 "Ikea")
With its first store in India set to open next year, Swedish furniture retailer IKEA is considering to set up a production unit in the country in order to fully tap the potential of 'big middle class' consumers in the market.
The company, which has already purchased land in Hyderabad and Mumbai to start retail operations, is also looking to double sourcing of products for its global operations from India by 2020.
"It is important for us to set up our production (unit) in India," president and chief executive officer Peter Agnefjäll told PTI here.
Explaining the reasons for the need to have production facilities in India, he said: "We do is that we sell products which are inexpensive. You can not distribute these inexpensive products over long distances because if you do, you would ruin the margin of the product." Agnefjäll further said: "So, it's important to go for local production. If we have the right technology, right raw materials which exist there, we can combine with the knowledge of IKEA and turn into a fantastic product."
"Then only can we I think of reaching the big middle class, not the affluent few but the many people in India. There is enormous growth of the middle class year by year and by 2025, it would look different from today."
Asked about the total investments IKEA is planning, he said: "We are estimating we need to invest more than euro 1.5 billion in the coming period in stores and distribution, etc."
IKEA will open its first store in India at Hyderabad in the second half of 2017. It has bought land in Mumbai as part of its expansion and scouts for more sites in National Capital Region, and Bengaluru.
The firm, which got a government nod in 2013 for its Rs 10,500-crore proposal to open retail stores under 100 per cent foreign direct investment, plans to open 25 stores by 2025 in nine Indian cities.
On sourcing, Agnefjäll said: "Overall, we are saying we would double our sourcing from India by 2020."
In 2015, IKEA had sourced goods worth euro 315 million from India, in which textiles contributed around 70 per cent. Stressing the need to increase sourcing from India, he said: "It's also about finding new opportunities. We know that India is very competitive on textiles but there are things you could produce in a competitive way. For instance, you have plenty of bamboos. Could you make flat line furniture out of bamboo? It's one of the things my colleagues are looking into."
When asked how soon IKEA could open its stores in North India, especially around Delhi, he said: "It's difficult to say. It's about actually how fast can we find sites, acquire these and make sure that these get retailing permits and build our stores on it."
"It's not entirely up to us to say let's do it in 2-3 years. It's all about what are the opportunities in the market."
He said for a big city like Delhi, IKEA would probably need three to five stores to cover it in a good way and added the company would really like to locate its stores where there is good connection to public transportation too.
