nangia, president of management consultancy Technopak Advisors, says Ikea can gain an edge by ironing out some of the problems that Indian customers face such as inventory shortages, delays in deliveries, partial shipments, non-availability of all components under one roof, and unprofessional customer service. “Plugging these loopholes is going to be the value proposition Ikea can provide in India. Also, there is a tradition in the Indian market of having customised products made by local craftsmen, but customisation is already at the heart of Ikea—you can choose even a back cover for a chair in Ikea.”

Ikea is used to obstacles on the road to India. Though India allowed 51% foreign ownership in single-brand retail in 2006, Ikea stayed away because it wanted full ownership of its retail operations. Two years later, the government pledged to raise the limit to 100%, but failed to change its policy. Tired of bureaucratic wrangling, Ikea abandoned its plans in 2009 and only came back after India removed the foreign investment cap in single-brand retail in 2012. It had reservations about the guidelines on sourcing 30% of its products from local businesses and selling furniture online, but decided to invest in India after the norms were relaxed following months of negotiation.

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Patrik Antoni, deputy country manager, Ikea India.
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It’s been an arduous journey, but Ikea is gearing up for the long haul. Maeztu says Ikea’s journey will only really begin in 2030. “It’s not about profits for now, but Ikea is looking at the next 100 years to build a lasting relationship with India. “Our products are not for the rich today, but for the many tomorrow,” says Maeztu. Product prices, he says, will be lower than those of the organised industry.

So, what else does Ikea have in store for India? It plans to make products from eco-friendly local materials such as jute, banana fibre, cotton, and bamboo. It is already manufacturing some furniture from locally-produced wood and will sell a special collection of furniture made from banana fibre. It has tied up with local farmers to grow sustainable cotton and has similar plans for bamboo cultivation. Maeztu, an economist and India lover, says he wants to create a “meaningful Ikea”—not just in terms of being affordable, but also in terms of improving the local quality of life.

And just like Ikea stores around the world, it will have a restaurant serving its signature meatballs, only they will be made of chicken, not beef. The 1,000-seater restaurant will also cater to local taste, with Hyderabadi biryani on the menu. Like stores in China, the store will have resting areas for tired guests.

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Ikea plans an advertising blitzkrieg in the run-up to the Hyderabad launch. It has roped in Tokyo-based Dentsu as its advertising partner. Six months before the launch, it plans to organise what it calls “Hey Home” celebrations in which it will set up experience centres where people can see and touch Ikea products, and walk through different rooms designed for Indian homes. It will also launch an Ikea club to give classes on  things like home furnishing, laying the table and makeover of homes.

Ikea’s advertising campaign will move into high gear when it launches the ubiquitous Ikea catalogue, one of  its  main marketing tools across the world. “You will know that Ikea is launching its store in India. Our store will be like Disneyland, offering something for everybody,” says Smedberg.

Hyderabad is just the first stop. The company’s board has approved a plan to set up 25 new stores by 2025 at an investment of Rs 10,500 crore. The company has plans to set up stores in nine cities including Pune, Mumbai, Bengaluru, Delhi, Chennai, and Kolkata. In Navi Mumbai, Ikea has got the nod to build a larger store than the one in Hyderabad. It is working on different models for smaller cities. Some state governments have promised to provide the necessary road and rail infrastructure—even a mass rapid transport system—for the Swedish retailer.

So, why should consumers drive all the way to an Ikea some 10 km away when they can go to a neighbourhood shop instead? Maeztu believes the Indian customer will make that special trip because he will get a range of global-quality products at affordable prices, and under one roof. Ikea is banking on India’s young population, which is more brand conscious than the previous generation, and considers shopping a fun experience. And Ikea’s stores are an experience. You can shop, you can eat and you can also use the display furniture to nap, undeterred by strangers sharing your slumber space. Shoppers in China frequently spend an entire day sleeping in Ikea’s display beds, or tuck their children in while they shop.

But is India ready for Ikea’s big-store format? Indian spending patterns might not justify such an enormous investment. However, Ikea has the advantage of being a multichannel player. Although it will compete with Indian online furniture stores such as Urban Ladder, it will have an edge over them because of its bigger range of products, from cheap mugs to rugs.

Ikea’s entry is also expected to perk up local suppliers. India’s $8 billion home furnishings industry consists largely of small furniture makers, known for their artisanal skill and fine woodwork. For them, Ikea’s entry represents both competition and opportunity because the company has to source a part of its inventory locally. That’s partly why Sanan says he isn’t worried about finding local suppliers. Ikea has been sourcing textiles from India for the past 40 years. “Ramping up local suppliers should not be a challenge because many of them want to work with us,’’ says Sanan, who has been with Ikea for 15 years. “These players manufacture world-class products.”

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Global reach: Ikea has superstores across the globe.

Ikea’s policy is to maintain “complete transparency” with its partners, sometimes helping them with financing, as well as selecting machinery to improve efficiency and reduce costs, says Sanan. The company is working with 50 suppliers and wants to add 30 to 40 to the list, most of them in categories such as metals, bamboo, and plastic. Ikea only accepts suppliers who follow a strict code of conduct. “Suppliers have to show that they are responsible both towards their own people and the planet, and only then are they welcomed into the Ikea family,” says Sanan.

In many ways, Ikea reflects the ideals of its founder, Ingvar Kamprad. A 2004 article in Fortune magazine describes Kamprad “as an informal and frugal man who insists on flying coach, takes the subway to work, drives a 10-year-old Volvo and avoids suits of any kind”. At the end of the day, Ikea is all about the experience: an outing for families, with a children’s room that makes learning fun, a crèche to take care of kids while parents shop, and some hearty meals at the restaurants. “You bring all your frustrations and anxieties when you come to the store and leave with inspirations and solutions for your home,” says Maeztu.