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December 20, 2021
Written By Vaishnavi Gupta
The furniture brand’s retail roadmap includes city stores in Delhi, Mumbai and Bengaluru, followed by tier I and II towns
For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India.
After launching two large-format stores in India in a span of three years — one each in Hyderabad and Navi Mumbai — Ikea opened its first small-format store in Worli, Mumbai, to become “more accessible and convenient”. About 90,000 sq ft in size, these ‘city’ stores are already present in markets such as New York, London, Paris, Moscow and Shanghai.
The furniture market in India stood at $17.77 billion in 2020, and is expected to reach $37.72 billion by 2026, growing at a CAGR of 13.37%, according to a Research and Markets report. Godrej Interio, UrbanLadder and Pepperfry are among the big players in this space, all with a significant online presence, too. Godrej Interio has 300 exclusive stores in India, while Pepperfry has more than 110 Studios.
Spread across three floors, Ikea’s first city store has 9,000 products in focus, of which 2,200 are available for takeaway and the rest for home delivery. “We have observed that it is not easy to find large retail locations in cities like Mumbai and Bengaluru. The small store offers convenience and accessibility for consumers to experience Ikea products,” says Per Hornell, area manager and country expansion manager, Ikea India. This launch is in line with the company’s aim to become accessible to 200 million homes in India by 2025, and 500 million homes by 2030.
More launches are being planned: another city store in Mumbai in the spring of 2022 and a large-format store as well as a city store in Bengaluru by the end of 2022. For its retail expansion in Maharashtra, the company plans to invest Rs 6,000 crore by 2030. “We are on track to exceed the investment commitment of Rs 10,500 crore made for India in December last year,” adds Hornell. Delhi, Mumbai and Bengaluru are the three cities on its radar at the moment, which will be followed by tier I and II towns.
Furthermore, Ingka Centres, part of Ingka Group that includes Ikea Retail, is coming up with its first shopping centre in Gurugram (followed by Noida), which will be integrated with an Ikea store.
In India, unlike its organised furniture market competitors, Ikea doesn’t have a pan-India online presence yet. It has been following a “cluster-based expansion strategy” for its online offering, but the company insists this is not a limitation. “At present, 30% of our overall India sales come from online channels,” Hornell informs. Through its e-commerce website and mobile shopping app, the company currently operates in Hyderabad, Mumbai, Pune, Bengaluru, Surat, Ahmedabad and Vadodara.
On the other hand, players like Godrej Interio and Pepperfry have big plans to tap new markets. The former aims to add 50 exclusive stores each year, while Pepperfry aims to achieve the 200 Studios mark by March 2022. In September this year, Pepperfry forayed into the customised furniture segment with the Pepperfry Modular offering, which focusses on modular kitchens, wardrobes and entertainment units.
Good start?
This is a good time for Ikea to establish its presence in the Indian market, says Alagu Balaraman, CEO, Augmented SCM. “Earlier, people used to rely on carpenters for furnishing their homes; now, they prefer to buy ready-made furniture. The market is moving towards acceptability, making plenty of headroom for growth for these companies,” he says.
Ikea’s cautious expansion approach in a market like India where several local dynamics are at play, is tactful, analysts say. Devangshu Dutta, founder, Third Eyesight, says, “In the past, Western businesses have made the mistake of simply copy-pasting formats and strategies in emerging markets from their more developed markets.” He believes there is “nothing wrong” in being incremental while growing footprint. “There’s no sense in carpet-bombing the market with stores, when many may end up being loss-making or sub-optimal,” he adds.
Getting the product mix and pricing right would be key in realising the full potential of this market. Balaraman says Ikea will have to balance its global portfolio with what it is doing locally, and make sure it is profitable.
For the Ikea model to succeed, adequate demand-concentration is crucial, which is being currently provided by the bigger cities in India. Given its global popularity, the furniture giant, analysts say, is poised to see traction in the metros and tier I cities.
Source: financialexpress
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June 7, 2020
Indian retailers welcoming customers back as stores are opening up – a look at what changes are in store.
Devangshu Dutta
August 19, 2013
If you’re planning to develop a mall, here’s a short-list of key issues you must address:
Fail-proof the business plan by focussing on the customer: Focus on the development of retail brands and not solely on quick returns on investment. The primary responsibility should be that of catering to the consumer catchment and driving footfalls for the retail occupants. The other requirements follow from this simple premise. Also, a tenant-unfriendly revenue model that overloads the tenant with a high rent (whether fixed or as a percentage of sales) leads to a churn in tenants, and in combination with other factors, keeps the best tenants out of the mall making it unattractive to customer as well.
Do a thorough recce of the catchment: Ask questions like “can the catchment support the development in terms of consumer footfall and spending?”, “Is there a connect between the needs of the immediate catchment and the occupants of the mall?”, “Are there too many malls in the catchment area?”
Offer a good occupant mix: You cannot have mall occupants who have little relevance for the target consumer. Also, the retailers must complement each other in a healthy way rather than cannibalise customers and sales from each other.
Ensure good access: Accessibility and connectivity to get the traffic smoothly in and out of the mall is a must; ensure there is adequate parking space.
Avoid undersizing: A small-sized is a straight handicap because it will lack variety, and you run the risk of getting dwarfed by the next big mall that throws its hat into the ring. [However, the specific size can vary depending on the state of development of your own catchment.]
Focus on design: This involves making the mall brands ‘visible’, ensuring appropriate ‘zoning’ in terms of entertainment, multiplexes, kids’ areas, food courts etc. This will result in better customer flow management. Bad design and poor customer flow management within the mall leaves large parts of mall “invisible” to visiting consumers, or improper zoning that confuses customers and breaks up the traffic.
Finally, remember, it’s not so much about the “square feet”, as about the feet that will occupy it! Focus on the consumers that you want visiting the mall and why they should return again and again.
Devangshu Dutta
February 24, 2013
Luxury is an ill-defined concept. There is no specific line or limit of price, quality or availability that separates the luxurious from all that is not.
However, like other similarly intangible attributes such as power or grace, we all immediately recognise luxury when we experience it.
In fact, experience — vague as that may sound — is key to differentiating luxury, more than the tangible product being consumed. It’s not just the person’s own direct sensory experience, but also the prestige and status granted by others around her or him that creates the luxury experience.
Surely, with such intangible notions of experience, power and prestige, luxury brands should be among the most influential in the market. They should be pioneers that set the tone for change in improving retail management practices, upping customer service standards, driving quantum leaps in quality.
But is it so? The response from the rest of the retail sector may not quite be “meh”, but I suspect that it would not be far off.
There are strong reasons why luxury brands would have a lower influence as benchmarks in India and why, in fact, they may draw in more influence from the market themselves.
Market presence and location
As an example, in physical presence, luxury brands seem to demonstrate a delayed response to changes in the market, both in terms of market entry and location selection.
Prior to the entry of global brands, luxury products and services in India were naturally defined by niche, largely owner-managed businesses. Business scale was curtailed by internal limitations, and due to the small size, its market reach was also limited. While there were some designer brands that would occasionally get copied by mid-priced retailers, by and large luxury brands lived in their own separate bubble, with little or no influence on the heaving mass of the market.
In contrast, in the Western economies, from where many of today’s luxury brands originate, they are looked up to for inspiration. So, it is natural to expect Western luxury brands to lead the charge into the newly emerging modern retail economy of India. However, according to Third Eyesight’s research of international fashion and accessory brands in India, in the last 25 years it is mid-priced and premium brands that have opened the market. It is only in the last 10 years, well after the economic and retail growth was underway, that luxury brands stepped up their presence.
Sure, during the so-called “retail boom” from 2004, luxury brands went up to one-quarter of all international fashion and accessory brands present in the market. Then, when practically the whole world was in a recessionary mood, and mid-priced and premium brands took a call to defer their India launch plans, luxury brands pushed ahead. In 2009, luxury fashion brand launches accounted for two-third of all foreign fashion brands launched in India. Maybe the brand principals felt that this market could take on the burden of slowing growth elsewhere, or perhaps it was their Indian counterparts who were the source of optimism. Either way, the optimism took a hit in 2010 and 2011 when it was luxury brands that became cautious.
In terms of store openings and location selection too, luxury brands seem to have waited for the overall market to upgrade itself, and have then latched on to that growth. Previously luxury brand stores, such as there were, largely restricted their presence to five-star hotel shopping arcades, while a few took up non-descript sites as they were confident of being destinations in their own right or clustered together to create a precious few bohemian locations in surroundings that were far from luxurious. As modern shopping centres emerged in recent years, these presented an environment where rich consumers — especially the ‘new’ rich — could flock to buy globally benchmarked lifestyle statements. While these were mainly targeted at mid-market to premium brands, some of them are now even attracting designer brands such as Canali at Mumbai’s Palladium mall rubbing shoulders with Zara. These new luxury stores in mid-market or premium locations are performing better than the original “luxury” sites.
Thus, in terms of expressing confidence in the market, luxury brands seem to be following market trends rather than leading them. And far from being the anchors to create demand, they seem to be following where the demand goes.
Design and product development
The most important impact that luxury brands could have on the market is by influencing product design. This fashion trickle-down is supposed to work in two ways: one, through “inspiring” knock-offs by cheaper brands; two, making luxury customers act as opinion leaders and trend-setters for other consumers.
However, various factors dilute the luxury brands’ product and design influence in India: the preponderance of domestic (“ethnic”) style and colour, especially in womenswear, the existing domestic variety in products, the flood of premium (non-luxury) international brands and a customer base that is oblivious to the difference between the premium and luxury segments. In spite of their small size, Indian luxury and designer brands possibly have a larger direct impact, not to mention the massive Bollywood machine that drives mainstream fashion trends on a day-to-day basis. The international luxury giants are conspicuous by their small influence.
In fact, increasingly the influence is flowing the other way. A few luxury brands have attempted to create India-specific items to give the customer what they might want. Some of these may be indulging in superficial pandering such as putting an Indian image on a global product, but others have created Indian products that genuinely reflect what the brand stands for. While some use India as a production sweatshop to minimise the cost of high-skills jobs, others are now beginning to use Indian crafts to design products that are relevant to other global markets. A few examples, without passing judgement on which category they fit into, include: Lladro’s Spirit of India collection, the Hermès sari, the Jimmy Choo “Chandra” clutch bag, Louis Vuitton’s Diwali collection and Canali’s nawab jacket.
Slow, but not yet steady
Another issue with India is the sheer numbers, or the lack thereof!
China’s GDP is about four times the size of India’s but its luxury market size is estimated to be six times that of India. There are 1.7 million households in China that meet the high net-worth criteria, as compared to 125,000 in India. What’s more, according to industry estimates, only about 30 per cent of luxury consumers in China are actually wealthy, while the overwhelming majority are people with mid-market incomes who are given to conspicuous consumption, whether buying luxury goods for themselves or as gifts.
Indian consumers also have a penchant for buying overseas rather than shopping from the same brands’ stores in India. This is not just due to higher costs and import duties in India, but because of wider and more current selections of merchandise in stores overseas. Indians’ luxury shopping destinations include the usual suspects: London, New York, Paris, Milan, Singapore and Dubai. This has meant that while luxury brands recognise Indians as a large, emerging base of customers, for most brands India itself remains an operating market for the future.
Having said that, when compared to any other sector of business, luxury brands in India probably get the most media coverage for every rupee of sales earned. Although they are a small fraction of the sales, luxury brands rule in terms of column centimetres or telecast seconds. The coverage is not restricted to consumer-oriented media such as lifestyle magazines or mainstream newspapers, individual luxury brands are also extensively covered in business media.
One may argue that such is the nature of luxury: this disproportionate visibility and share of mind happen because luxury is not just aspirational, but inspirational. However, that inspiration and influence is yet to become apparent in the business at large. Until we see significantly larger numbers of upper-middle-income customers in India, luxury brands will find it difficult to expand their reach beyond the small base of ultra-rich consumers. The aspiration and price gap is just too wide for the Indian middle class, and there are very few who will emulate their Chinese counterparts and save up a year’s salary for a single luxury item.
And so…
One thing is beyond doubt: the luxury sector in India is undergoing significant change. We could even say it is in active ferment. There has never been so much interest among so many people, or so many brands so widely promoted, as now.
The question is still open on whether it is a good ferment such as the one that produces wine from raw grape juice and fine cheese from plain curds, or the unguided rot that results in a putrid, smelly mess unfit for consumption.
My bet is on the first possibility. In the short term, the luxury business appears to be a mess, littered with fractured partnerships and bleeding financial statements. But the brew needs time to mature. Gradually, as the luxury segment matures along with the rest of the market, we will see the influence trickling down into other segments. But remember, the finest brews do not only impart their flavour to the cask, but imbibe the cask’s characteristics into themselves. So it is with luxury and the Indian market. The message that we have given many other international businesses seems to hold doubly true for the global purveyors of influence, the luxury brands: “As much as you think you would change India, India will change you.”
Devangshu Dutta
February 27, 2012
Luxury is dichotomous, conflicted and conflict-creating by its very nature. “Luxuria” is Latin for “Lust”, the first in the list of the Seven Deadly Sins. The British poet Edith Sitwell is quoted as saying, “Good taste is the worst vice ever invented.” Luxuries are not a basic fundamental need to start with, yet to seek them out is innate in our nature.
For the most part, the term luxury has been and continues to be applied to tangible goods whether found naturally, hunted or manufactured, rather than to intangible services. Yet, it is the intangible that differentiates what is luxurious from what is not.
Certainly, the definition of luxury changes with time. There was a time, in today’s advanced markets, when hot water baths were a luxury and available frequently to only a few people. Indian pepper was once more expensive than gold. In fact, a significant part of European exploration of the world during the last millennium was driven by the craze for spices from “the Indies” before morphing into empire-building. Today, most modern Europeans would call neither a hot bath nor spices as a luxury, and many would gladly delegate to someone else their share of global travel.
If we want to understand the shifts in the luxury market and how the emerging markets of luxury such as India and China might evolve in future, we must understand the two most fundamental drivers of price premium: the social esteem achieved and the possessor’s own experience of the product or service.
When viewed together in the Experience-Esteem Price Premium Model (see graphic), we see the relationship of price premium and these two factors zig-zagging in an N-shape for immature or rapidly evolving markets (“New”), whereas in more mature markets the premium would follow more of an S-curve (“Stable”). The term “market” here refers to not just geography but consumer segments, including segments defined by need/use rather than by demographics such as income or age.
In rapidly evolving markets there is a significant premium available on products and services that are conspicuously expensive, whose price (or at least the apparent price level) is known in the buyer’s social circle. It’s a positive feedback loop: high social recognition keeps the price up, which in turn improves the social esteem of the buyer. Expensive cars and gadgets, designer brand apparel and accessories, holidays that would be the envy of others, Big Fat Indian Weddings (for and by Indians) all fit into this category. Beyond social recognition, however, the buyer’s own experience and satisfaction also plays a role in driving the price premium: the better the buyer’s own experience is for a given amount of social recognition, the higher the price premium is likely to be. This gives rise to the familiar pyramid for the luxury market, where the highest price is available for products and services that deliver both high social status and a superlative personal experience. In “New” or evolving markets, more of the premium is attributable to social status; the buyer’s thought process is: “if you’ve spent a million Rupees or Yuan on something and no one knows about it, it’s not that valuable”. In more evolved or “Stable” markets, on the other hand, where tastes have had longer to evolve, personal experience becomes important in driving premium for at least some products: for example, high-fidelity unbranded speakers bought by music aficionados or a vacation in an unknown destination fit the bill. The satisfaction, and the premium, is driven more from the personal high-quality experience, not from receiving recognition or respect from someone else.
Developing taste needs time both at the personal level and for the society. On the other hand, status difference is a factor in all societies, at any given time. The pull between conspicuous and inconspicuous consumption at the higher price end plays out between indulgence and luxury versus opulence. Opulence may or may not enhance the buyer’s experience, but its main function is to make a status-statement, including instances such as millions being spent on “public” spaces to enhance a political leader’s own standing.
The thing with status is this: If others see you as worse off than them it is their problem; if you think you’re worse off than others, it is yours. By and large, the luxury industry, as it has evolved over the last 30-40 years, feeds on this status insecurity that is multiplied and amplified by media.
Luxury used to mean something that was expensive because it was highly desirable but also scarce. Today ubiquity seems to be the driving force of luxury not scarcity. As economic growth has created nouveau riche worldwide, brands (especially logo-bearing ones) have emerged to deliver instant gratification and legitimacy. Distinct, recognisably expensive brands are the accepted currency in the world of cachet. In the final price, the share of marketing spend is often higher than the cost of the core product. In a consumer society that is more conscious of the status that the product offers rather than its utility, it is the recognition and identification that matters most.
This has led to the trickle-down effect with luxury brands becoming increasingly more accessible, not just in terms of physical availability but also in terms of price units through bridge, diffusion and prêt lines, and licensing. A particular consumer may not be able to buy a Chanel dress or Dior gown, but she can surely scrounge enough to buy a perfume that promises at least a whiff of celebrity status!
The vintage of the product or service is an important component of the status or recognition premium, especially when the buyer has newly come into money. This is why the market is dominated by European luxury brands that can claim ancestry of at least a few decades, if not centuries, while there are barely any brands of note from other geographies. This is not conclusive evidence of European tastes being better or more acceptable, just the economic cycles through which societies around the world have been.
So where does India stand for luxury marketers? The Indian operations of most brands that have been launched in the last few years are bleeding, and seem unsustainable. And yet, it is tempting to compare the emerging golden bird of India to the golden dragon of China.
In our work with brands and marketers from around the world, we have to constantly remind people that not all emerging markets are the same. The explosion of luxury and premium brands in China during the last decade or so has been aided by sudden economic growth that came after a long cultural and economic vacuum. When the new money wanted links with the old and when uniform grey-blue suits needed to give way to something more expressive, well-established western premium and luxury brands provided the most convenient bridge. As China evolves further and consumer become more discerning, I believe we will see the emergence of Chinese and smaller new international brands that differentiate themselves on the core product, rather than relying on a long foreign history.
India’s case is slightly different. Discernment may be a new experience to some Indians who have come into money recently, for whom brands can be a valuable guide and “secure” purchase. Globally well-known premium and luxury brands or products that are endorsed by “people in the know” (including works of art) are the first to benefit from this spending.
However, discernment and taste are not new to India and, more importantly, differentiation and self-expression never disappeared even during the darkest years of “socialistic” economics. Therefore, India will see a layered approach to the luxury market and grow in a more fragmented manner, with slower expansion of individual brands. There would be multiple tiers of growth for international as well as Indian luxury products. For international brands customisation and Indianisation will be important, as is already visible in bespoke products by Louis Vuitton and Indian products by brands such as Canali (jackets) and Lladro. And there is a real prospect of luxury Indian brands emerging to respectable size, if they can stay the course and travel the distance.
As the market matures spending by Indian consumers on indulgences will also grow, driven by the need to satisfy themselves rather than for the status they could gain. In fact, another market to watch out for is India itself is a source of indulgences for foreigners – luxurious Indian experiences in which price is not the object but the experience – Big Fat Indian Weddings, ayurvedic treatments and meditation holidays for non-Indians are a case in point.
While on indulgences, in closing, I refer back to the ExEs Price Premium Model. For a limited number of people the price premium curve follows a clockwise-D, starting from Indulgences. For them invisible or inconspicuous products whose only function is to enhance the owner’s or buyer’s own experience are the most prized. In many cases, the fewer people that know about it, the better and more premium it would be.
In fact, perhaps invisibility could be the greatest indulgence of all in a world of hyper-information, self-promotion and instant celebrity. Increasingly we will find that anonymity and invisibility will be treated as luxuries, and service providers will charge a huge premium for taking you down below the radar, making you invisible. We don’t really need to wait to see that emerge. That world of luxurious anonymity is already here, and its most valuable service providers are banks in offshore tax havens!
(Edit: This article appeared in a special issue of the Strategist on March 26, 2012.)
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