Peter Agnefjall, CEO, IKEA, said that the company is said looking at sourcing not just the mandatory 30 per cent, but lot more to make a more affordable offer for Indian customers and grow the manufacturing industry in India. In an exclusive interview with BusinessLine on the sidelines of the Democratic Design Days in this southern Swedish town, Agnefjall indicated that the company will adopt a omni-channel retail approach to reach out to the many customers alongside front-end retailing. The company said that it is on track to hit the €50-billion sales target by 2020. Excerpts
It has been five years since you announced your plans to enter India. Why this long delay?
We are in an exciting journey and we have been on that journey for 73 years. We have been sourcing from India since last 30 years. We are in a new phase. Our business concept is different from other retailers who rent space but we do everything from the scratch. We own plots and build shops. Our plots are several sq metres and it needs various permits. We also have 30 per cent sourcing norm. We want to live up to that. We have bought our first shop in Hyderabad. By next summer, we will open our first flagship store in Hyderabad.
Not so much land but finding the right plot with adequate infrastructure is indeed a problem. We want good public transports to come to our stores. Infrastructure inadequacies are there. We go through our process thoroughly as once we build, it stands for the next 50 stores. We have bought plots in Mumbai as well.
We are looking for plots in Delhi NCR and Bengaluru. We are looking to close more land deals so that we can quickly look at store openings.
You have committed 25 stores and €1.5 billion for India. What is the time period?
We would like to grow fast. We are looking at setting up 25 stores by 2025. Each store will come up with an investment of ₹500 crore.
What about the current government. How conducive are they for business?
The government is supportive. The purchasing power of people is growing and the sourcing opportunity is immense. In the last couple of years, India is opening up. I met up with Prime Minister Narendra Modi last year. There is a strong ambition to establish India as a strong nation both in terms of production opportunity but as a nation overall. The new rules opening up foreign retailing is a step in that direction that makes it possible for companies like us to invest in great jobs here. Once we get going here, we will have opportunity to source lot more from here that the mandatory 30 per cent.
If you see global retailers like IKEA, H&M, Marks and Spencer's are typically mass brand internationally. But in India, they operate in premium segment. Will your strategy continue to be 'IKEA for the many people' in India as well?
IKEA is for the many people. There is an appeal to the brand both in terms of price and functionality. I guess that will be appreciated in India as well. But we are not trying to compete with the local carpenter and neither are we looking to drive in the premium market.
Historically, in markets where foreign retailers have not been allowed, there is a pricing gap. Middleman add margin at traditional costs from the supplier to the consumer and that has driven up the struggle.
So by allowing retailers like H&M and IKEA, government is enabling the retail environment. We are targeting prices to reach normal income people and that is why it is important for us to have source locally.
We produce where we distribute. So we need to roll up our sleeves and pair up with Indian entrepreneurs.
What about sourcing? How exactly do you plan to double it especially in subdued market conditions?
Our sourcing stands at €315 million. We have been sourcing from India since last 28 years. Once we have a footprint of our stores, we plan to double it. Indian stuff has global appeal. We are looking at more than textile. We are looking at bulk products like mattress and sofas.
E-commerce is booming and is that an opportunity?
In the first permission, we were not allowed to undertake e-commerce. But with the progressive support from the Indian government, that has changed in November last year.
We are looking at e-commerce and there is an opportunity to create a strong supply chain and logistics infrastructure. It’s the first time that we will be able to integrate e-commerce retailing with our traditional stores in a new market. We are excited about opening up in India.
(The writer is in Sweden at the invitation of IKEA)