IKEA to invest Rs 10,500 cr in India, to open 25 outlets

New Delhi: It took a meeting in St Petersburg, Russia, for the euro 25-billion Scandinavian furniture giant IKEA to commit its investment in the Indian retail sector, almost six months after the government allowed 100 per cent foreign direct investment (FDI) in single-brand retail.

IKEA chief, Mikael Ohlsson, today gave an assurance to Commerce Minister Anand Sharma at a luncheon meeting during the St Petersburg International Economic Forum that his company would invest euro 1.5 billion (Rs 10,500 crore) in India over the next 15-20 years. Besides 25 retail outlets, it plans to also set up restaurants, food mart, nursing home and publications under its brand name.

IKEA, which had earlier tried to enter India when 51 per cent FDI was allowed in single-brand retail, and, subsequently, decided to come on its own when the rules were relaxed, said it had filed an application with the Indian government for clearances to set up a fully-owned subsidiary. The company has filed the application through its advisor Titus and Co Advocates. The proposal needs to be finally approved by the Cabinet Committee on Economic Affairs, as the investment exceeds Rs 1,200 crore.

IKEA’s would be the second foreign investment so far since the government relaxed the rules for single-brand retail. UK-based footwear retailer, Pavers, was the first chain to apply under 100-per-cent FDI regime in April.

Even as the largest furniture chain of the world, with 287 stores, had earlier raised concerns over the sticky condition of sourcing 30 per cent of value from Indian small and medium enterprises for 100 per cent FDI, it has now decided to set up shop in India under the same norms.

An IKEA spokesperson told Business Standard that the “challenge related to 30 per cent sourcing remained”. A commerce ministry official pointed out “there are no changes made in the procurement conditions. There is no question of any dilution.”

“Having studied the guidelines, we believe we can live up to the guidelines and keep within the spirit of the policy,” the spokesperson said.

Arvind Singhal, founder and chairman, Technopak Advisors, said the IKEA move would give the much-needed confidence to the international investor community.

The company would invest euro 600 million (approximately Rs 4,200 crore) in the first stage and an additional Euro 900 million (about Rs 6,300 crore) later, totalling euro 1.5 billion, a commerce ministry statement said. It could initially open two-three stores, based on the current sourcing values, and raise the number to 10 over a 10-year year horizon, and around 25 over a longer period.

Among the other global brands that want to enter India on their own are GAP, Abercrombie, Prada, Hennes & Mauritz and Arcadia. Among global retailers that are already present in India, either through franchisee or local JVs, are Louis Vuitton, Christian Dior, Jimmy Choo, Zara, Marks & Spencer and Canali. French luxury brand Christian Louboutin recently got the government approval to operate in India.

FDI in retail: India awaits world's biggest furniture manufacturer 'Ikea'

Sitting on the toilet seat, Edward Norton in the 1999 film Fight Club is browsing through the Ikea catalogue. In a narrator's voice he observes, "Like so many others, I had become a slave to the Ikea nesting instinct. If I saw something clever like a little coffee table in the shape of a yin-yang, I had to have it."

It's this feeling, the 'Ikea nesting instinct', that Indians haven't experienced till now. Simply because we don't have an Ikea here. And going by president and CEO of Ikea, the Scandinavian home products giant, Mikael Ohlsson's quiet visit last week, it will be some time before we know that feeling.

The moment the floodgates opened for 100% FDI in single-brand retail, all eyes were on Ikea, which has been playing the waiting game to launch its India operations for some years now.

On November 27, PTI reported that Ohlsson will be visiting India to "announce strategic initiative for Indian market". The furore over retail reforms has mainly been addressing the 51% FDI in multi-brand retail. The move to increase FDI to 100% in single-brand retail largely went unnoticed. Yet, Ohlsson, probably persuaded by the current political climate, came and went last week, without any "strategic" announcement.

An Ikea spokesperson said, "Ikea has decided to take some more time to plan its India strategy." Yet, Ikea is not exactly alien to India. How can it be? It's a brand that has 326 stores in 38 countries. And a catalogue print run that rivals Harry Potter books (197 million catalogues in 29 languages and 61 editions in 2010).


In 2009-10, it showed a profit of $23.1 billion, a 7.7% jump from the year before. Many Indians have managed to have Ikea furniture, ordering their local carpenter to copy iconic Lack tables, Billy bookcases or Malm dressers from the Ikea catalogue.

What's the Big Ikea?

In the West, Ikea has become the first furniture of any individual. The October 3, 2011, issue of The New Yorker had Lauren Collins dissect the brand, its philosophy and culture. Collins describes it as "Legos for grown ups, connecting the furniture of our adulthoods with the toys of our childhood." It's currently the world's biggest furniture and furnishing manufacturer and the third largest consumer of wood ahead of Walmart but behind Home Depot and Lowe's.

Did you know that one in 10 Europeans is conceived on an Ikea bed?

Furniture industry insiders in India too are waiting for Ikea. The industry joke is that local carpenters will get new ideas to copy after Ikea comes in. More seriously, and as Manish Parekh. executive director of @home by Nilkamal, a furniture & furnishing retailer . says, Ikea's entry will help the segment grow more organised.

"Our study shows, wherever Ikea has opened a store, it has helped to grow the market and all players flourish." Launched in 2005, @home is now 19 stores across 13 cities, the brand achieved its break-even last year. "There is definitely a shift towards organised furniture retailing. Growth rate of organised retail is much higher than the overall furniture industry," he says, "But in India, we need Ikea to educate customers about readymade furniture."