IKEA business to expand rapidly in Ukraine

IKEA business to expand rapidly in Ukraine

Stefan Vanoverbeke is CEO of IKEA Southeast Europe (Serbia, Croatia, Slovenia and Romania, with the headquarters in Belgrade): "We want our business to expand rapidly in Ukraine"

Let me briefly introduce myself. I am Belgian, and I have been working at IKEA for almost 25 years. For the first 12 years, I was employed as a Store Manager, and for the next 13 years, I have held the position of CEO in Poland and France. Currently, I am CEO of IKEA South-East Europe. The region I am responsible for includes Serbia, Croatia, Slovenia, Romania, and from now on, Ukraine. I am married, with two children, a 9-year old daughter and a 7-year old son.

- You are most welcome here, in Ukraine! In our country, many people have been waiting for the news of your arrival. Earlier today, you had a meeting with Ukraine's top officials. Could you give us some details of this meeting? In particular, what matters were discussed?

- How did we arrive at the decision to advance into the Ukrainian market? The main reason was that Ukraine is a very important European country where IKEA used to have virtually no presence. We believe that now is the right moment for our company to come to Ukraine because we see the country’s economic growth indicators. Our vision is to create a better everyday life for the many people. Most of the 40 million people that live in Ukraine are already aware of the IKEA brand, and, hopefully, like it.

Today, we had a meeting with President Petro Poroshenko and Kyiv Mayor Vitaliy Klitschko. Supported by the country’s government authorities, we accomplished the necessary groundwork for entering the Ukrainian market. Therefore, we first thanked the President and the Mayor, and pointed out the importance of future fruitful cooperation with all stakeholders. In general, before entering a market we ensure that our business activity and products fully comply with the relevant regulatory framework. Cooperation with the government enables us to meet the desired high standards of business operations.

- Let us return to the moment when the company made yet another attempt to enter the Ukrainian market. When, exactly, did it happen, and what market entry strategy has been chosen for the current try?

- If I am not mistaken, the very first attempt was made way back in 2005. We have now reached the end of this long road. Our first concrete step is to open a store in Kyiv. We are truly satisfied and proud that for the city of Kyiv we will introduce a brand new business approach called the ‘city center store’. We are doing it for two important reasons. First, we must recognize the fact that not only in Kyiv, but also in the whole world consumer trends are changing. Nowadays, people buy more and more online, and have less and less time to move around the city because of traffic. I think we clearly see this trend in Kyiv, too. In this respect, the issues of convenience, time saving, and financial resources become more important.

The new city center store approach enables us to get much closer to the consumer. It is well known that in a classic IKEA store, large areas are reserved for restaurants, logistics and self-service. We are not going to offer the cash&carry service in our store in Ukraine; instead, we will provide home delivery and self-delivery services. We also intend to reserve some space for a very important component – the show room. This business format is new for IKEA, and the first such store will open in London (specifically, in Greenwich), with stores in Paris, New York, Shanghai, Warsaw, and Kyiv to follow.

This new business format also gives us a much faster market entry process. The standard IKEA market entry takes much longer. For instance, in Serbia 10 years passed between the decision to open the store and its actual opening. In the case of Ukraine, the new format will help us open a store as early as in summer 2019. That means that we will set a new IKEA record by making an entry into the Ukrainian market in just two years.

- In the process of entering the Ukrainian market, have you experienced any difficulties, for example, corrupt practices?

- As a company, we are extremely transparent, and any corrupt practices are absolutely unacceptable for us. In view of this, our strategy is to cooperate with various government authorities with maximum efficiency. We also encourage other stakeholders to cooperate in this fruitful manner. This way, we keep our business operations clean; in other words, we simply have managed to avoid the practices of graft and corruption. When we enter a country, our toughest challenge is to make sure our product lines and IT systems comply with all pertinent local requirements – that is, we must ensure that our entire range of products is in compliance with the local legal regulations, and our IT solutions are properly aligned with the scope of regulatory policies. The latter group of issues is more technical, we resolve them when entering any market. We have been reassured by the President, the Prime Minister’s office, UkraineInvest and the Investment Council that our efforts to avoid corruption shall be met with the strongest government support.

- What will your first store at the Ocean Mall look like? Do you intend to launch online sales at the same time the physical store opens its doors for customers?

- The total floor area of our store will reach almost 6,000 square meters; the range of products will include furniture and accessories. The store will be divided into locations (or ‘room sets’, as we call them) that look like rooms adapted for displaying various home solutions. In addition, we will present our concept solutions for small households. These will include all necessary components, and we will assemble as many products as possible to fully satisfy the potential buyer’s expectations in high quality products. The product range will include products sold in other countries. At the same time, we are striving to launch online sales as soon as possible. We want our business to expand rapidly in order to satisfy the needs of consumers from Kyiv and other regions of Ukraine.

The store is a place where the magic of democratic design and variety of solutions is born. In developing our products, we adhere to the principle of democratic design that consists of five vectors: beautiful appearance, functionality, high quality, environmental sustainability, and affordable price.

We try to gather as much information as possible about the way people live in Ukraine, particularly in Kyiv. We analyze the obtained data in our office, as well as visit people’s homes, talk with them, find out their preferences and dreams, ask about their disappointing experiences, and try to find solutions to fully satisfy their needs.

For instance, we are aware that Ukrainians often live in small-size residential spaces; to meet this challenge, we have developed the concept of ‘third generation housing’. A home should look attractive, encourage people to spend time there with friends; also, living conditions for children are of great importance, the home should be comfortable for them. Apartments should be stylish and inspire people; in this respect, we have noticed that Ukrainians gravitate towards light colors. For our store in Kyiv, we will try to account for all these considerations.

 - Recent years were quite difficult for Ukraine, both from a political and economic perspective. So, why did the company take on a risk of entering the Ukrainian market? Is it true that the decision of H&M to enter the Ukrainian market sent a positive signal for you?

- The Swedish Embassy strongly supported us. In fact, when we enter a foreign country the first thing we do is contact the Embassy. They provided us with enormous insight on the current economic and political situation in the country, which is extremely important for understanding what goes on in the region.

We had no contact with H&M because we started our work in Ukraine three years ago when H&M were not even around. We talked to other foreign retailers, and they shared with us their positive experiences. We are confident that we have chosen the right moment to enter Ukraine because we see the economy growing, the IT sector is booming, a number of reforms have been successfully implemented. Needless to say, more things need to be accomplished, but we are looking on the bright side and have no doubt that this is the right time for us to enter Ukraine.

Along with our business goals, we carry a social mission to support sustainable development; that is, we intend to improve societies where we have a business presence. We believe we can create value for the Ukrainian society in various sectors of life. Our products can encourage people to save money by consuming less water and energy. We also offer competitive wages and benefits while providing good business opportunities for our employees. We are happy to share our positive business cases, show the Swedish way of running business. In addition, we are committed to promoting gender equality; for us, equal rights, opportunities, and pay for women are subjects of great importance. We will cooperate with various organizations in order to help improve the quality of everyday life in Ukraine.

- Is this true that the company sought Ukrainians from various IKEA foreign divisions to work in Ukraine?

- I can even say that some Ukrainians employed by IKEA in other countries got in touch with us when they heard that we were entering the Ukrainian market.

We have conducted business interviews with some of them. The recruiting process is not over yet. Personally, I think it will be a great opportunity for Ukrainians with previous IKEA experience to come back and work here.

- What is the volume of IKEA investment into entering the Ukrainian market?

- At this early stage, I cannot say for sure. We want to use our first store to study and understand the local market. Then, when we get the feeling that we truly understand this market, we will open more stores in Kyiv and other Ukrainian cities.

- How long is the market study going to take?

- In an ideal situation, one year should be enough to study the full cycle.

- Have you attempted to evaluate the black market volume of IKEA goods brought from Europe into Ukraine?

- It would be difficult to evaluate. Our research shows that people here are well aware of the IKEA brand, many have our furniture in their homes. It is true that a lot of people resell goods. When we were coming to Ukraine, we realized that IKEA, even with no actual business presence here, had a positive image.

- Illegal use of the IKEA trademark remains an issue in Ukraine. In particular, you may have noticed many outdoor signs in Kyiv bearing the name of IKEA. Will you respond to this situation in any way?

Well, this situation exists not only in Ukraine, but in other countries where we still have no presence. Perhaps, this is solid proof of the strength of our brand. On the other hand, our experience shows that these signs disappear as soon as we enter a country, because our official stores provide a positive customer experience for a lower price.

- What will be IKEA’s pricing policy in Ukraine?

- Our business idea is to start with the widest available range of goods at low and affordable prices, in order to enable a large number of people to purchase our products. Availability and low prices are the “key” to understanding IKEA. This and our high quality is what make our company second to none.

Different markets have slightly different prices because they are being influenced by various factors such as the VAT or import expenditures. We intend to become as affordable as possible since it looks important for the Ukrainian market. In this respect, our policy is to offer the lowest prices among similar products in any market segment.

- How do you plan to achieve this? Perhaps, by closer cooperation with local producers?

- We are a franchisee of INGKA Group. Another company, Inter IKEA, is responsible for the design and purchase of goods from manufacturers. A second important point is that if we purchase goods in a country (nowadays, we do it in Ukraine as well), it is intended not only for sale in this particular country, but in other countries where we have a business presence.

- Nevertheless, can your entry into the Ukrainian market facilitate closer cooperation with Ukrainian producers?

- We are responsible only for sales. But I also know that Inter IKEA is looking for opportunities to get in touch with new suppliers capable of providing the required quality at affordable prices. The scalability of the manufacturer is also an important factor. As you know, our total annual sales volume reaches almost €40 billion. So, we look for professionalism and skills, and we know for sure that Ukraine can offer both, plus the necessary resource base. In view of this, I think it’s possible that in the future the focus will be on expanding this type of cooperation.

- It is obvious the company intends to increase the number of its stores. Can we expect more IKEA stores to open their doors next year?

- It would be premature to make announcements of future openings. We will continue our development here as planned. One of the main vectors for our business in Ukraine will be supporting online sales. At the same time, a country with 40 million people offers us great possibilities to open more and more physical outlets.

- I fear your first outlet will not be able to handle the demand.

- If this will be our only problem, then we will be more than happy

- In other countries, in Poland, for example, not only ‘mini-IKEAs’, but also small pickup points for online orders are being opened. Taking into account the large area of our country and the limited high-quality retail space, have you considered developing similar pickup points in Ukraine?

- As we will launch online sales, one of the ways to reach customers will be a delivery service, another option will be self-pickup – in other words, the aforementioned pickup point. This will allow customers to come in person to pick up their order, which will be cheaper and at the most convenient time for the customer. Later we hope add full service, which will include the following options: for example, if you need kitchen furniture, our specialists will come to your place, take measurements, and offer you different functional and style-based solutions. And when you agree, we will come to your place with the ready-to-assemble kitchen furniture and simply install it. This is an example of full service, but now it's too early to consider it. Instead, we are concentrating on providing local delivery services in Kyiv and on offering the option for people to come and pick up their orders.

- Next year, do you plan to offer deliveries to the regions?

- By the time our physical store opens, we will not have launched e-commerce. This is why we will deliver within Kyiv and Kyiv Oblast. As soon as we launch our e-store, we will be able to supply our products to other regions of Ukraine. In this regard, we want to become a leading company that guarantees multi-channel sales. We intend to become a world-class retailer that provides multi-channel communications for the client at home.

- Have you already chosen a logistics operator, or maybe several of them?

- At this time, negotiations are ongoing with two companies, and we are at the final stage of approving the candidate. We will make a public announcement as soon as we make our choice. This partner will provide home and warehouse delivery for us.

- Do you have plans for opening classic large IKEA shopping centers in Ukraine in the future? We understand that the company now has a new global development strategy of opening small-size stores. Nevertheless, in other countries, the company has long operated large shopping malls, where consumers can enjoy walking, relaxing and even eating famous IKEA meatballs. Will you provide Ukrainian consumers with a similar experience?

- Good question. The first step is to open the first small store. Later, we will launch online sales, then we may open additional points of sale. We do have an ambition to achieve a broader presence in the Ukrainian market. We had a working concept of a flagship store, with many facilities like a restaurant, etc., but we are unlikely to open huge classic shopping malls like we used to in the past. We are now looking for other formats that will enable us to sell products and, at the same time, to provide a good customer experience. We will continue working here, and firmly intend to ensure easier access for our customers in Kyiv. But the idea of building one large shopping mall in one city area does not seem to work anymore. For instance, residents of Kyiv’s ‘left bank’ would have to spend 1-2 hours just to get to the store located on the right bank, which would not be particularly accessible. So, we will start with the city’s downtown area; later, hopefully, we will add a food outlet, and then we are likely to further develop the concept of smaller retail points in less accessible locations away from the downtown area.

Our colleagues have analyzed the market of large shopping malls. Indeed, Ukraine, compared to Western European countries, has the potential for increasing IKEA retail spaces. Our large shopping mall designs are more typical for countries like China. But we will continue our analysis of Ukraine, and we will watch how the market develops.

- Have you analyzed the competition in the Ukrainian market? For instance, we already have a local strong player, namely, Epicenter, with whom you share some market segments. Do you intend to compete?

- Indeed, your domestic retail market is interesting and dynamic. It has local players and is showing increasing activity from global players, but we intend to make a unique business offer. We plan to offer something that the market has not seen yet. Normally, when we enter a new country, we observe that the domestic market of household furniture and accessories starts to grow. People start spending more money on home improvement rather than on travel or something else. When we enter a market, its indicators, including competition, demonstrate growth.

Source: Interfax

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