IKEA tackles high taxes to keep prices low for Indian shoppers (updated)

Allcargo Gati

08/08/2018 10:10

* To open India's first store in Hyderabad on Thursday
    * To sell 1,000 items for under 200 rupees 
    * Tapping rising Indian incomes as growth slows elsewhere
    * Local sourcing will help offset high import taxes
    * India to be among biggest source of materials - CEO

 (Recasts; adds executive, analyst comments, store details)
    By Subrat Patnaik
    HYDERABAD, Aug 8 (Reuters) - IKEA is looking to keep prices
even lower in India than it typically does elsewhere when it
opens its first store in the country on Thursday, overcoming
high taxes on imported goods as it woos cost-conscious shoppers
unaccustomed to DIY furniture.
    Over a decade since floating the idea of Indian expansion,
the Swedish retailer will finally mark its entry with a 400,000
square foot (37,160 square metre) store in the southern city of
Hyderabad, where it will sell 1,000 items including cutlery and
stuffed toys for less than 200 rupees ($2.91).
    IKEA is pushing into Asia and South America as growth slows
in Europe and other traditional markets. It is betting on India
with its growing middle class, but mindful of the relatively
high pricing that hit sales when entering China and Australia.
    The firm previously said raising the proportion of locally
sourced materials would help it overcome import duties which
would otherwise make it challenging to keep prices low.
    Regulation dictates IKEA must source at least 30 percent of
materials locally within five years of starting operation. It
already sources about a fifth of its global supplies from India.
    Group Chief Executive Jesper Brodin, at a news conference on
Wednesday, said India will become one of IKEA's biggest sourcing
markets in the future. At present, its top suppliers are China,
Poland and Italy.
    Brodin also said he wants IKEA to be more affordable and
accessible in India.
    IKEA's newly launched India website showed popular products
at lower prices than in the United States, for instance. The
white variation of its best-selling Billy bookcase is cheaper by
a fifth and the dark-grey Ektorp sofa is priced 30 percent
lower.
    Nevertheless, analyst Sowmya Adiraju at researcher
Euromonitor International said the target audience for many
current IKEA products, especially big-ticket items, seemed to be
the wealthier end of middle class
    "It would be interesting to see how IKEA does justice to its
vision of 'furniture for all'," she said.
    
    NAMASTE INDIA!
    IKEA will not only have to win over tastes in India, but
also change a culture. Driving to a shop for do-it-yourself
(DIY) interior goods is a novel concept in India, where
made-to-order furniture is delivered to the customer fully
assembled.
    IKEA has therefore taken the unusual step of setting up a
150-member in-house task force to help with assembly. Overall,
the Hyderabad store will directly employ 950 people and another
1,500 indirectly for various services, it said on Wednesday.
    The firm plans to open more than 25 stores across India by
2025, with the possibility of some being smaller inner-city
stores to complement larger suburban locations. It has begun
building a store in Mumbai, which it expects to open next
summer.
    So far, IKEA said on Wednesday it has spent half the 105
billion rupees ($1.53 billion) earmarked for India investment,
and plans to spend 10 billion rupees setting up each store.
            
    LOCAL RIVALS
    IKEA's competition in India includes startups Pepperfry and
UrbanLadder, which offer free delivery and furniture assembled
on site at no extra cost. The overall market, however, is
dominated by miscellaneous vendors selling ready-made or
made-to-order furniture.
    "Even though winning customers in the highly fragmented,
untapped and unorganised Indian market will not be easy for the
Swedish home furniture giant, it will surely accelerate a shift
to organised space (market)," market researcher GlobalData said
in a note.
    GlobalData forecast compound annual growth rate of nearly 11
percent over 2016-2021 in India's furniture and home-improvement
market, reaching 4,979.3 billion rupees.


($1 = 68.6250 Indian rupees)

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With assembly team and samosas, IKEA lays ground for India debut
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Ikea's expansion     https://tmsnrt.rs/2Mt7vwj
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 (Reporting by Subrat Patnaik; Additional reporting by Swati
Bhat and Anna Ringstrom; Writing by Sayantani Ghosh; Editing by
Christopher Cushing)
 ((subrat.patnaik@thomsonreuters.com; within U.S. +1 646 223
8780, outside U.S. +91 80 6749 8052; Reuters Messaging:
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