Thursday, June 11, 2009

Ikea pulls out of plans to set up shop in India - Retail, the big picture

Retail in India, I feel is a totally different story, as compared to retail in any other country. It is more of a cultural aspect than anything else, according to me. We as Indians are wired differently and for us, a shopping experience is not more about finding everything under one roof, as it is about going from shop to shop. Tell me, do we, and I speak of the ardent shoppers, feel happy and content after making a bulk purchase at one single shop? I, for one, don't. I feel like I have let go of some opportunity, in picking up all my bargains at one single shop. For this reason, I feel that retail in India is an all new ballgame, with the players needing to concentrate on how to break into the Indian psyche, and make a point.

Take for instance shopping malls in India. A typical mall in a foreign country has a whole host of shops that sell anything and everything from clothes to coffee to sweets to jewellery. And in India, that concept somehow doesn't seem possible, since for many jewellery shopping doesn't begin and end at People's, but rather begins at Zaveri Bazaar, goes all the way through Tanishq and ends perhaps at the place suggested by so and so's grandmother, since that shop is very conscious of quality.

How do we go shopping for clothes? We segregate our purchases into good clothes and replaceable clothes. So, the good clothes are bought at an upmarket place, while the use and throw variety is generally picked up anywhere. Likewise, furniture. The whole concept of assemble-it-yourself furniture is unknown to us. We need a cabinet made, we call Pandu the carpenter, who brings along another helper and wham! a cabinet is ready in 3 days, and the cabinet fits snugly into the 2 feet by 3.75 feet nook we pointed out to Pandu. So, that Ikea pulled out of its plans to enter India, is not very surprising to me.

Malls have mushroomed in India, more so in Mumbai over the past few years. But the funniest part is that some of these malls have sprung up in the heart of the 'flea market' shopping districts. I speak specifically of a couple of malls in Dadar in Mumbai. I, for one, could not understand why someone would set up shop while in direct competition with the road side shops who care two hoots about long term sustainability and margins. All they need is to turn in a profit for that day, so they can eat that night! Tomorrow is a new story that can be tackled separately.

What poses a question to me, rather is what the nature of retail in India, really is? Will malls continue to be looked upon as places to hang out in and nothing else? Will Mumbai see the closing down of many more of the mushroomed malls, like it happened with Crossroads? Will the Indian consumer get out of the traditional mindset and look beyond the shop around the corner? And also, what is the scope of organized retail in India, say retail through the internet, and what can incentivize the Indian consumer and hence the retailer to pursue the same goals?


Juby said...

i dont think Ikea and other retail formats are comparable. Why Ikea would fail is sure due to the regional context, but not which impacts other retail in the same fashion.
Westerners love to indulge in do-it-yourself activities in their free time. They take up carpentry, pottery as hobby activities and never miss a chance for adventure sports. We Indians kill ourselves so much at work that all we want to do in leisure is catch up on sleep/movies or go go-karting at max. Also, there is a mentality that these are low-skilled jobs that you can always pay someone else to do it for you. Hence the upper middle-class who is the target for such a product is infact indifferent to such activities.
Apparel/Household retail on the other hand has infact caught on really well in the indian context, I would say. Failure of such ventures are mainly due to oversupply, location, and insufficient financial resources for consistent promotions

cahobs said...

I agree with you, IKEA is what walmart is to groceries in Europe, however IKEA can become an upmarket furniture store here in India where you go and pick up a few things you need, no matter how competitively they price IKEA can never match the low price structures prevalent in India, if any doubt we can just check out the few Italian stores that were opened a few years back! they remained 'imported furniture' stores and never became the household names they were back in their country, the same applies to IKEA, you hit it on the nail with your jewelery shopping analogy. What IKEA can perhaps do in the future (read when the markets improve) is to open stores that are not huge as in Europe and elsewhere but to open smaller stores that specialize in catering to the needs and appeal to the local culture and that would give them a foot hold, if i may be so bold as to compare 'mcdonalds' and coke did just that. though the comparison may look odd or out of scope, nonetheless an important one for a foreign venture in India.

Pappoos said...

Though forced by the economic downturn, IKEA did itself a favor, assuming they had plans to do business like in Europe.
In India we like to do our shopping like we shop grocery from a market, one vegetable from each hawker.
A DIY furniture does not fit into our scheme. Yes, it could appeal to the globe-trotting brand conscious youngsters. In big country like ours, Ikea would not be content with such a meager customer base.
To reach out further, they would have to do a McDonald's and Indianize their brand and their pricing. There is still less scope when they stoop so low, as there is also another flourishing cheap furniture market(low quality they maybe; Would Ikea still promise better quality at such pricing). These markets are more governed by local cottage industry which would then come under government protection and Ikea would invite more trouble getting down to break that.
Though we have seen the likes of Big Bazaar and Reliance enter the retail segment with a bang in India, they threw the less protected street hawkers and provision stores out of business. They also did this only by offering unimaginable low prices and offering even lower quality products. Despite this Reliance has been contemplating and even in some places winding up Reliance Retail.
I even wonder if Walmart still regrets not being permitted to start operations in India (thanks to the lobbying efforts by Reliance and FutureGroup).
So for now its bye-bye Ikea. TC

Sindhu Subramaniam said...

@ Juby
Interesting segmentation and segregation. But at the end of the day, they are still into furniture retailing. The key might lie in how they may try to separate their offerings from those of other small, yet numerous players in the market.

Absolutely. Retail in India is of a completely different flavor and this flavor cannot be tapped through conventional means. Like you rightly said, it would perhaps end up being a niche segment supplier, for providing the odd tea lamps and vases or perhaps cater specifically to the small upmarket section of the Indian population that knows the brand presence of IKEA outside India. The question is, how can IKEA model their offering to be uniquely Indian, like say Mac did!

@ Pappu,

Yes, IKEA would perhaps not contemplate setting up their behemoth shops here in India on account of lopsided economies of scale. The only thing that hurts about their walk away is the fact that a lot of possible employment opportunities have been lost!