Company News • 07.01.2013

Prospects Improve in India

IKEA moved a step closer to setting up its stores

Shoppers push carts into an Ikea in West London.
Shoppers push carts into an Ikea in West London.
Source: Reuters

The IKEA Group's India plans look brighter, with a senior minister indicating that the government is likely to approve the Swedish retailer's application to set up wholly owned stores and might drop a condition that would have limited the company's product offerings.

"The government has taken a favorable and sensitive view in response to IKEA's approach to us," Trade Minister Anand Sharma said. IKEA moved a step closer to setting up its stores in India - one of the company's largest untapped markets - when the country's foreign-investment board decided to forward the retailer's €1.5 billion ($2 billion) proposal to the federal cabinet.

The Foreign Investment Promotion Board, however, imposed certain conditions, including a bar on the company selling any products that it doesn't brand, including secondhand furniture, textile goods, toys, books and consumer electronics, as well as food-and-beverage items at in-store cafeterias, according to people in the government familiar with the matter.

IKEA poses certain demands

IKEA subsequently wrote to the Indian government, saying that - in keeping with what it called the "IKEA concept" - the company must be allowed to retail all of its products in India and run in-store restaurants, as it does in every country where it operates a store.

The Foreign Investment Promotion Board will again study IKEA's plan before forwarding it to the federal cabinet for final approval, Mr. Sharma said, without providing a specific time frame. Separately, the Press Trust of India news agency said the board will take another look at IKEA's proposal on Monday.The board is required to send all investment proposals of more than 12 billion rupees, or $218 million, to the cabinet.

Only few foreign retailers become active in India

IKEA is among the few foreign retailers that have sought permission to open wholly owned stores in India after New Delhi last year allowed 100% foreign ownership in single-brand retail ventures, where a company sells only its own brand of goods. Previously, foreign companies could own a maximum 51% stake in such retail operations.

IKEA's proposal to set up 25 stores in India, if implemented, would be the largest investment in India by a global company. "The IKEA Group is confident that the Indian government will support its application as per the 'Ikea concept,' and IKEA respects the Indian government's efforts in this process, " said a spokeswoman for the company in India.

As part of a financial overhaul in the retail sector, the Indian government in September also changed investment rules to allow foreign supermarkets to set up retail outlets through joint ventures. Previously, foreign companies could operate only wholesale businesses in the multibrand segment.


 

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