Ikea to double purchases of India-made products for its global market3 min read . Updated: 17 May 2013, 08:34 PM IST
The furniture retailer is targeting increasing the purchases to $900 million in the next three to five years
N ew Delhi: Swedish furniture retailer Ikea plans to double purchases of India-made products for its global markets, as it seeks to establish its first stores in the country after receiving cabinet approval this month for a €1.5 billion (nearly ₹ 10,575 crore today) investment plan, a company executive said.
Ikea currently sources some $450 million of goods from India, including carpets, rugs and textiles that make up about 75% of total purchases. The company has been sourcing products from India for the past 25 years.
It’s targeting increase in the purchases to $900 million in the next three to five years by buying more of the products and also expanding purchases to metals, bamboo, plastics and other materials.
Earlier this month, the Swedish retailer famous for its do-it-yourself home furniture received approval from the Cabinet Committee on Economic Affairs (CCEA) to set up large-format stores in India. It plans to open 10 stores in the country over the next decade.
“We will never open the store if we don’t have the right location and range," said the company’s India chief executive officer Juvencio Maeztu in an interview at Ikea’s India head office in Gurgaon on the outskirts of New Delhi.
Maeztu, who has spent the last few months travelling across cities such as Mumbai, Ahmedabad, Bangalore and the Delhi-National Capital Region, said Ikea is working on understanding the needs of Indian consumers to design and put in place an ideal product range.
“Designing that range is a big agenda," said Maeztu. “We have visited homes and spent time in the bedroom, in the kitchen and worked with different kind of families. We need to understand how people live here to be able to provide solutions to them."
The company is also seeking new vendors to work within India so it can sell locally sourced products in the country instead of relying heavily on imports so as to be able to offer affordable pricing for value-conscious and price-sensitive Indian consumers.
“Souring plays an important role and we cannot afford to pay a lot of import duties and that’s not how we can sustain it (low pricing)," said Jessica Anderen, head of purchasing at Ikea South Asia. “Across markets, we work with buyers for the long-run and focus on cost reduction."
Maeztu also maintained that Ikea will start by offering affordably priced products in India.
“We don’t want to come to the top of the pyramid in India; we want to cater to the...Indian middle class that is growing increasingly," he said. “We are obsessed at keeping prices down and do it regardless of inflation, and we will keep investing in reducing prices in India." As the global furniture retailer aims to double sales volumes in the next seven years (by 2020), sourcing from countries like India will continue to grow, suggested Anderen. “We are not just going to focus on textiles and rugs and carpets but explore and make sure and do flat pack furniture, lighting, metal and plastic in India," she said. Flat pack refers to furniture that needs to be assembled before it is used or fitted.
Ikea operates 338 stores across 26 countries. In India, it works with 70 suppliers to fulfil global sourcing needs. “For a category like furniture that is hugely unorganized, pricing will play a crucial role as retailers will need to migrate and attract a huge chunk of the consumer base that is used to shopping in that environment," aid Debashish Mukherjee, partner at consulting firm A.T. Kearney. “Lower pricing will be the key in such a case."