The entry of Indian brands and the surge of the aspiring Indian middle class have boosted the furniture retailing in India. NCAER report has said that India will have a middle class population of 267 million by 2015-2016 with average income on an upswing. CSIL Italy has recognized India to be among the 14 largest furniture markets in the world.
Indian Furniture Retail is growing at a steady pace over the years. The main segments in the furniture sector are Home furniture, Office Furniture and the Contract Segment. The organized sector consists of importers and Indian manufacturers who cater to the promising business segment. Although they are trying to foray into the Home segment, but the intricate Indian customer behaviour has posed a major hurdle.
|
Category |
2006(Bn USD)
|
2011(Bn USD)
|
2016(Bn USD)
|
CAGR(2011-16)
|
|
Furnishings & Furniture(OVERALL)
|
6.5
|
9.1
|
17.1
|
13.50%
|
|
Furnishings & Furniture(ORGANIZED)
|
0.4
|
0.7
|
1.2
|
12.00%
|
Source:- Technopak Analysis
The big players in the organized sector are Godrej & Boyce, BP Ergo, Featherlite, Haworth, Style Spa, Yantra, Renaissance, Durian, etc. With FDI in multi-brand retail extended to 100% from the earlier limit of 51%, international Players are making a move into the Indian market with IKEA recently announcing an investment of USD 1.95 bn by 2017-18.
Customer Behaviour in India towards furniture
Unlike Westerners, Indians have a totally different attitude towards furniture. Indians love heavy, teakwood furniture with intricate design. Design and material quality are the two top level priorities in the Purchase Decision Hierarchy for Indians towards furniture. Price occupies the third place (Source: KPMG Analysis).
Indians do not like similarity of furniture with their relatives or neighbours as furniture is a symbol of social status with “I have the better one” attitude. We must understand that in India family activities hover mostly in the living room and the elegance and beauty of the drawing room is a status symbol. It greatly increases the confidence and dignity of the host when he entertains his guests.
IKEA’s Value Proposition
The current problems Indian customer face with regards to Furniture market is inventory shortages, delays in deliveries, partial shipments, non-availability of all components under one roof and unprofessional customer service. Plugging in these loopholes is going to be the value proposition IKEA can provide in India. Also there is a tradition in the Indian market of having customized products by local craftsmen but customization is already at the heart of IKEA- you can choose even a back cover for a chair in IKEA.
The success of IKEA lies in not trying to change the customized model but dealing with the model in a more professional approach by hiring and training staff to not only deliver the products but to also assemble the same. Though IKEA is having an image of having low cost products overseas but the same may not hold with the Indian customer.
Learning from China
It took 12 years (after entering in 1998) for IKEA to breakeven in the most populated country of the world. The reason for this long period is its poor understanding of the Chinese customer and its attempt to impose a global strategy on the Chinese market. Preference of Indian customer and the economic environment in India is very similar to its neighbour.
The learning from China that can be applied to India is that its global strategy might be a low cost provider but it can’t compete with the local suppliers solely on the base of its low price. No matter how low the prices may be, local supplier will supply at comparatively lower rates as they will copy IKEA’s designs (laws in India are not stringent enough to prevent the same) and thus will have zero design cost. Moreover Indian customer see western products as aspirational, so low price strategy will create confusion in the minds of the customer. Its global marketing strategy of using only a product catalogue may not work well in the Indian context. It needs to have other communication channels that Indian customer prefer like Television (considered a hygiene factor by Indians) and Social media.
IKEA’s eco-friendly policy of sourcing green products or using renewable energy in stores is accepted in the west but Indian customer has not evolved to a stage where they are ready to pay premium for the benefits of the society. So, IKEA has to account that its social responsibility does not make the Indian customer perceive it as a high price brand.
Recommendations
The first problem that will come with IKEA in India will be the land acquisition as the bill is not yet well established and Juvencio Maeztu, CEO of IKEA plans to open the store spreading over 3 lakh/sq.ft which is a huge space. It should not open a store till it is able to acquire a land having facilities like close proximity to main roads and public transport as according to Transportation Statistics, India ranks 102nd with a vehicle ownership of only 15 per 1000 people.
It should collaborate with an Indian player having an understanding of the taste of the Indian customer and the local suppliers for supplying products of Teakwood, Cedarwood, handloom fabrics etc. which are adored by the Indian customer. To gel with the price sensitive Indian customer, IKEA will have to take cues from neighbouring China by opening factories in India that will procure and sell the material locally and thus reduce the burden of import duty. This will not impact the global sourcing standards of IKEA as it is already sourcing textiles, rugs, ceramics, lightning articles etc. from India.
Whatever IKEA does it must not end up as another shopping mall round the corner clogging a city. It must not be viewed as another place where a family can just visit on weekends. IKEA must replicate and create the success mantra it has achieved in developed countries. Local adaptation is a challenge that every Multinational faces. It is a “Do or Die situation” where a company must adopt itself to local environment to survive or it is destined to perish.
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