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IKEA Set to Open Its First Mall in Noida, Expanding Its Footprint in India

Editor, TRANSFIN.
Feb 23, 2021 12:17 PM 3 min read
Editorial

Swedish conglomerate IKEA is set to open its first “meeting place” venture in India following an ₹850cr ($117.2m) deal involving 12.3 acres in Noida, UP.

The land acquisition was secured by Ingka Centres and culminates negotiations with the Noida Authority that began in October 2019.

FYI: Ingka Centres is a part of the Ingka Group, which also includes IKEA Retail (the ready-to-assemble furniture seller) and Ingka Investments (the investment arm). 

 

Three Times the Charm

The Noida store would be IKEA’s third in India. It opened a store in Hyderabad in 2018 and one in Navi Mumbai last year. However, it would be the first time the company invested in its multifunctional mall venture in India.

Ingka’s “meeting place” concept involves mixed-use destinations that include shopping, entertainment, hospitality and business centres - all anchored around an IKEA retail store. Ingka Centres already manages 45 such establishments around the world and attracted 369 million visitors in FY20.

The location of the acquired plot in the National Capital Region (NCR) sits midway between two lines of the Delhi Metro and Noida Metro. Ingka is expected to build an interchange between the two metro corridors as part of the deal, in addition to a rotary to facilitate road traffic at the nearby intersection.

The Noida Authority has estimated that the entire project could invite investments up to ₹5,500cr ($759m) and create over 2,000 jobs. But don’t expect to go shopping for IKEA furniture in the NCR anytime soon. The mall is expected to take seven years to be completed.

 

Then and Now

Two years ago, the entry of the world’s largest furniture retailer to the world’s second-most populous market was the talk of the town. IKEA desperately needed a sales boost as its profits had been squeezed by heavy investments in its other verticals. The entry was also delayed by as much as 12 years due to regulatory impediments.

There was considerable risk involved. Firstly, India’s furniture market, while benefiting from a mushrooming middle class and growing urbanisation, is still largely unorganised and skewed in favour of hand-made products from small shops and local markets. Low labour costs mean households can hire local carpenters for their furniture needs. And secondly, the furniture retail market was already seeing competition with players like Flipkart, Pepperfry and Urban Ladder.

To build a presence in India, IKEA had to tweak its approach. This included minor changes in its restaurant menus to reflect Indian cuisines as well as an all-out upending of its sales model. IKEA replaced its iconic DIY approach with a Let-Us-Help-You one. Its Hyderabad store featured the company’s first in-house furniture-assembly team. It also invested in home-delivery services that included assembling, for which it also tied up with the Urban Company.

It was also in India that IKEA began experimenting with an omnichannel retail strategy. Recognising that Indian metros are notoriously traffic-congested and having only one store in a city could stifle business potential, the Swedish company (1) opened several smaller fulfilment stores that had the look and fill of its larger ones and (2) developed an extensive e-commerce strategy.

Point #2 was a quintessentially Indian approach, one tailored for the world’s second-largest internet economy. The online strategy paid off handsomely, particularly so following the coronavirus lockdown, when the country was forced to shutter down and businesses had to move online. Between September 2019 and August 2020, footfall at the Hyderabad store halved to around 2 million even as website traffic rose to 25 million.

 

Up, Up and Away

With its two stores and several fulfilment centres, IKEA has so far invested about ₹7,000cr ($965.7m) in India (among the largest single-brand FDIs). The Noida project is expected to raise its foothold in the country even further.

And IKEA seems serious about building its India presence. It has already purchased land parcels in Bengaluru and Gurgaon to build new stores. It has announced intentions to invest nearly ₹6,000cr ($827.7m) in Maharashtra in the coming decade. Situated in the heavily populated and fast-growing NCR, the Noida mall is in line with the furniture retail giant’s ambition to meet 100 million people in the country in the near-term. And the company wants to open 25 outlets in India by 2025.

To quote Juvencio Maeztu, Ingka Group’s Deputy Chief Executive:

India is an opportunity to make the next 75 years of IKEA.

FIN.

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