He saw, he came and he conquered – perhaps this explains the entire sequence of IKEA’s entry into Indian furniture market when it opened its first store in Hyderabad last week. Though it is too early to declare the winner, mad rush at the store on the opening day indicates the global furniture major has been able to evoke lot of interest in it even before it started its India operations.
The hype and the aftermath of IKEA entry into India has heightened the apprehension of some of the leading furniture players in the country. For them IKEA is not just another furniture supplier but a brilliant strategist known to study and analyse each every possible consumer behaviour before entering the market. Till now many international furniture brands have their presence in India who have not made much or any difference to local players. But IKEA’s case is different and need to be closely observed.
It doesn’t mean that IKEA has Midas touch and has tasted success wherever it has entered. For example, its first foray outside Europe in 1970 was a failure. Japan was the first Asian country where IKEA ventured into outside Europe in 1970s. This exercise however, met with a failure as IKEA failed to understand differences between culture, lifestyle and behavior. Finally, IKEA decided to withdraw its store from Japan in 1986 and was non-existent in Japan for next twenty years before re-entering in 2006.
But situation in 1970s and now are quite different. Then globalisation was a new word if not an unknown word whereas it is now the buzzword. Further, then IKEA had little global business experience having its operations in just five European countries. Now Ikea has 403 stores across 49 markets in the world and many of them in Asia. So the global furniture brand has gained knowledge about Asian market and is unlikely to commit the same mistake which it did in Japan at the time of its first entry.
IKEA has been fairly successful in its operations in China while another Western furniture brand, Home Depot, met with limited success in its efforts to dominate the Chinese market. According to analysts reasons for success and failure are their respective marketing strategies. While IKEA sold Western culture (in the sense Western interior design styles) to Chinese consumers, Home Depot just restricted itself in selling its products.
In India too Ikea took its own time to enter the fastest growing and second most populous country in the world. After being in India for nearly three decades for sourcing its global requirements, after nearly a decade of making its first announcement to enter Indian market and after five years of getting FDI approval from the government, global furniture giant has made its first presence in Indian retail segment when it opened its first store in Hyderabad last week. That shows the kind of planning and strategising that has gone into IKEA’s entry into India as it is facing slowdown in Europe and other traditional markets.
Indian furniture industry is estimated to be of the size of $ 20.5 billion and is growing at a healthy rate of 6-8% annually. The industry is still considered as unorganized as the artisan-driven portion accounts for about 85% of furniture production. However, currently the Indian furniture industry is passing through a transitionary phase and the face of the industry may see a sea-change in the next few years. The dynamics of the furniture industry is undergoing a paradigm shift in the wake of the existence and growth of a better informed and well-resourced consumer. The entry of a large number of international brands, the proliferation of several branded showrooms and advent and increasing popularity of ecommerce in furniture offer consumers a wider spectrum of design and products to choose from.
Therefore, whoever enters Indian market anew had always the possibility of joining the ‘also ran’ category unless they had something new to offer to the customers. Perhaps, IKEA had in its armour that ‘something new’ in the form of DIY. DIY concept has been popularised by IKEA in furniture selling globally and in India too, the furniture major seems to be playing the same card with little change to suit the mindset of the Indian consumers. So, the company has employed more than 150 workers at the Hyderabad store to help assemble items bought at the store. Its tie-up with Urban Clap as its furniture assembly service partner to help customers with Ikea’s range of do-it-yourself (DIY) products may also help the company to popularise DIY concept much faster than one would have imagined.
Indian consumers are cost-conscious and IKEA who has been in India for the last three decades (for sourcing its global requirements) very well aware of it. So the Swedish furniture major decided to keep prices even lower in India than it typically does elsewhere when it opened its first store in the country. In its first store in India at Hyderabad, IKEA will sell 1,000 items, including cutlery and stuffed toys, for less than Rs 200. At the same time it should be noted that IKEA will have to compete not only with domestic manufacturers who are dominating the informal sector but also Chinese manufacturers who are flooding Indian furniture market. Quality-wise Swedish company may have an upperhand but price-wise it may not be a cakewalk for the company. IKEA seems to have learnt its lesson from its China and Australia operations where its sales were hit due to high prices. The company is not repeating the same mistake in India and that’s why it has announced that 15% of the products sold by it in stores will be of value less than Rs 200.
Whether Indian furniture makers need to be worried about the entry of IKEA? It is too early to say and many have resorted to wait and watch strategy. For example, in 2015-16 Century Plyboard had announced its plans to enter DIY furniture segment in the country. However, the company decided not to go ahead with the plan in 2017. Though the company has not revealed the reasons for its decision, entry of IKEA into Indian market may not be just a coincidence of Century Plyboard doing a rethink on its DIY furniture segment entry. In the meantime, the company is reportedly weighing the possibilities of it becoming a supplier of laminated MDF to IKEA in India.
However, furniture makers in general are not too concerned about the emerging situation. “I know the Indian mentality. Many will visit the IKEA showroom just to get design ideas. They will copy the idea and get it produced through local artisans!” says Nilesh Jadhav a local furniture maker. Also some feel that IKEA will restrict its operations to big cities and Tier 2 & 3 cities may not be in its agenda, at least in the near future. According to many, growth rate in these smaller cities will be more than Metro cities. However, IKEA will be starting its e-commerce in furniture next year, thus making its reach universal.
It is interesting to note that last week IKEA also announced its revised plans of investment. The furniture giant had earlier announced plans to invest Rs 10,500 crore (INR 105 billion) to open 25 stores by 2025. IKEA now plans to open over 40 stores across different formats as against 25 stores planned earlier with the possibility of some being smaller inner-city stores to complement larger suburban locations. This announcement has surprised many as this is an ‘un-IKEA-likely’ move which has never happened in the history of IKEA before. For example, IKEA entered Chinese market in 1998 and in 20 years since then, IKEA has just 25 retail stores in the world’s largest country (in terms of population). Even while re-entering Japan in 2006, IKEA took five years to study the consumer behaviour and lay out its strategies accordingly. In the global plan IKEA usually opens 5 retail stores every year (out of which one store was in China). However, for India, it seems to have changed its strategy and faster expansion appears to be its mission. One of the reasons for IKEA revising its investment plan may be the increase in real estate prices in some parts of India.
When entering the new markets, Ikea is not just selling products, but also its philosophy. In India, it is not just selling furniture but also introducing a new way of selling furniture. Whether this global furniture company will succeed in its efforts cannot be foretold now, but one thing is sure – entry and the presence of IKEA in India will take the expectation level of the Indian consumers to a new high.