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IKEA’s Indian foray will accelerate shift to organized space, says GlobalData

IKEA is all set to open its first Indian store in Hyderabad on 9th August 2018. Even though winning customers in the highly fragmented, untapped and unorganized Indian market will not be easy for the Swedish home furniture giant, it will surely accelerate a shift to organized space, says leading data and analytics company GlobalData.

IKEA has reportedly spent INR10bn (10% of its total investment proposal) on the approximately 400,000 square feet store. It is one of the biggest foreign investments in the Indian Home market, which is largely dominated by unorganized players.

According to GlobalData, rising disposable incomes and improving living conditions of urbanites present vast opportunities for home furniture manufacturers in India. Against the backdrop, the company forecasts the Indian Home sector to grow at a Compound Annual Growth Rate (CAGR) of 10.9% during 2016-2021 and reach INR4,979.3bn by 2021. Of the three product categories—home improvement & gardening products was the largest category accounting for 52.3% value share in 2016 while homewares is expected to be the fastest growing category at a CAGR of 13.4% over the period 2016-2021.

Improving economic conditions, booming housing sector and relaxation in the sourcing norms for single brand retailers with more than 51% FDI will create opportunities for international home sector brands in India. Driven by increasing smartphone penetration, GlobalData expects the online channel (0.1% of total Home sales in 2016), to grow at a CAGR of 28.5% over the period 2016-21.

Sumit Chopra, Director of Consumer and Retail Research at GlobalData, says: “IKEA’s foray will impact the market share of branded players. The Indian Home market is highly fragmented with the top five players accounting for just 2% market share. In addition, IKEA’s strategy to build a strong offline presence and build a brand image among customers where they can see and feel products associated with the brand and use e-commerce as a supplement channel – will also provide new experience to the consumers. As a result, branded players will have to offer differentiated products and services.”

However, winning customers will not be easy for international players such as IKEA, as the majority of Indian consumers are value conscious and when it comes to big ticket products, they prefer purchasing from unorganized market offering acceptable quality products at affordable prices.

Meanwhile, leading Indian online players—Pepperfry and Urban Ladder— are expanding into offline space and offering differentiated formats under omnichannel business model, which comprises both online marketplace and ‘touch and feel’ outlets, to compete with the planned entry of the world’s largest furniture retailer, IKEA.

On the other hand, lack of infrastructure and poor supply chain, mainly in tier II and III cities, is going to be a major challenge for IKEA. Maintaining competitive pricing amongst those offering product differentiation and good quality will also be crucial.

Chopra concludes: “Both organized and unorganized sector players will have to revisit their product strategies considering the stiff competition they will face from IKEA’s ‘affordable solutions’. However, it is still to be seen how value conscious Indian consumers respond to IKEA’s ‘DIY’ furniture concept, which is completely new for the Indian market. All in all, the Indian Home market will benefit from IKEA’s entry as it is expected to accelerate organized sector growth and expansion.”

Analysts available for comment. Please contact the GlobalData Press Office at pr@globaldata.com.