After three-plus years of bureaucratic wrangling, IKEA has broken ground on its first store in India

IKEA is here.
IKEA is here.
Image: Reuters/Arnd Wiegmann
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It’s been three long years, but the world’s largest furniture retailer, IKEA, has finally begun constructing its first store in India.

The 400,000-square-foot store in Hyderabad, in the southern state of Telangana, will open in 2017 and have 7,500 products on sale. The restaurant on site will serve Swedish specialties, as well as Indian foods such as Biryani, a wildly popular rice dish.

The store is expected to attract between five million and six million customers every year.

“This is a big milestone for us today and all of us are very proud that the first IKEA store in India seems very close to reality now,” IKEA India CEO Juvencio Maeztu said at an Aug. 11 groundbreaking ceremony at the construction site.

It has taken IKEA more than three years to start building in India, which has strict rules governing foreign investment. IKEA first applied to invest in India’s $600-billion retail market back in 2012, under the then Congress party-led government. In January 2013, the country’s foreign investment board approved IKEA’s proposal to invest Rs10,500 crore to open 25 stores over the next decade.

IKEA stores are typically spread across 350,000 square feet, and acquiring such large land parcels can be a long and challenging task in India.

The Swedish retailer has been negotiating deals for land with various state governments such as those of Telangana, Maharashtra, and Karnataka. It has since signed a slew of agreements, promising investment in each of these states. Once it has approval, it takes IKEA 12 more months to build a store.

In India, IKEA will pretty much retail what it sells in other countries. But it has an opportunity to localize products for the typically smaller and often crowded Indian homes with several generations of the family living in the same space.

“We are learning from India. We are excited by the amazing diversities and opportunities that exist,” Maeztu, who has been traveling and meeting Indian families, said in an interview with the Economic Times.

India’s Rs635-billion furniture market is hugely unorganized, leaving ample room for local manufacturers, along with a handful of chains such as the Landmark Group’s Home Centre and the Shoppers Stop-owned HomeStop. A recent boom in online retail has given rise to e-commerce alternatives such as Urban Ladder and Pepperfry.com.

IKEA is popular the world over for its minimalist and do-it-yourself furniture, but in India it will have to work at converting shoppers who are used to buying readymade furniture. The patience is expected to pay off, though.

“Ikea is clearly playing a long game in India, and other foreign retailers will pay close attention to how it fares,” Damian Shore, a contributing analyst to Euromonitor, said in a March note. “With the Ikea brand proving hugely popular across the Asia Pacific region from China to Indonesia, it looks like a good bet that its lengthy efforts will also bear fruit in India—eventually.”

IKEA also plans to increase its reliance on Indian suppliers. The company has been sourcing carpets and bamboo, among other products, from India for close to three decades. In 2014, it promised to double the sourcing of goods from India, which is in line with the country’s investment laws promoting local sourcing from small- and medium-sized enterprises by foreign retailers.