By Nitya Pandit
After setting up base in Hyderabad and Mumbai, Swedish furniture group and multinational company Ikea has now acquired fourteen acres of land in Bengaluru. This will be the retailer’s third proposed store in India after the first one opens up in Hyderabad in the near future. This will put it one step closer to achieving its three-step retail strategy of opening 25 stores in India by 2025.
The strategy for expansion
The first step of Ikea’s strategy is to construct large-format stores to build the company’s brand image in India. The company focuses on establishing physical stores to provide the touch-and-feel aspect essential to consumer choice. The next step is e-commerce, which will only be developed once the brick and mortar stores are well established in the country. The final step is to experiment with new formats, such as having smaller sized stores in malls, a pop-up store and/or other ideas. The company has been involved in extensive research regarding the Indian consumer taste and will accordingly play around with ideas for formats. It will also provide home delivery and at-home assembly services for customers. As an employee says “We will also have a shuttle service connecting people to the store, helping them to come over. We will be active in home delivery and assembling, and in cash-and-carry formats.”
Why is India hospitable for Ikea’s growth?
For the past five years, the Indian home furnishing market has grown at 10.9%. Even greater growth is expected for the 2016 to 2021 period. In general, the expectation is that Indian retail will see a four-fold increase for a decade after 2015, with consumption tripling for the same period. These trends are a result of the increasing purchasing power and changing consumer spending and behavioural patterns of buyers. This is indicative of the factors driving Ikea’s expansion in India.
The future of the furniture industry
Each store will sell about 9000 products, which are not only cheaper compared to other competitor products but which also promote long-term value. The Indian consumers will benefit from an increased variety in terms of products and prices. There will be 5-700 people, half of which will be women, who will be directly employed in the Bengaluru store. Another 1,500 people will be indirectly employed as well. If nearly the same numbers are used in Ikea’s other upcoming stories, then this can cause the country’s employment rates to boost.
The company also plans on situating most of its stores closer to public transport systems, making it even more convenient and accessible to people. This will help attract a larger crowd and ensure a higher growth rate in the Indian retail sector. Additionally, Ikea will bring in good business practices, and training programs for the employees. The company will also be double sourcing from India to $667 million, enabling certain states like Karnataka to become key players in Ikea’s global supply chain. On the flip side, if Ikea’s local competitors cannot keep up with its prices and innovations, then they will be driven out of the market which could, in turn, lead to domestic unemployment.
Possible problems for Ikea in the future
Ikea, however, should be mindful of all the obstacles that lie ahead once it chooses to work on its second and third retail strategy steps. Changes in consumer behaviour due to changing lifestyles and increase in affluence have made it difficult to operate in the retail industry. Hence, to further capitalise on the advantage of being the first large foreign retailer setting up in India, the company must gradually establish a strong presence in the e-commerce and multi-channel retail sphere.
Featured Image Credits: Pixabay