Ikea assembling a strategy for the future

Agnefjall's confidence in the China market is not without good reason.

It was a latecomer to the world's fastest growing economy in 1998. Its second store in Beijing opens on Thursday in Daxing district.

Fredrik Johansson, manager of Ikea's new store in Beijing, said to be more locally relevant to people living in south Beijing, they prepared a different layout in the store to present its 9,000 articles for sale.

Ikea now has just 14 stores in 11 cities in China, a small number for a group that operates about 350 stores in 44 countries.

However, in its 2013 fiscal year that ended on August 31, Ikea's revenue in China surged 17 percent to 6.3 billion yuan from a year earlier. The Swedish company also saw year-on-year growth of 12 percent in store visitor numbers to more than 45 million during the past fiscal year and a 33 percent rise in website visits to more than 30 million.

"I expect our business in China to maintain double-digit growth and sustainable development in the near future," said Agnefjall.

"And I am sure China will be one of the major destinations for our investments in new stores, existing stores, factories, product development and in lowering prices for us to commit to the Ikea vision of 'creating a better everyday life for the majority of people'."

Slow but stable

Earlier in 1998, IKEA opened its first store in Shanghai, and one year later the second in Beijing. However, the furnishing company suspended the expansion for five years till it inaugurated the third one in Guangzhou in 2005.

"We don't focus on short-term increases or act quickly. For Ikea, it's more important to have a good understanding of the market and customers because we see China as an important market for us to create a better life for many people," said Agnefjall.

"At the beginning, it took a long time to understand the Chinese market and customer demand. We paid visits to hundreds of homes to learn people's habits and what they needed."

After developing a stable foothold in the China market with a renowned brand representing a North European lifestyle, the Swedish company started to accelerate its retail network expansion from 2008, opening at least one new store every year.

"We are opening three new stores this year, with a third one in Shanghai and this second one in Beijing. And Ikea will have another three new stores next year," said Agnefjall.Ikea aims to have 17 stores by 2015.

Liu Jinliang, deputy secretary-general of the China National Furniture Association, said the furnishing sector in China still has a bright future.

"It's an evergreen industry in China because there is always natural demand for real estate in the long term, especially from the more than 10 million newlyweds every year," said Liu. "Rapid urbanization also drives the requirement for furniture."

According to Liu Chang, an analyst with consulting firm Roland Berger Strategy Consultants covering the retail and furnishing industries, China's furnishing market maintained an average annual growth of 11 percent between 2008 and 2011.

"It's a huge market of about 2.3 trillion yuan," said Liu. "The urbanization, newlyweds and increasing demand for a better life will help the market maintain a momentum of about 10 percent year-on-year growth by 2017."

Although it has huge potential, Liu said the industry is too segmented with many small Chinese enterprises.

"In past years, the competitiveness of furnishing companies in China was contained within product quality and distribution channels. However, discerning shoppers increasingly demand a better lifestyle and now look to branding and design," said Liu.

He said that Ikea's regional expansion to lower-tier cities will be a sustainable engine to further drive its business in China after the company's relatively conservative development in the early years played on market hunger in many places that lacked Ikea stores.

He also warned Ikea to pay attention to its strategy in first- and second-tier cities.

"The upgrading of products according to customers' increasing demand and requirements is essential to future development," said Liu.

Although there is a bright future for the domestic furnishing market, for Agnefjall, the fifth CEO of the furnishing giant, there is little more important than its retail business in China.