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Ikea working on lower pricing for India stores

LiveMint logoLiveMint 26-03-2017 Sapna Agarwal

Mumbai: Ikea, the world’s largest furniture retailer, is working to squeeze costs further to make its furniture and home décor products available to a larger Indian audience before opening its first store in the country early next year in Hyderabad, a top company official said.

“In the cities where we will be present, we want everyone who has a home furnishing need to come to our stores. There will be something for everyone at Ikea,” said Patrik Antoni, deputy country manager at Ikea India Pvt. Ltd.

Organized home furnishing retail in India is relatively exclusive, said Antoni, adding the company is cutting costs to make products affordable.

Antoni admitted that where the company will make money is the middle class rather than the lower class; however, he claimed that at Ikea stores, there will be great designs and products at prices lower than elsewhere. 

In India, Ikea will have a product range that starts at Rs150 for a pack of two light-emitting diode (LED) bulbs and Rs500 for a pack of 100 tea lights. In the furniture category, a table from its Lack series can cost Rs500-600 and a complete Ikea kitchen can be assembled on an average for Rs2.5-3 lakh.

The retailer is interested in the bottom of the pyramid, because it believes the less affluent today will become more affluent tomorrow. “That is why it is important to get them in early,” said Antoni. For instance, in Hyderabad, there are eight million people and two million households. “We believe we should penetrate one million of those households,” said Antoni.

Antoni is referring to India’s rising affluence. Of India’s five household income categories, the top two income classes are the fastest-growing. From 2016 through 2025, the share of the top two household segments will increase from 8% to 16% of the total while the share of the bottommost will drop from 31% to 18%, according to a March study by Boston Consulting Group (BCG).

However, to get the people from the bottom of the pyramid will require the Swedish retailer to rework its supply chain, design and overall thinking, said experts. Even if we leave the bottommost segment out and look at the segment above, known as the next billion, with household income at $2,500-8,000 annually, costs still have to be reworked for India, said Amitabh Mall, partner and director, Boston Consulting Group. 

To be sure, Ikea's global positioning is that of an affordable retailer. However, if the retailer is targeting the next billion which accounts for 45% of the overall households in the country to buy from its stores, “they will need to be even cheaper than what they are globally”, said Mall.

By the time Ikea opens its first store in India in 2018, it will be over five years since it got permission to open stores in India under its single -brand retail policy. After the launch of its first store, Ikea will expand to have 25 stores by 2025 and increase local sourcing to contribute to over 30% of its supply chain by then, the company has said in the past.

It will also adopt a multi-channel approach in India, making its goods available online after launching store operations in India, said Antoni. “I don’t think any other country in Ikea’s history has so much commitment from global Ikea that we have in India,” said Antoni.

There are currently 389 Ikea stores in 46 countries with a sales volume of €34.2 billion. The company attracted 783 million customers in financial year 2016 and more than 2.1 billion people visited Ikea online, it said in a press statement earlier this month.

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