Swedish furniture and home accessories retailer, Ikea was among the first global retailers to set up shop in India through the 100% FDI in private brands route in 2018. The caveat then was that the retailer had to source 30% of what it sold in India locally within a period of five years. The retailer claims that it is inching closer to that target. “Close to 25% of our sales is sourced locally. Out of the 8,000-9,000 articles we sell, 1,500-2,000 articles are made in India and that is increasing by the day. It was initially a compliance discussion, but we are seeing benefits for the business, " says Kavitha Rao, Chief Commercial Officer, Ikea India.
Sourcing from India is anywhere between Euros 400-500 million, says Rao. Prior to launching its retail operations in India, Ikea mainly sourced textiles, but in the last three years it has been sourcing a fair amount of metal, plastic and wood products.
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The retailer is also looking at selling Indian handcrafted collections across its stores globally. In the past few years, it has been working with organisations such as Rangasutra and Industree, which closely work with artisan communities across the country. “For the last two years we have been doing a festive collection, which is made in India and has generated a lot of interest in global markets. Next year onwards this collection will be global,” says Rao.
Going forward, she says, the company will partner with more artisan communities and take their business to global shores. “The moment we start sourcing for the global markets it will give global access to entrepreneurs and the scale of the game will change. It will also give us the ability to balance prices,” she explains.
The retailer also launched its first smaller-format (80,000 sq.ft.) store in Mumbai today. The idea behind this concept, which it first launched in Paris in 2019, was to appeal to the millennials who seek convenience and want to save time. Unlike the previous generation, they aren’t eager to drive miles outside of town to a big-box Ikea store, spend the full day and return home with the boot of cars loaded with Ikea merchandise. “The new-age consumer prefers a store in the neighbourhood, where they can experience the products. If the store doesn’t have a particular item they are looking for, they would order it online.”
Ikea India is planning to launch another small format store in Mumbai and would also be rolling out a store each in Bangalore and Delhi. “The big blue box will never go away, but we will augment it with smaller stores,” says Rao. Ikea’s big blue stores are typically in the outskirts of the city and spread across 400,000 sq. ft. Since the stores are generally outside of city limits, real estate costs aren’t too high. But launching a store in upmarket Worli would surely come at a premium, as even its smaller format stores are 80,000 sq.ft. Won't Ikea’s smaller store format eat into its profits?
Rao says that the company has announced a planned investment of Rs 6,000 crore by 2030. “It is more about what makes sense in the long term. Over time we would have built the brand, there would be much more interest in home furnishing and there will be repeat customers who would be coming back, it will help us reach a certain scale. The turnover the store would generate will start making sense. It could be 10 years down the line, but we have always said that we have invested in India for the long-term.”
Apart from the metro markets, the Swedish retailer is also eyeing tier-2 India. Rao says that while a launch in other metro cities is next in line, it is already evaluating cities such as Ahmedabad, Surat and Pune.