Why IKEA will opt for standalone suburban stores in India

Following the opening up of single-brand retail to 100% FDI, there’s a lot of speculation about the Swedish furniture and accessories retailer IKEA entering India.  With a global presence in as many as 41 countries, IKEA obviously cannot ignore the Rs92,500 crore Indian furniture and furnishings market, less than 7% of which has been tapped by modern retail. 

In fact, IKEA had set up an office in India back in 2007.  In June 2009, however, IKEA announced it was abandoning efforts to invest up to €300 million (more than eight times the cumulative FDI received by India in single-brand retail) for setting up stores, after failing to persuade the Indian government to ease FDI restrictions.

At that time, the Financial Times quoted IKEA’s retail head for Asia-Pacific, Ian Duffy, as saying the retailer thought it was on the verge of a breakthrough in 2008 itself, but the required policy change did not take place and IKEA did not anticipate any rapid progress on opening up the retail sector, in spite of the re-election of Dr Manmohan Singh as prime minister.

So IKEA was not wrong about the speed of progress in India. It took the Indian government another 31 months to clear the path for IKEA to enter India. Meeting the 30% sourcing obligation, however, is still likely to be a challenge.

The €26 billion IKEA is the largest single-brand retailer in the world. Deconstructed by cultural critics, featured in Hollywood films and superhit TV shows, and fetishised in song lyrics, IKEA is no ordinary retailer. It is a global cultural force. More than 10% of European kids are conceived on an IKEA bed. Its turnover is more than 100 times larger than Godrej Interio (India’s largest furniture retailer) and more than 14 times larger than the whole of Future Group (India’s largest retail conglomerate). At an average of Rs6.1 billion per store, IKEA does more than 12 times business per store compared with Future Group’s retail format Home Town.
For the scores of Indian mall developers dreaming of IKEA anchoring their malls - let’s do a reality check. The world’s largest IKEA store, located at Kungens Kurva outside Sweden’s capital Stockholm, measures a whopping 606,000 square feet.  The store at Shenyang (China) occupies 503,000 square feet and the newest one at Tianjin occupies 492,000 square feet. The first IKEA store in Thailand, which opened last November, is as big as 462,000 square feet.

The Indian stores are unlikely to be smaller than 350,000 square feet. Not a single Indian mall can accommodate such a large box size.  In fact, for any mall to accommodate a non-grocery, non-fashion anchor of 350,000 square feet, it needs to have total retail carpet area of at least 900,000 square feet. India currently has only one operating centre of this size - Phoenix Market City Kurla in Mumbai - and just 3-4 under planning or development, but none of these can accommodate a furniture store of 350,000+ square feet.

And it’s not just about the store size. IKEA stores typically have 6-8 unloading bays, as well as 300-400 feet long customer vehicle loading bays. They have 20-feet-high ceilings. Under the IGR (Ikea Goes Renewable) initiative, back in 2006, IKEA announced a goal to use 100% renewable energy. The company owns 52 wind turbines in France and Germany that generate 95 gigawatt-hours of power and meet about 10% of its total power requirements in those countries. It is currently building a nine-turbine wind farm in Sweden that will generate 70 gigawatt-hours per year and power 17 of their Swedish stores. Forty IKEA buildings have solar panels, which are being installed in 110 additional buildings. Will Indian developers partner with IKEA in meeting such stringent renewable energy requirements?

IKEA is likely to open nine stores in India in seven years (half the time it took in China), comprising two stores each in the NCR, Mumbai and Bangalore, and one store each at Chennai, Hyderabad and Pune. It is more likely for IKEA to opt for standalone suburban stores, not very different from what IKEA has done in most other markets or what German retailer Metro has done for its cash-and-carry stores in India.

The writer is chairman of Asipac, India’s leading mall development managers and retail research consultants, and founder of Men & Boys, Asia’s largest chain of retail stores for men’s skincare and grooming.