Will IKEA Expand to Other Indian Cities?

August 2023 marks the point at which IKEA's expansion plans in India beyond Hyderabad were under consideration. The company expressed interest in entering other major cities such as Mumbai, Bengaluru, and Delhi, as well as exploring smaller cities to expand its retail presence in the Indian market. For the most current information, it is recommended to check IKEA's official announcements or news sources as plans may have evolved since then.

Current Status of IKEA in India

As of the early 21st century, IKEA had generated significant revenue from its first store in Hyderabad. According to a report, during the first seven months of fiscal year 19, IKEA's revenue stood at Rs 407 crore. However, the company faced significant financial challenges, incurring losses of Rs 685 crore in fiscal year 19 and Rs 368 crore in fiscal year 18 due to long-term corporate expenses such as infrastructure, staff costs, and training.

A report cited in The Economic Times (ET) mentioned, “Millions of visitors have visited the IKEA store, and the turnover of the store is also as per the expectations of the company.” In August of the same year, IKEA entered the online space by launching its online delivery system. Subsequently, by November, the home furnishing retailer launched its service in Mumbai, offering IKEA products via two trucks in the city.

Challenges in the Indian Market

The question remains: will IKEA continue to expand in India, and if so, to which cities? The answer depends on various factors, including market dynamics and consumer behavior. Indian consumers often exhibit unique attitudes towards brands, luxury, and affordability compared to global norms.

The report notes that IKEA made a profit of Rs 400 crore in the first year of its Hyderabad store. This suggests that while the initial investments led to significant losses, the business model is potentially viable with the right strategies in place. However, if the trend of loss-making operations continues, it raises doubts about the feasibility of further expansion.

Understanding the Indian Market

The Indian market for furniture is characterized by several unique trends and habits. Consumer behavior in this sector often diverges from global norms, which can make market penetration challenging for international brands:

Age Difference in Furniture Purchasing: Unlike in many developed markets, furniture in India is predominantly purchased by people above the age of 35. This group, often referred to as the 35 demographic, includes individuals who have built their first home or married, resulting in a steady demand for furniture. In-laws’ Influence: In Indian culture, furniture is often bought by in-laws, particularly the bride’s parents. This custom has been a long-standing tradition, making it rare for 20- to 30-year-olds to make significant furniture purchases. Local Crafts Preponderance: Older Indians tend to prefer local carpenters and handcrafted items over large international brands like IKEA. This preference is driven by a trust in local craftsmanship and a cultural inclination toward traditional methods.

Due to these factors, IKEA and other international furniture retailers may need to wait for the younger generation to reach an age at which they are more likely to make significant purchases. This could take several more years, assuming the current trends persist.

Conclusion

The expansion of IKEA to other Indian cities is not a certainty. Market dynamics, consumer behavior, and the company’s ability to adapt to these unique conditions will all play crucial roles in determining the future of IKEA in India. As of now, while the company has shown interest in expanding, the success of future operations will depend on its capacity to navigate the unique challenges of the Indian market.

Note: For the most current information, please refer to IKEA's official statements or recent news sources.