Undeterred by taxes, IKEA puts together cheap India pricing

Allcargo Gati

08/08/2018 05:41

By Subrat Patnaik
    HYDERABAD, Aug 8 (Reuters) - IKEA will do things differently
in India after it opens its first store in the nation on
Thursday, as it deals with higher taxes on imported goods and
looks to woo cost-conscious shoppers unaccustomed to the
company's DIY furniture assembly style.
    The Swedish furniture retailer is pushing into new countries
in South America and Asia as growth slows in its traditional
strongholds, including Europe. It is betting on India with its
growing middle class, likely aiming to avoid a repeat of the
high pricing that initially hit sales in China and Australia.
    The company, which has flagged import duties in India as a
big challenge as it tries to keep prices low, has to source at
least 30 percent of its raw materials locally within five years
of operations in the country as per Indian regulation. IKEA
already sources about a fifth of its global supplies from India.
    Nevertheless, IKEA still needed to tweak its playbook.
    The 400,000 square feet (37,160 square metre) store in the
southern Indian city of Hyderabad will offer 1,000 products
including cutlery, stuffed toys, hangers and container boxes
priced under 200 Indian rupees ($2.91) - cheaper than in most
countries.  urn:newsml:reuters.com:*:nL3N1T33MW
    A quick check on IKEA's newly launched India website showed
popular products looked cheaper than in the United States. For
instance, in India, the white variation of the company's
best-selling Billy bookcase is cheaper by a fifth than in the
United States and the dark-grey Ektorp sofa is priced 30 percent
lower.
    "IKEA seems to have managed to understand the Indian
consumer and price its products accordingly," said Sowmya
Adiraju, an analyst at research firm Euromonitor International.
    But she added that the target audience for many IKEA
products right now, especially for 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.
    To satisfy the Indian penchant for ready-made furniture,
IKEA has set up a 150 member task force to help customers
assemble furniture and is also partnering with UrbanClap, an app
that connects people with a variety of service providers,
including carpenters.
    UrbanClap charges customers about 250 rupees ($3.64) for a
30-minute carpentry job. In comparison, TaskRabbit, the services
platform acquired by IKEA in 2017, charges U.S. shoppers a
minimum of $36 for any installation job.
    IKEA has so far only said it will charge more than UrbanClap
if its in-house assemblers do the job.
    
    NAMASTE!
    IKEA's debut in India has been a long time coming. The
company hit snags a few years ago after the government rejected
its request to relax rules on buying goods locally.
    Meanwhile, competition for IKEA in the country has increased
as online furniture startups such as Pepperfry and UrbanLadder
have become popular in large cities. The overall furniture
market, though, remains largely dominated by unorganized retail
and local vendors.
    IKEA had initially planned to open 25 stores across the
nation by 2025. In June, the company said it was likely to open
more stores, possibly some smaller stores in cities to
complement their typically larger showrooms in suburbs.
    The company has bought land in Hyderabad, Bangalore, Mumbai
and Gurugram, and is also looking to expand into Surat,
Ahmedabad, Kolkata, Chennai and Pune.
    Retail sales at IKEA Group's company-owned stores increased
by 4 percent last year. In comparison, sales in India's homeware
and home furnishing stores grew about 9 percent, according to
Euromonitor. 

   
($1 = 68.6200 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; 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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