Swedish furniture retailer IKEA is in discussions with the government over the recent import duty hike that is likely to impact the company's business in India, said a top company official.
"We are meeting the government several times (to discuss regarding the recent import duty). They are very open and we are discussing how to increase local manufacturing in India," said Peter Betzel, managing director, IKEA India Ltd on the side lines of the Retail Leadership Summit organised by Retailers Association of India (RAI).
Earlier this month, the government in its Union Budget 2020-21, said it will hike custom duties on imported furniture from the current 20% to 25% to safeguard the interests of India's micro, small & medium enterprises.
IKEA sees India as an important market and has invested over $1.7 billion in the country.
World’s biggest furniture brand, IKEA opened its first store in India in 2018 in Hyderabad, Andhra Pradesh. The company is now gearing up to launch its second store in Mumbai in the next few months.
The Stockholm-based firm however, already sells its product in the financial capital through its online portal as part of a "hybrid model" that it has recently adopted for larger cities like Mumbai.
It relies heavily on large global sourcing and supply chain network to sell affordable furniture and furnishings across the globe. It has over 370 stores around the world.
At present, around 75% of the products sold in India are imported. The company gradually plans to bring this down to 50%.
"We are evaluating the impact of the government decision to hike import duty. For sure there will be an impact. We are disappointed with the decision We have been trying to create many more suppliers in India in the past one year. Today you hike the custom duty and tomorrow you cannot start sourcing from India, " Betzel said.
While the company does not plan to increase prices of its products due to import duty hike, it does impact its business.
"It would be a challenge to affordability because affordability is so important. We are not looking at increasing our prices but it does impact our business," Betzel said.
The world largest furniture retail chain, which had committed to open 25 stores in India, had said that the company is transforming its business model due to growing digitisation all over the world.
"We decided one-and-a-half years ago that we need to transform our business model. We need to be much more accessible to many people, which means adopting a true omni-channel approach, " Betzel had said in an interview with Mint..
As part of the hybrid model, the company is looking to open big stores as well as small formats in the big cities of Mumbai, Delhi and Bengaluru apart from selling its products having an online.