Ikea outlines mainland expansion plan
Ikea, the world's leading furniture brand and one of the top choices for Chinese in Beijing and Shanghai, will expand its presence throughout the mainland, it has been revealed.
Ian Duffy, president of Ikea China, said the group will have 10 Chinese outlets in the next four to five years, including the two stores that were established in Shanghai and Beijing in 1998 and 1999, respectively.
An outlet is under construction in Wangjing, a newly established large residential community in northern Beijing. It should be open next year.
"We will look for two additional locations in Beijing," Duffy told China Daily.
Ikea is investigating 14 different cities, such as Chengdu, Dalian, Nanjing and Qingdao, as possible locations for new stores.
"We will begin quite soon to look outside of the major cities and look to establish stores outside of the major cities in the next two years," said Duffy.
When it arrived in China, Ikea was regarded as an expensive Western brand. It soon lowered prices.
"Our business idea in China is to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them," said Duffy.
The strategy change was based on China's huge market potential and Ikea's cost saving efforts.
"We needed time to learn and change in the (Chinese) market to become a success," said Duffy.
Although prices dropped about 10 per cent, sales rose by 35 per cent last year and 50 per cent during the first three month of this year.
"We hope 8 million people will visit Ikea in China this year and that half of them will buy our goods," said Duffy.
Ikea believes that the number of people coming to its stores is increasing.
Ikea International has a presence in 43 nations and regions around the world. Its combined sales volume hit 11.3 billion euros (US$14.41 billion) in the 2003 fiscal year.
Germany is Ikea's largest market, making up 20 per cent of the combined sales volume.
"We have operated in Germany for over 30 years, while only entering China in 1998," said Duffy.
"We expect Ikea China will be among the top five before 2020, taking into account the rapid economic development of the nation, its surging gross domestic product (GDP) and people's increasing living standards."
Sources from Ikea also revealed that China was the top purchasing choice for the multinational in the 2003 fiscal year, as 18 per cent of Ikea's purchasing fund was pooled into China.
"We purchased raw materials, including glass, timber, hardware and textiles from China. It, of course, will further increase in the coming years," said Duffy.
According to the president, every company needs to have a name and a personality that people will recognize, and every company needs to separate itself from others so customers can clearly recognize the differences.
Ikea's identity revolves around offering products that are designed differently.
And the environment of its stores is different from traditional Chinese retailers.
In addition, Ikea offers home furnishing ideas to its visitors and customers. Ikea gives away shopping brochures and arranges its outlets with a home style, which offers practical and creative suggestions.
"We want to provide something that will, potentially, make a positive difference to the lives of the customers," said Duffy.
So far, Ikea has not met powerful rivals in the home furnishing market in China.
In relation to British B&Q, the world's leading home furnishing chain retailer, Duffy says they are more complimentary than competitive.
"We regard B&Q as a hard decoration provider, while we offer soft decorations," said Duffy.
People go to B&Q for renovation materials and services and then to Ikea for furniture and maybe design.
Due to its unique style, Ikea China believes it will not face any threats, in spite of more leading foreign groups entering the market.
As China will fully liberalize its retail market by the end of December, all restrictions on foreign operators will be lifted. Duffy, who started with Ikea 17 years ago and has been working and living in China for the past two years, says he is confident about Ikea China's prospects.
To date, the biggest challenge facing many foreign retailers is "uncertainty" surrounding government policies.
"But I believe that won't be a problem in the future as the Chinese Government has decided to liberalize the market and strive to create a fair, open and transparent competition environment," said Duffy.