Ikea targets Indian expansion

10 October 2012

NEW DELHI: Ikea, the Swedish furniture retailer, has formally applied to establish stores in India, offering a test case for chains seeking to take advantage of revised regulations in the country.

The company has submitted an application to the government to trade locally, and Mikael Ohlsson, its chief executive, said shoppers were "eagerly awaiting" the opening of its first branch.

"India is an important market for Ikea, both from a retail and a sourcing perspective," he added, as reported by Livemint.  "Once our application is approved, we will develop a solid plan for the establishment of Ikea stores for many years to come."

Ikea previously released an outline of its provisional objectives in India, whereby it would invest an initial €600m to build ten outlets over a decade, and then a further €900m to construct another 15 sites.

Earlier this year, the Indian authorities allowed foreign firms to hold 100% ownership of "single-brand" retail stores, a figure which had been capped at 51% under legislation from 2006.

Ikea had long pushed for revisions to this limit, and it appeared close to achieving success in 2008, but no change was enacted at that time, and Ikea thus abandoned its Indian plans in 2009.

"We believe the current policy guidelines support the business needs of many single brand retailers and will benefit consumers as well as the development of many suppliers and producers in India," said Ohlsson.

An additional point of contention was the Indian government's original requirement that foreign chains sourced 30% of their materials from small-and-medium sized enterprises in India.

This restriction has now been revised to say they will "preferably" source these items from smaller firms, thus condoning such relationships with larger Indian organisations.

"Ikea's concerns have been addressed with the last amendment so there should not be any problem that the company should face now,” said Arpita Mukherjee, a professor at the Indian Council for Research on International Economic Relations, the think tank.

Mohit Bhal, partner, transaction services at KPMG, the advisory network, suggested Ikea's moves would serve as an accelerator for overseas players considering entering India.

"Overall it is a great development, not ... specific to Ikea but for other retailers at large," he said. "These investments and the entry of such global brands will only help galvanize the supply chain in the country."

"The sentiment such a move evokes is certainly positive and will help consolidate the unorganised furniture market in the country."

Data sourced from Livemint, Financial Times, Reuters; additional content by Warc staff