In the first weekend after Ikea opened its massive new store on the northern outskirts of Bengaluru last month, thousands of shoppers stood outside for two hours or more. Like 34-year-old Sandeep Reddy and his wife Poornima. “It is like Hyderabad again,” Reddy said. The young couple were living in the capital of Telangana in August 2018, when Ikea opened its first store in India. Even then, he was one of the thousands of middle class residents who braved the bumper. -To-bumper traffic to a sample of the Swedish furniture retailer’s minimalist design. “This time, the crowd is more,” Reddy said.
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For Ikea, which has had a slow run in India, the big-bang opening was just the kind of boost it needed. Between June 22 and 26, the store saw a footfall of around 1 lakh. Spread across 4,60,000 square feet, the Nagasandra store offers the classic large-format Ikea experience – the two-level store holds 7,400 products, and more than 60 rooms on display that can pack more than most single furniture stores can. Its 1,000-seat restaurant and bistro doesn’t serve filter coffee, but does have chicken tikka curry, dal makhani, parathas, and other Indian dishes, in addition to Swedish meatballs.
But boosting enthusiasm has never been a problem for Ikea – in 2013, when it got approval to open stores in India under the single-brand retail investment policy in 2012, it was the largest foreign investment in retail in the country. Ingka Group is committed to bring the company 10,500 crore investment and opening of 25 stores in nine cities by 2025. The Bangalore store is only the fourth.
It’s fair to say that the Ikea disruption the market has been waiting for is yet to come. Over the past four years, its expansion has been cautious and incremental, slowed further by the pandemic. “We’ve kept up the pace despite all the challenges,” Suzanne Pulverer, CEO and Chief Sustainability Officer for India Business, said in an interview.
As of today, India’s organized furniture market has a bigger player than Ikea – in addition to wooden furniture, there are plastic and steel furniture manufacturers. One of the largest producers of molded plastic furniture, Nilkamal earned a revenue of 2,730 crore in 2021-22; The revenue of another furniture company Godrej Interio was 2,500 crore last year. But Ikea is no small. Data from business intelligence platform Toffler shows Ikea generated revenue of 608 crore in 2020-21, three times more than furniture marketplace Pepperfry ( 202 crore) and more than five times the revenue of the urban ladder ( 114 crores).
The Bengaluru store—its third major format (after Hyderabad and Navi Mumbai) is crucial for the store-retailer’s next big leap. But there are other pieces of the puzzle that still need to be completed.
No Vocal for Local
If you do not get the right price then you cannot grow business in India. Pulverer agrees that Ikea’s long-term strategy is affordability. In mid-2021, it slashed product prices (even after the first round of price cuts in 2020) to reach a customer base of 200 million. But keeping prices down hasn’t been easy. “We are not immune to a rise in prices due to the pandemic and war. It has affected everything from raw materials, production to transportation; The entire supply chain has been affected and disrupted. We have absorbed a lot of price increases and have corrected and adjusted wherever we see potential.”
What will be crucial for Ikea to cut its import costs is to increase its local sourcing—from 19-25% in 2018-2021 to 26-27% now. The company says it is looking to increase this to around 50% and establish a local ecosystem for the long term. “Local sourcing should evolve for us as it is the right way forward – to provide job opportunities and become locally relevant along with affordability and pricing.”
In contrast, for example, 86-90% of its competitor Pepperfry’s supplies come from India.
But retail analysts say it may not be very easy. Ikea sources ingredients from Europe and Asia, including China, which is one of its largest procurement sources.
In 2020, the government increased the custom duty on imported furniture from 20% to 25% to protect the interests of India’s micro, small and medium enterprises.
Due to all this, the Indian unit of Ikea has increased its net loss. 807.5 crore in 2020-21 from As per the latest available data with Tofler, 720.7 Crore in the previous year. Net sales in Ikea India Pvt. Ltd grew 7.36% during the period. Sales in FY 2011 grew at a much slower pace than the 64.68% year-on-year growth recorded in the year ended March 2020.
Another difference in its strategy is its online presence – only customers in Bengaluru, Hyderabad, Mumbai, Pune, Ahmedabad, Surat and Vadodara can order their products through the app or website. Some of that has to do with Ikea DNA. “Experiencing a full-size store would be the best way to get to know us,” Pulverer said. In India it has adopted a multi-format approach. It is planning smaller 5,000 sq ft stores for quick expansion and being closer to the customer, and more city stores like the one in Mumbai. In June, Ikea said it would open a 72,000-square-foot, small format store in Ghatkopar—its third in Mumbai. Ingka Kendra, part of Ingka Group, is also planning to open two separate shopping centers in India- both in the Delhi-NCR region. “A mix of offline and online, along with remote selling points, will be important,” Pulverer said.
nature of market
India’s furniture market is hard to crack – it is complex, fragmented, price-sensitive and dominated by unorganized, small retailers. It’s also largely offline—and, therefore, perhaps, the last frontier for e-commerce. According to data from management consultant RedSeer, the size of furniture and home goods in India was $16 billion (in terms of gross merchandise value) in 2021-22, and is projected to grow to $41 billion by 2026. But about 75% of the current market is dominated by unorganized companies (some analysts have pegged it at 80-85 per cent).
Abhishek Tandon, Senior Consultant, RedSeer said, “With online sales increasing and offline companies trying to sell online, and also because customers want good quality products, it is expected to grow 65:35% by FY26 Is.”
Retail analysts say the furniture business grew during the pandemic, as people upgraded their homes and bought pieces of home work. But the revenge shopping will only last so long. Inflationary pressure on consumption is a challenge for the branded furniture retailers. Deloitte India Partner, Consulting Rajat Wahi said the pace of economic recovery and how branded furniture companies operate without the high-fixed costs will be a challenge. Brands like Ikea are now talking about a hub-and-spoke model, where they set up a large format store and later smaller stores or physical touch points to get closer to the customers. “Delivery and post-delivery service and assembling are the areas that need attention,” Wahi said.
Playground
If you are looking for the best furniture in town, all you have to do is visit our store. They are not located on the outskirts of the city. Just saying.” This was an advertisement by Bengaluru-based home solutions company Wakefit, which was swiping at an Ikea store 17 km from the city centre. Wakefit, which started sleep solutions company, launched its furniture range in July 2020. -22 in 2021, in its first full year of furniture sales, it 140 crore furniture sales every month with 20-22% revenue contribution.
Tongue-in-cheek aside, there’s a sense of nervousness among Ikea’s competitors. In the March quarter, Pepperfy launched 11 collections by its home brands, one of them being the Scandinavian collection by CasaCraft. Other rivals in the segment are Wakefit, Urban Ladder (acquired by Reliance Retail Ventures in 2020), Godrej Interio, HomeCenter, HomeTown, Pepperfry and horizontal retailers Amazon and Flipkart.
Many of them want to expand their presence beyond the metros. Godrej Interio started expanding its online presence during the pandemic. The decades-old company now wants to step up its e-commerce game, and provide 5,000 pin codes from its website. With offline expansion on the cards, it expects a 25% jump in revenue in FY13. “We aim to offer value-for-money products apart from our high-end furniture. Subodh Mehta, Senior Vice President, Godrej Interio (B2C Business), said, “Our logistics set-up means we can be present in a small district as well.”
Ashish Shah, co-founder and chief operating officer of Pepperfry, says its focus on local sourcing and a stable supply chain will benefit the company. Due to disruptions in the global supply chain, a container previously imported from Malaysia for $800 has now increased to $5,400, making furniture imports difficult and prohibitive. “Thankfully, 86-90% of our supply comes from India. We work with around 200 merchants from Rajasthan and North India cities. It added 100 studios in the last 10 months, and today distributed across 300 cities.
Even a relatively new player like Wakefit distributes DIY bedframes across India. For the remainder of its furniture catalog, it currently offers services in 23 cities, said Chaitanya Ramalingagowda, director and co-founder, Wakefit. WoodenStreet, which recently raised $30 million led by Westbridge Capital, plans to expand from the current 50 stores to 200 stores over two years. Pulverer said there is an obligation to go beyond metros, “but we need to be prepared for that expansion.”
Ikea’s Pulverer says, “There’s room for everyone but of course, we want to lead. We’re not focusing so much on competition. Our focus will be on growth, brand building, people and profitability.”
Pepperfry believes all brands will benefit from the Ikea buzz. “When Ikea launched its Hyderabad store, the number of visitors to our store and my website increased significantly over the next 3-4 months. When brands like Ikea enter, they create excitement in the market. It helps all the players.”
“Ikea makes its stores a destination, and a better reference point. This is where Ikea’s role as a global retailer lies, but it is yet to emerge. It will help formalize the market here, Ankur Bisen, senior partner and head-consumer, food and retail, said Technopal Advisors.
Analysts believe this is just the beginning of Ikea’s journey and it has the potential to be a game changer in the long run, despite some hiccups. Harminder Sawhney, founder, Wazir Advisors, said Ikea makes solid investments on the land and is not worried about the short term. “Many global retailers in India went slow in the first few years. Ikea is also in no hurry.”