IKEA in China

IKEA leads race to cash in on China's home improvement market
By JOE McDONALD
11 April 2006

BEIJING (AP) - The restaurant at IKEA's newest store seats 700. Its lobby is a cavernous three stories high. To show off the Swedish home furnishing maker's goods, there are showrooms the size of five football fields with 77 model living rooms, kitchens and bedrooms.

The store, due to open Wednesday, is IKEA's biggest in the world after its Stockholm flagship, and shows like little else could the intense competition to cash in on China's home improvement market as millions of new home buyers set out to decorate them.

"It is only in a store of this size that we can offer what we want to offer and to differentiate ourselves from our competitors in this changing market," said Ian Duffy, IKEA's president for Asia and the Pacific.

IKEA, Home Depot Inc. of the United States, Britain's B&Q and others are looking to China to drive sales as growth slows in the United States, Europe and other markets for furniture, appliances and other trappings of home ownership.

They stand to profit from twin trends in China, both government-supported -- millions of families buying new homes and official efforts to drive economic growth by boosting consumer spending.

Estimates of the size of China's home improvement market range from $15 billion to as much as $40 billion, with growth forecast at 10 to 20 percent a year. The government says overall retail sales rose nearly 13 percent in 2005.

"The growth has been very strong between IKEA, B&Q, even local brands like Homes Orient. It's very competitive," said Anna Kalifa, head of research in Beijing for consulting firm Jones Lang LaSalle.

"Over 100 cities in China have more than 1 million people," Kalifa said. "If even a small percentage of these people are able to purchase home furnishings, it would be really promising."

The government got the trend moving in the late 1990s when, hoping to get state companies out of the business of housing their workers, it prodded families to buy homes, offering low-cost mortgages or bargain prices on older apartments.

Coupled with rising urban incomes, that set off a building boom in the late 1990s in Beijing, Shanghai and other cities, with developers putting up forests of high-rises with thousands of new apartments.

Decorating a home has become a cultural phenomenon, driving the creation of the career of Chinese interior designer and a crop of home-decor magazines with the latest in European design.

When IKEA opened its first China store in Shanghai in 1998 and a small Beijing outlet a year later, the clean, modern displays proved immediately appealing. Shoppers in Beijing whose lighting was still mostly humming overhead fluorescent tubes stripped store shelves of sleek, Swedish-designed table lamps.

B&Q, owned by Kingfisher plc, opened in Shanghai in 1999 and later expanded to Beijing. Home Depot Inc. is talking about entering the China market, possibly by buying into a Chinese company.

IKEA, which in addition to the Beijing and Shanghai outlets has a store in the southern city of Guangzhou, plans a total of 10 stores within five years, including expansion to the country's west with an outlet being built in the city of Chengdu, said Duffy.

He said the company already is scouting locations for its next Beijing outlet.

Some 80 percent of IKEA's goods sold in China are made here, which has allowed the company to cut prices by more than 50 percent in recent years, Duffy said. He said that both attracts customers and fights product piracy by making it unprofitable to copy IKEA designs.

Sales in China account for only 1-2 percent of IKEA's worldwide total, but are expected to grow by 30-50 percent a year, said Duffy.

"Fierce," was Duffy's one-word description for China's market conditions.

"It's not only fierce, it's also quick," he said. "There's a speed in China that is not evident in most countries. I think investment decisions, construction (decisions) can be taken much faster than anywhere else."

Planners for the new Beijing store interviewed 124 Chinese families about their daily lives in order to design the showroom, said its manager, Gillian Drakeford.

They paid special attention to female customers, she said.

"So we did simple things like taking the display shelves down by 10 centimeters (four inches) to make sure that most of the women could touch the products," said Drakeford, who wore IKEA's uniform of yellow shirt and blue pants.

The store is so vast that IKEA has added rest areas with benches for visitors who have shopped 'til they dropped.

"We hopefully have a fun 'day out' destination for the people of Beijing," said Drakeford. "We want people to stay in our store for at least a couple of hours."