Bengaluru: Swedish giant Ikea Group’s entry into India will likely accelerate expansion of the country’s organized furniture market. But the company will have to rely heavily on after-sales assembly services rather than the do-it-yourself (DIY) model it uses elsewhere if it is to become really successful, experts said.
Ikea is scheduled to open its first store in India in Hyderabad in mid-2018. And everyone, including analysts and executives at other furniture companies, agrees that its entry will prove beneficial for the industry.
“That Ikea will play a very important role in helping the market organize faster is a fair assumption. It’s not just its size, it is an incredible company and will do great work," said Ashish Goel, chief executive of Urban Ladder Home Décor Solutions Pvt. Ltd.
Ikea is expected to bring standardization—in terms of quality, raw materials, product dimensions, supply chain and inventory stocking—to an extremely fragmented furniture market and thus provide consumers with more reasons to turn to the organized space.
Analysts also list the Swedish company’s vast array of products—its global portfolio has around 9,500—as an advantage. Indian consumers still have it tough when it comes to finding satisfactorily diverse offerings for the home at a single store or location.
“In India, 90% of the unorganized market mostly comprises small and medium businesses. If Ikea works with them, it will ensure the market gets more organized and small businesses will benefit in the process," said Ambareesh Murty, CEO and co-founder of Pepperfry.
India’s indoor furniture market grew at a compound annual growth rate (CAGR) of 10.9% between 2012 and 2017, and is forecast to grow at a 3.8% CAGR between 2017 and 2022, according to Euromonitor International.
Indian firms have also ramped up expansion plans. Pepperfry has 28 stores currently and plans to expand to more than 50 stores by the end of the year, said Murty. Urban Ladder has four stores but declined to comment on its expansion plans.
Ikea may be able to boost industry growth and expansion overall, but its success will be hugely dependent on how well it adapts to India. Across the globe, the company focuses on DIY products, which account for roughly 65% of its portfolio.
“DIY is not a concept that is common in India at all. And it will take a lot of time for it to come to India as a model. Assembly and distribution is a challenge in the furniture space and global players need to either find a model of alliance with home services players and logistics partners or have their own in-house fleet to do it," said Sreedhar Prasad, head of consumer markets at KPMG.
“We believe the young and progressive Indian will surely enjoy assembling furniture with Ikea. But we appreciate the service need of a service-based economy like India, and to cater to that need we will have a team of well-trained professionals to assemble products for Ikea customers in their homes," said Christian Kampe, country sales manager at Ikea India.
Ikea typically targets a younger demographic, mainly those under 35, in the markets where it operates. But according to Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight, the young urban Indian’s demands will be very different from those of his or her European counterpart.
European consumers are used to functioning more independently, whether it comes to using self-service at the store or assembling their own furniture, because labour is scarce and expensive. In comparison, labour is available more easily and at much lower cost in India.
Ikea has already started preparing by recruiting people to provide after-sales services. These people are being trained at an assembly training centre in Hyderabad, Kampe added.
Mihir Dalal in Bengaluru contributed to this story.