Ikea sets sights on rapid growth

Swedish home furnishing giant Ikea Group is accelerating its expansion in China with a plan to open at least three stores annually over the next years, in a bid to support its long-term commitment to make China its largest market in 15 to 20 years.

"We are speeding up our expansion after gaining a deep understanding of the Chinese market through the successful experience of our Beijing and Shanghai stores," said Colin Renwick, Ikea China's deputy retail manager.

"Now we are going to more second-tier cities to meet the increasing demand and enthusiasm from people living there."

Ikea, which entered the mainland 14 years ago, has 11 stores in Shanghai, Beijing, Guangzhou, Chengdu, Shenzhen, Nanjing, Dalian, Shenyang, Tianjin and Wuxi.

By the end of 2014, it will have 17 stores across the country, following the opening of a new outlet in Ningbo, a third store in Shanghai and a second store in Beijing.

Ikea will also start the construction of stores in Chongqing and Wuhan later this year, said Renwick.

Ikea on Thursday reported revenue of more than 5.4 billion yuan ($850 million) in China during its 2012 fiscal year, which will end on Aug 31, representing a 21 percent increase year-on-year, much higher than its global business growth.

Renwick, who said that the financial results of its operations in other countries will be released next week, said that China will be one of its best performing global locations.

"Although China is still not our top market in terms of revenue, we are confident that it will be our largest market in 15 to 20 years," said Renwick.

Ikea has more than 40 stores in Germany, which is currently its biggest market.

Although it has only 11 stores in China, the performance of its Beijing outlet almost ranked top among all its 337 stores in terms of volume.

Ikea said that it has seen a year-on-year growth of 21 percent in visitor numbers to more than 45 million during the past fiscal year in China, the highest among all of its global operations.

Moreover, "we are impressed by the enthusiasm of Chinese customers through the 40 percent year-on-year surge in our Ikea Family membership to more than 7 million, as well as by the fans of our Ikea Weibo more than doubling to 350,000 over last year," said Renwick.

"This indicates that we need to build more stores in China to fuel our future business."

Although Renwick admitted that Ikea will face challenges in the coming fiscal year as China's economy slows and local consumer confidence weakens, it still expects double-digit growth, driven by its new stores.

He added that Ikea will continue to lower the prices of its products and launch new series to attract new customers.

The company has cut the prices of most of its products in China by more than 50 percent since it first entered the market, said Renwick.

For the new fiscal year as of September, Ikea will launch 1,667 new products in China, and lower the prices of 294 existing items.

A good example of this strategy paying off was Ikea's Jansjo LED lamp. After cutting its price from 199 yuan to 99 yuan, sales of the lamp in China increased 10-fold to 3 million units last year.

Peter Wisbeck, Ikea China's trading area manager, said the price cuts were achieved through "close cooperation between Ikea and our local supplier on innovation".

According to Wisbeck, China is Ikea's largest sourcing center, with more than 350 local suppliers contributing 28 percent of the products to its global business.

"Ikea will continue to expand its sourcing in China, although raw material and labor costs are increasing here," said Wisbeck.

"We strongly believe that we can weather the rising costs in these sectors from spending reductions through innovation and efficiency improvements."