Ikea to build own retail real estate

Swedish furniture giant Ikea has decided to build its own retail real estate for setting up stores in key Indian metros after facing stiff challenges in finding adequate retail space that fits its bill.

The retailer is scouting for land parcels and currently in discussions with land owners for possible acquisition.

Among cities being looked at are National Capital Region, Mumbai, Bangalore and Hyderabad.

Juvencio Maeztu, chief executive officer, Ikea India, said the company will look at retail space between 350,000 square feet and 400,000 sq ft for its stores in India.

"These will be destination stores with good rail and road connectivity. Each store will call for investments to the tune of Rs 500 crore," said Maeztu, speaking at the India Retail Forum (IRF) 2014 summit.

Given the space requirements for an Ikea store, the company will be looking at acquiring at least 5-6 acre for each store to be able to provide the same shopping experience it offers customers in the international markets.

While earlier reports had suggested that Ikea might have to look at smaller stores in India given the space constraints, a company executive told dna that there is no such change in plan.

"It's quite a challenge to find the kind of retail space that we require for our stores. It was thus decided to acquire land parcels and build our own retail space according to company's specifications. Also, we look for long-term lease of 50-100 years; entering into short-term agreements with mall developers here will not be in tune with our business policy," said the senior executive.

Asked whether any land deal would be finalised this year, the company executive said, "Talks are still on and we have not yet finalised on any land parcel yet."

The executive said a few state governments have offered help in procuring land parcels.

It is a known fact that acquiring land parcels in India is a challenge. And with Ikea taking the build, own and operate route, the first store is likely to take more time to get operational as against the 2016-17 timeline indicated by earlier media reports.

Ikea, which manufactures and sells home and office furnishing products, had announced plans to invest in single-brand retail trading in India through a 100% subsidiary. The company had in January 2013 received an approval from the Foreign Investment Promotion Board to invest Rs 10,500 crore over 10 years for setting up stores in India.

While it is not clear how many stores will be launched by the company, reports had indicated that Ikea was looking at a minimum of 25 stores. And going by capex of Rs 500 crore required for setting up a store, the company may require to make more investments in the Indian market in the future.

Ikea has been buying from India for its global retail operations and is working aggressively on enhancing its vendor network to expand its offerings.