Swedish retailer IKEA, known for its ready-to-assemble furniture, it is going to lease space in a shopping mall in Mumbai to open a store, the Economic Times reported on Monday. This is the first time IKEA will be opening such a store – in a leased space in a shopping mall. Also, this is going to be a smaller store, unlike the standard IKEA stores across the globe.
Typically, the size of an IKEA store is as big as five football grounds put together, or more than 300,000 square feet. Its only store in India is spread over 400,000 square feet in Hyderabad. The company has announced plans to open 25 outlets in India by 2025.
But, the small-format store concept is not unique to India. The company has been experimenting with smaller sized stores spread over just 5,000 square feet (Warsaw, Poland) since last year. The idea was to come close to the consumers in big metro cities like London and New York where real estate is extremely expensive, and finding retail space for a standard IKEA store is almost impossible.
The reasons why IKEA is tweaking the way it has been doing business since July 1943 include fast-spreading online commerce that has changed consumers’ habits and expectations, rapid urbanization resulting in people’s living spaces getting squeezed, especially in big metro cities, among others.
And, all these resulted in IKEA’s UK profits falling by around 40 percent last year. So, IKEA needs to react.
IKEA started investing in online pickup services, digital fulfilment centres, and started opening small-format stores. Even, it now has a model where consumers can walk in, use a computer to custom-design furniture according to their needs in a kiosk within these small-format stores, and IKEA will deliver those products to the customers.
IKEA started studying India as a market in June 2006, and it opened the first store in August 2018. It has studied the market, invested in it, and understood what may work and what may not. The first store is considered successful with footfalls of 4 million customers in the first year. But what next?
After a little more than a decade, IKEA has probably understood one thing about India – it needs to be flexible to do business in a nation with 1.3-billion population.
Besides, regulations differ in states across India. For example, IKEA has been struggling to figure out ways to open stores in Delhi, the national Capital, simply because the state regulations restrict the height of roofs for retail stores. Naturally, it will not be able to open its desired standard-sized store in Delhi. The solution for IKEA was to find places in Haryana and Uttar Pradesh, which are adjacent states to Delhi.
That’s not what it calls staying close to the consumers. The cost of commercial properties in Indian cities like Mumbai and Delhi are among the top cities globally. The lack of space is another factor.
Besides, it has been observing the success of online furniture retailers Urban Ladder, Pepperfry, Flipkart, and multichannel retailers like Fab India, Godrej, among others in the past 2-3 years.
To counter them, it needed to be present in top metro cities like Mumbai, Delhi, Bangalore, Chennai and Kolkata within a shortest possible timeframe. And, that’s possible if IKEA decides to go with the small-format retailing model. Online is a plus, because of the convenience factor.
In Mumbai, there was always a question of whether Ikea's target customer market would travel in congested traffic to Navi Mumbai to shop for furniture, and how often. Even while announcing its entry, news reports had said Ikea may experiment with smaller stores offering a digital shopping experience in Mumbai itself. But this is different. Here, it's reportedly taking up 1-lakh square feet space to set up a store. That may be small by Ikea's standards but is reasonably big by Mumbai's standards. While it may not be able to give them the full Ikea experience in a smaller store, it should get higher footfalls.
Earlier this year, IKEA also started online store in Mumbai before the physical store. According to a statement by the company, it wants to reach 100 million customers in three years through its multi-channel approach. And, in the past one year since it open the Hyderabad store, just 4 million people visited the retail outlet.
So, why is IKEA for a multi-channel strategy in India, bundled with small-format retailing? The answer is simple – it can’t wait.
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