Juggernaut multinational furniture retailer IKEA plans to hit Ukraine hard in the near future, amping up local production and building the retail outlets and shopping centers it needs to sell its brand.
Swedish IKEA founder and current senior consultant Ingvard Kamprad says the company’s operations in Ukraine will resemble those in Russia, where in recent years it has pumped hundreds of millions of euros into building IKEA retail stores and the IKEA-built shopping malls – lavish consumer and entertainment complexes – that support them. The Swedish company also plans to open a third production facility in Zakarpattya oblast, where it already employs 3,000 people at its own saw mill and furniture production plant.
“Ukraine will be a part of the European Union and it is really a big interest of ours to develop our relationship with Ukraine,” Kamprad said July 13, days after a short Ukrainian visit. During the July 7-9 visit, his first to Ukraine, he met with President Leonid Kuchma to discuss investment opportunities in the country.
“The shopping center alone would involve roughly 250 million euros ($308 million) in investment,” Kamprad added.
For nearly 10 years IKEA has operated the saw mill and a furniture plant in Zakarpattya oblast, but its well-known furniture outlets and shopping centers remain to be seen. The Dutch-registered conglomerate has not yet built any such stores or entertainment complexes in Ukraine, such as those it developed in recent years in Russia, but Kamprad told the Post July 13 his company would like to open a third production facility in Zakarpattya and launch a retail business in the country soon.
The all-in-one malls IKEA is developing in Russia are comprised of IKEA stores, DIY stores, hypermarkets, retail boutiques, a food court and movie theaters.
Irena Vanenkova, a spokesperson for IKEA in Moscow, said the company has expanded steadily in Russia since opening its first store in Moscow in March 2000. The second IKEA store opened in December 2001 and was followed by a MEGA shopping mall, which opened in December 2002.
IKEA, which has invested nearly $500 million in Russia since 2000, owns four stores in Russia: two in Moscow, one in St. Petersburg and one in Kazan.
“Another shopping mall will open this December and we have about 12 additional projects which we would like to develop in Russia,” Vanenkova said.
IKEA would like to apply the concepts used in Russia in its expansion efforts in other CIS countries, she added.
The IKEA network consists of more than 180 stores in more than 30 countries.
It posted sales of more than $9 billion last year with retail sales in Europe accounting for the majority of sales.
Foreign retailers
Germany’s Metro Cash & Carry, a large wholesaler that owns membership-only hypermarkets, opened its first retail outlet in Teremky district of Kyiv last year. Like IKEA, Metro is pushing forward with expansion plans that involve more stores in Kyiv and other Ukrainian cities, but has faced hurdles from local retailers who feel threatened by Metro and its competitive price policies. Since Metro opened its first store, local retailers have lobbied Kyiv city officials, urging them to halt Metro’s expansion and not issue Metro with plots of land on which to build new outlets.
IKEA’s plans to develop shopping malls in the country are also expected to clash with the interests of local business groups, which have in recent years built shopping malls throughout the country.
The arrival of IKEA’s retail furniture outlets could also pose stiff competition for a handful of Ukrainian furniture retailers, such as current market leader Merx-Mebli, majority owned by the former Economy Minster Valery Khoroshkovsky. Merx-Mebli is just part of Khoroshkovsky’s business empire, which includes Ukrsotsbank, one of Ukraine’s top five banks in network size and assets.
Officials at Merx-Mebli would not reveal their company’s fiscal status, but they did say the company has more than 35 furniture stores throughout Ukraine.
Director of Merx Mebli Yury Zboyev says IKEA will be a big, but not feared competitor.
“We’re happy that IKEA is entering our market, as they will help bring more competition to the market – competition needed to help [the market] develop,” he said. Zboyev cited IKEA’s low furniture prices as an added option for Ukrainian consumers.
“They will immediately affect the segment of the market that is looking for less expensive furniture, but those looking for high quality furniture will remain loyal to our company,” Zboyev insisted.
Kamprad said he was well aware of the hurdles IKEA could face in Ukraine, though he remains impressed with how economically developed the country is.
“I had a very good meeting with Kuchma,” Kamprad said. “I think we will get all the information and support we need.
“Of course it’s a long road and there are many problems in the country, but a lot of investment is needed,” he said, adding, “I was delighted with everything I saw.”
