IKEA in India - A typical case study you should read.

You know, it’s funny how some experiences stick with you over the years. Back in my first year of college, I remember walking into class one day, and my professor handed out a case study. It turned out to be about IKEA. At the time, my friends and I just skimmed through it, did a bit of online digging, and somehow made it through the Q&A session without much fuss. But here’s the thing: that case study really lodged itself in my mind.

Five years later, I can’t shake the feeling that I could’ve dived deeper, explored more. There’s just something about IKEA that’s always fascinated me. Maybe it’s their unique approach to design or how they make home furnishings feel accessible to everyone. Whatever it is, it lingered in the back of my mind all this time.

And today, after all that pondering and curiosity, I finally took the plunge and did the research I always wanted to. I’m excited to share what I’ve uncovered in this piece! It’s become one of my favorite explorations, and I can’t wait for you all to read it. So, here we go!

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As usual, let’s start by learning about…

The Origin of IKEA

IKEA was founded in 1943 by Swedish entrepreneur Ingvar Kamprad, has grown into the world's largest furniture retailer. Known for its affordable, ready-to-assemble furniture that features a distinctive Scandinavian design, the company's innovative approach allows customers to purchase high-quality furniture at lower prices by minimizing assembly and transportation costs.

With over 445 stores in 64 countries, IKEA has successfully carved a niche in the global market by prioritizing cost efficiency and customer satisfaction. The company’s business model emphasizes the "Do It Yourself" (DIY) philosophy, enabling consumers to engage directly in the assembly process, which enhances their connection to the products.

The Dream to enter India and first step towards it!

Recognizing India's potential as one of the fastest-growing economies, IKEA aimed to tap into the ever growing middle class, which was projected to reach 583 million by 2025, characterized by increasing disposable income and changing consumption patterns. In addition to that, the India furniture market was and still is largely unorganized, with roughly 90% dominated by local, unbranded players who can offer lower prices due to lesser overhead costs.

It’s entry into the Indian market was driven by a projected growth in the furniture sector, expected to increase from $6.2 billion in 2019 to $24.4 billion by 2035. However, IKEA faced several challenges, including:

• Regulatory Hurdles: Initial attempts to enter India were thwarted by complex regulations, with IKEA first applying for approval in 2006 and not reapplying until 2012 after policy changes allowed full foreign ownership.

• Market Structure: Approximately 90% of India’s furniture market is unorganized, dominated by local players who avoid taxes, allowing them to sell at lower prices. IKEA's products often included an 18% Goods and Services Tax (GST), which significantly impacted pricing.

• Cultural Factors: The DIY (Do It Yourself) assembly model conflicted with Indian consumers’ preferences for handcrafted furniture. Additionally, low labor costs made hiring local carpenters an attractive alternative, reducing the appeal of self-assembly.

Despite these challenges, IKEA committed to investing approximately $1.3 billion in India and opened its first store in Hyderabad in August 2018, drawing massive crowds and traffic jams. As a matter of fact, the excitement was so massive that IKEA itself has to put on billboards saying “Hyderabad, We are here to stay“. The store, spanning 400,000 square feet, aimed to showcase IKEA's unique shopping experience while adapting to local preferences.

Adapting to the India Market

Well, as unique as the first store was, it could not keep up the hype for a long time for reasons mentioned above and like any other multinational brand, IKEA was forced to adapt to Indian ways of doing business. It adapted strategies to overcome the challenges and capitalize on the opportunities. Some of these strategies are:

• Local Sourcing: In order to reduce friction in decreasing it’s import duty costs and the locals, IKEA aimed to source 50% of its products from India by 2025. This not only helps comply with Indian regulations but also support local economies. For instance, in FY23, IKEA sourced approximately $352 million worth of products from over 50 local suppliers, demonstrating its commitment to integrating into the Indian market while fostering sustainable growth.

• Store Format and Expansion: Initially planning to open 25 large stores across India, IKEA adapted its strategy to include smaller formats in densely populated urban areas. This move is to reach to a wider audience rather than forcing them to visit the stores. As of FY23, IKEA operates 4 stores in major cities likes Hyderabad and Mumbai.

• Food Sales: As far as food goes, Indians love it😉 And IKEA understood this before anything else. So they introduced in-store dining, as a part of overall strategy to attract more customers. Reports indicate that roughly 20% of its customers come primarily for the food experience. Here are a few statistics by Finshots.

• Partnerships for Assembly: To address cultural resistance to the DIY assembly model, IKEA partnered with local services like Urban Company(formerly UrbanClap), which connects consumers with skilled labor for furniture assembly. This approach caters to Indian consumers who may prefer professional assistance over self-assembly, thereby improving customer satisfaction and acceptance of IKEA’s products. By offering these services, IKEA effectively bridges the gap between its global business model and local consumer expectations.

• Marketing and Positioning:
  IKEA’s marketing strategy in India emphasizes affordability, quality, and a lifestyle-oriented approach that resonates with the growing middle class. With the ever increasing middle class segment, IKEA aims to position itself as a go-to destination for stylish yet budget-friendly home furnishings. This strategy involves leveraging social media, influencer marketing, and local cultural insights to build brand awareness and connect with Indian consumers on a deeper level. In fact, I am in love with the IKEA advertisements so much, that sometimes I go to YouTube just to watch them. Here are a few:

Aren’t these some of the most beautifully made pieces of advertisements for the Indian customers 💗

Financial Insights: Growth and Losses in India

Despite its ambitious growth plans, IKEA faced significant financial challenges in India. In FY23, the company reported sales of ₹1,768 crore, marking a 61% increase from ₹1,076.1 crore in FY22. However, net losses widened to over ₹1,134 crore due to extensive investments in infrastructure, including the establishment of distribution centers and new store openings.

The company has committed approximately $1.3 billion to its Indian operations, with plans to open 25 stores by 2025. As of FY23, only four stores were operational, highlighting the complexities of building a profitable business model in a market where nearly 75% of the furniture industry still remains unorganized as compared to 2018, when the figure was at around 90%.

The financial strain is compounded by high operating costs and the necessity to compete against established local players, who often provide lower-priced alternatives without the burden of taxation. Despite these challenges, IKEA's strategy to adapt its product offerings and enhance customer engagement through food sales is indicative of its commitment to long-term growth in India.

Key Business Lessons from IKEA's Journey in India

Despite being a multi-billion dollar business, IKEA is still facing major challenges in its expansion in India. Now there are multiple key-takeaways and business lessons to learn from this case study but I will focus on just three which I found to be most valuable as a 3rd person looking at the furniture giants efforts to expand:

• Don’t fight the herd: If you aim to become the leader of a pack of wolf, you should not fight against them. You have to go along with them. In this case, understanding the cultural nuances and consumer preferences. IKEA’s initial reliance on the DIY model clashed with the local traditions which people take pride in. It highlights the importance of tailoring products and services to fit the consumer expectations.

• Innovation is the key but adaptation is the key maker: Businesses must remain flexible enough to adapt their strategies based on market feedback. For e.g. IKEA quickly understood that food is sort of an emotion to India customers and they would definitely love to eat if not shop. Hence, they introduced their dine-ins. And that worked like a charm.

• There is no sure-shot way to build your business: Honestly, this is my personal favourite. You can read 100 case studies like this before starting your business and still manage to fail in 1000 other ways. I believe only way to succeeding to any business is keeping yourself flexible and smart enough to make a right move at right time.

Well, this brings us to the end of this case study. I hope you liked it. If you did, refer this newsletter in your connections. And for more such case studies, remain tuned. The next one will be even more interesting😉

Until then,

Keep thinking!