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Last Updated : Nov 07, 2015 03:56 PM IST | Source: CNBC-TV18

After sourcing from India for 28 years, IKEA to open store

Swedish furniture and home accessory maker Ikea has been sourcing products from India for 28 years but is yet to open its first store in the country. That is about to change now as the company readies itself to open 25 new stores by 2025.


Swedish furniture and home accessory maker Ikea has been sourcing products from India for 28 years but is yet to open its first store in the country. That is about to change now as the company readies itself to open 25 new stores by 2025.

CNBC-TV18's Shereen Bhan spoke to Peter Agnefjall, President and CEO of IKEA Group, and asked him how relevant the company's India plans were, in keeping with Ikea's global growth strategy.

Below is the transcript of Peter Agnefjall’s interview with CNBC-TV18's Shereen Bhan.

Q: I believe your last trip to India was in 1996. It is a very different country but similar in a lot of ways. What is your own sense about what has changed and what has remained the same?


A: I have been actually to India since 1996 a couple of times. But, my first trip was in the mid-90s. I think that to a great deal, India is the same, but at the same time, also quite a few things have been changing.


The first time when I came to India, infrastructure was maybe not as developed as today. Buildings have evolved. There is a Metro today. That was not present then and we see a lot more women for instance in the workforce. So, of course, we see that India is in a great transformation, but we also see that many things are the same. People are lively, people care about their families and the traditions are important.

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Q: The Bureaucracy?

Peter Agnefjall
Peter Agnefjall
CEO|IKEA Group

    A: The bureaucracy, I think is improving and it has taken important steps forward. But I think most countries still have a lot to do on that field.


    Q: Let us talk about the India opportunity and I asked you think in the context of what you are seeing as far as your international operations are concerned. China is the fastest growing market and continues to be the fastest growing market for IKEA. Russia, Hungary are other markets that are doing very well for you. So, both in terms of contributions from the international markets for IKEA globally and how India is expected to stack up in that international market portfolio as and when your operations started.


    A: We see that of course, if you say emerging markets, the newer IKEA markets from a retail perspective are growing very fast. China, Russia but we also see that Europe has really picked up a lot lately and actually in Europe the biggest growth last year we had in Germany. So, there is actually quite a lot of positive motion going on in Europe. Then we are of course having a great interest in getting going in new markets and India is more than a market, it is even a continent in a way as we see it and we do look forward to that. It will play an important contribution on the retail side. It has been an important market for IKEA already for 28 years back from a sourcing perspective and it will continue to be important there. We are planning to double our purchasing in the coming periods. So, yes, it is an important market but it will become an even more market also from a retailing perspective.


    Q: I will talk to you about India and the sourcing opportunity in just a second, but I want to get your sense on what you are seeing in China because at this point in time, everyone is concerned about how bad things are in China, are we likely to see the situation get far worse before it starts to get better, it is not showing up in your numbers just yet, you have about 16 stores in China.


    A: We do not see that at all. We see that our business is actually developing very well in China. It was one of our fastest growing markets last year and we do not really see any strong signs that it is – on the contrary, it is actually continuing to develop rather well.


    However, China is holding up and we believe in China. We are continuing to invest in China. Currently we are the pace of building three new stores per year and we will continue that in the coming future too as well as we see a lot of growth in our existing units.


    Q: Let us talk about India now. Is the pace of setting up operations in India, would you compare that equivalent to what you saw for instance in China or other emerging markets or do you believe that the pace is significantly slower here in India because you have been around for 28 years as far as sourcing is concerned. Retail operations are another story. Once the regulatory approvals came in, but you have only just been able to acquire land in Hyderabad. The store itself will be set up about a year a year and a half down the line. Is the pace slower than what you had anticipated?


    A: I think what we see is that to establish a new IKEA country and especially a big country like India, we will eventually be, requires a lot of groundwork to set in the right pre conditions from the beginning. Once you get that right, the expansion as such actually can go a little bit faster down the line, but it is about getting all the activities behind the scene sorted out from the beginning. The value chain, the distribution, the warehousing, and all of that in order and then build the store and start retailing operations.


    Q: So, starting the store is actually the easy part?


    A: Yes, it is actually. It is not easy but it is the easier part because, if you sort out all the engineering behind the scene, then the stores will come rather easily I believe. But of course, even that is not easy. As you said, there has been regulation in place that has prevented us. That obstacle is now removed and then you have to identify size, you have to identify plots to where you can construct and our operation is normally fairly sizeable, so it has to be big plots, you have to get the building permit, you have to do the tendering process, you have to do the construction, employ the people, fill up the stores.


    _PAGEBREAK_

    Q: Speak to us about scaling up and expanding operations in India because so far there have been sort of caveated comments coming in from the India team in terms of the kind of expansion that we can expect in India. I know that you are in conversation with a bunch of state government. You could be looking at the state of Maharashtra, Karnataka, Uttar Pradesh I believe has been speaking with IKEA as well. What should we expect in terms of expansion and in terms of store growth here?

    A: Right now all our focus is in really to getting the first store up and running and that will very likely in Hyderabad, it could be somewhere else, depends on the other opportunities. We are looking into different opportunities across India. We are paying special focus I would say on Delhi, Mumbai, Bangalore, Hyderabad and possibly some places more and we think that we should start actually clustering our stores a bit in order to get the value chain up and running behind the scenes. So, that is how we are planning the entry of the market. Of course also to build distribution capacities and to continue to build the supply side not only to fulfil the requirement of the 30 percent legislation, I think we have to go beyond that if we should be successful in India and that is what we are working upon as a first step to 30 percent but also the things beyond that.

    Q: Speaking of the IKEA value chain here in India and the sourcing opportunity and you said that you expect the sourcing opportunity to double. In what time period are you looking at doubling sourcing from India and what would that mean then in terms of incremental investments here?

    A: Yes, IKEA overall we have decided to grow. We have agreed to grow from about 25 billion euros to 50 billion euros by 2020 and we are on our way right now. I believe it is not unlikely to say that we would double our purchasing activities in India by the same timeframe meaning to go from 300 to maybe 600 million euros. Of course that requires us to find the right suppliers, the right raw materials, the right competencies in order to grow IKEA in the right way but the opportunities are here. We see a lot of young age entrepreneurs, women and men across the country and we just hope that we can stimulate that in the best possible way.

    Q: So, the number of stores in India by 2020?

    A: It is very hard to say but we have an ambitious plan. A 2020 is hard to say, maybe we could be at 25 stores by 2025.

    Q: 25 stores by 2025?

    A: Yes, possibly, but it is a little bit early to say. We have to get the first, second or third store right and see that it works but we have ambitious plans and we really would like to get going as soon as possible.

    For entire interview, watch accompanying videos.



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    First Published on Nov 3, 2015 07:23 pm
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