IKEA, the world's largest furniture retail chain, may settle for fewer product categories in the Indian market than it had proposed in its application to the Foreign Investment Promotion Board (FIPB), but it is unlikely to compromise on the "concept" the Scandinavian company represents across countries, according to sources in the know.
So, the fight is for the signature cafe, restaurant and the Swedish meat ball IKEA is known for, besides its furniture stores. When FIPB cleared IKEA's Euro 1.5-billion investment proposal last month, it decided to strike off cafes and restaurants, besides 18 other product categories from a list of 30 the chain wanted to bring to India. IKEA, which has over 300 stores across 40 countries, does not operate outlets without cafes and restaurants in any other market.
Asked whether the group had told the government it could not enter India if it was not allowed to set up cafes and sell the range of items it had proposed, an IKEA spokesperson told Business Standard: "We have sought clarification and approval on the mandatory categories of products we can sell in India that make the IKEA concept possible."
The company did not reply to the question on whether IKEA had got any assurance from the government on this. But, it said, "IKEA respects the Indian government's efforts in this process."
Pointing out that India was an important market for IKEA, both from retail and sourcing perspectives, the spokesperson said: "After 25 years of sourcing many products in the country, the group had submitted its application to start retail operations in India earlier this year." She added the company was "hopefully waiting" for the final approval. Only once the application is approved, the chain will start to develop the plan for establishing stores in India. "It takes a few years to finally open IKEA stores and secure long-term capacity among our suppliers," the spokesperson added.
Following the conditional approval to IKEA's proposal last month, Economic Affairs Secretary Arvind Mayaram had told reporters, as a single-brand company, IKEA could sell only those items that it could brand. "Whatever they can brand, they have been permitted," he had said. But sources close to the company argued everything IKEA listed in its FIPB proposal was under its own brand.
Among the product categories FIPB has stricken off are home- and office-use products, solutions, fittings, furnishings and accessories, including stationery; textile products, including apparel and fabrics; toys, books and gadgets; consumer electronics and accessories, food and beverages to be served at the IKEA restaurants and cafe.
The chain has been permitted to sell furniture products, which is its core business, along with knocked-down furniture and accessories related to furniture, cushions, pillows, rugs, mattresses, quilts, curtains, window shades, blinds, electrical and kitchen utensils, etc. Besides the other restrictions, FIPB has also recommended no activities falling within the purview of non-banking financial companies would be conducted. That implies that IKEA cannot offer any finance scheme.