6:50 PM IKKE! ASIAI Pakistan looks Thai tuna titan tolevel up eyes bigger fish NIKKEI ASIAN REVIEW _....... aL) Vy} ip cd asa a“ t PRUE) irc} a Vi Indonesia Singapore BRT Rs) giant assembles a winning strategy in Asia asia.nikkei.comweeoTSEL 6:50 PM com < ASIAN REVIEW The Bangna store in Thailand showcases how the kitchen can be integrated with the living room and dining room. (Photo by Yumi Kotani) Ikea rises in the East KEN MORIYASU, Nikkei staff writer With its knack for localization and a proven strategy of targeting the middle class, Ikea has all the building blocks for a retail empire in Asia. Standing by a wooden chair on display at the Ikea Bangna near Bangkok, store manager Patrice Dreano could hardly hide his excitement. "It is a massive opportunity," he said. He was referring to the ASEAN Economic Community, which the Association of Southeast Asian Nations plans to roll out in December. The chair at his sideweeoTSEL ¢ 6:50 PM com < ASIAN REVIEW was made at an Ikea production site in Vietnam. Once the AEC creates an integrated economic zone with lower tariffs and taxes, the chair should arrive at the Bangkok store much more cheaply. This, in turn, would allow Ikea to trim the price tag, putting the product within reach of an even wider swath of consumers. It is what the world's largest furniture retailer does best. While most multinationals entering Asia target the rich -- the small minority at the top of the economic pyramid -- Ikea engages the middle class first and then expands to the equally massive segment of lower- income families. "Any Thai is a potential customer," Dreano said. Relying on the rich can be risky, as many luxury brands have recently learned the hard way in China. When the country's sales of luxury goods grew 35% on the year in 2010, 30% in 2011 and 20% in 2012, fashion houses Louis Vuitton and Gucci did not hesitate to expand their store networks to third- and even fourth-tier cities across China. Today, they are reversing course and closing outlets as President Xi Jinping's austerity and anti-corruption campaign continue squeezing sales of luxury goods. Sales in asia, astral, Ssipercent of total ae V7)U) Ywy) 1kea's global revenue Stores in Asta, Auwesia amo. x16 | MW CIOOOOCLS x28 SRO ER SRS VOGT OL too] Doing its homework Ikea's strategy of capturing the hearts and minds of the middle class starts with its trademarkweeoTSEL ¢ 6:50 PM com < ASIAN REVIEW "home visits." A team of three to four Ikea employees visit regular homes located within a one-hour radius of the store and observe how their inhabitants live. The company still conducts home visits in the vicinity of its 9-year-old Funabashi store outside of Tokyo, the oldest existing Ikea outlet in Japan. Peeping through drawers, cabinets and futon chests, the Ikea team takes hundreds of photos during the hourlong visit. The type and state of the house -- old or new, small or spacious, messy or tidy -- is of no concern. "We ask what problems people encounter in daily life and try to think of solutions. The home visit is the core of our strength," said Ai Christiansen, a PR specialist at Ikea Japan. The fruits of such research can be seen in Ikea's recently released 2016 catalog for Japan. After pages of Northern European- style kitchens, living rooms and bathrooms, page 162 features a traditional Japanese tatami straw- mat room turned into a comfortable, East-meets-West type of bedroom. On the tatami floor, two smaller beds are joined together to create a bed big enough for the whole family. It's a fresh take on the often drab, 13-sq.-meter tatami room found in any typical Japanese house. Ikea is applying the same formula in India, a new market for the company. "Through home visits, we learn about activities and behavior as well as problems, dreams and aspirations of households in India," said Juvencio Maeztu, chief executive of Ikea India. "Through quantitative studies, we learn about which activities go on in the various rooms, room sizes and architectural layouts." Ikea's entry into a new region typically begins with multiyear research into the local market. Ikea opened its first Indonesian store last October after four years of research, which is said to be the shortest on record for the company. During that time, it conducted over a hundred home visits to see just how local households function. Based on that research, the kitchens sold at the Alam SuteraweeoTSEL ¢ 6:50 PM com < ASIAN REVIEW store, 30km west of Jakarta's central business district, have an extra area for maids. There is also a sink close to the dining table because people tend to use their hands to eat. The findings of the home visits are also relayed to Ikea's main office in Sweden. There, global strategists try to connect the dots and find trends or shifts in habits. The culmination of that research is the cover of the annual Ikea catalog, which is delivered to homes around the world -- some 219 million copies in more than 30 languages -- around August and September. The catalog editing process begins in January at a kickoff meeting in Sweden with staff from around the world in attendance. They are told the theme for the following year, and teams from each country begin adapting the catalog content for their own domestic market, such as the tatami room in the Japanese catalog. The main theme for the 2016 catalog is the kitchen. It is this space -- more than any other room in the house -- that Ikea sees as having the greatest potential for growth in Asia. People in Thailand, Malaysia and Singapore, the three largest markets for Ikea in Southeast Asia, spend less time in the kitchen than their European counterparts because they eat out more. For breakfast, lunch and dinner, the streets of Southeast Asia offer an abundance of tasty, affordable options. Ikea's challenge is to change people's mindsets. "We try to tell people that cooking is not just a chore. The kitchen is the center of the home, a place where people gather and talk about their lives,” Dreano explained. The Bangna store showcases how the kitchen can be integrated with the living room and dining room, a setup that was rare in Europe 30 years ago but which has since become the standard. "In Europe, the kitchen is a massive market," Dreano said. "But in the long run, Asia should follow the same direction." A perfect match If an expanding middle class is square-one of Ikea's business strategy, no region fits that gameweeoTSEL ¢ 6:50 PM com < ASIAN REVIEW plan better than Asia. According to the Asian Development Bank, the size of developing Asia's middle class tripled from 565 million people in 1990 to 1.9 billion in 2008. In China, it is not uncommon to see customers napping at Ikea's stores. Here, a man dozes at the Swedish company's Dalian outlet. Ikea's success in China stands as a testament to this "grow from the middle" strategy. According to the China Chain Store & Franchise Association, sales at the 17 stores that Ikea operates across the country reached 10.2 billion yuan ($1.6 billion) in 2014, up 24% from the year before. And what could be a better advertisement than the sound of genuine snores? In Ikea stores across China, customers will enjoy a lunch of Swedish meatballs -- or mushrooms and tofu on rice, if they prefer -- priced at a mere 15 yuan and then move on to the bedding section to enjoy an afternoon nap. Photos and videos of those deep asleep -- some with shoes off, some buried deep in the covers -- crop up regularly on social media. The drool, loud snores and passed-out faces are seen as "proof" that Ikea beds are indeed comfortable. While such napping is probably not part of the image the company's PR team wanted to project, it has helped make Ikea a household name in China. So did the cafeteria, where free refills of coffee have attracted senior citizens to gather for a chat, eventually turning the area into a gigantic matchmaking venue for exchanging information about marriageable children and grandchildren. For recently married couples, going to Ikea to buy their first furniture together is now a common trend. The world's most populous country produces around 10 million newlyweds a year. As China's ongoing urbanizationweeoTSEL ¢ 6:50 PM com < ASIAN REVIEW brings more of them into cities, the demand for a modern lifestyle -- and Western-style home furnishings to go with it -- will likely grow. "I like that I can experience a European lifestyle for an affordable price," said Song Shisheng, a 32- year-old visiting the Dalian branch in northeast China. A self- proclaimed Ikea fanatic, he said his bookshelf, sofa, bedside table and most other pieces of furniture are from the Swedish company. "Shopping at Ikea is a fun experience. It is the one thing that e-commerce, for all its growth, cannot compete with," said Jason. Yu, China general manager for consumer research company Kantar Worldpanel. Tkea's success stands in contrast to multinationals who have struggled to establish a strong foothold in China. British supermarket operator Tesco was forced into a joint venture last year with China's largest food retailer, China Resources Enterprise, after failing to succeed on its own. Clothing retailer Marks & Spencer Group, also of the U.K., is looking to close five stores in Shanghai and branch out into other cities, such as Beijing and Guangzhou, after its Shanghai-centric strategy proved a bust. Continuing to challenge But Ikea's research process is not without its flaws. Prior to opening its first store in South Korea last year, the company had to apologize for selling a world map identifying the body of water between the Korean Peninsula and Japan as the Sea of Japan. South Korea has long demanded that the waters be called the East Sea. And although Ikea now enjoys success in Japan, its initial entry to the country, in 1974, failed. The stores were small and unremarkable, and the company had to pull out after 12 years. India, Ikea's next big target, offers a potentially massive market with a huge middle- and low- income population. In 2013, the Foreign Investment Promotion Board approved Ikea's plan for a long-term investment of 105 billion rupees ($1.57 billion) to open 25 stores. It is India's largest proposal from a single retail chain to date. Ikea recently bought its firstveo TSEL 6:51PM eoomm ¢ < ASIAN REVIEW plot of land in the southern city of Suzuki in Jakarta and Daisuke Hyderabad. The site was chosen Harashima in Dalian contributed for its proximity to Hitec City, to this report. Hyderabad's information technology hub, and for its easy access to public transport. "We strongly believe that Hyderabad offers a business- friendly environment with a proactive and progressive government," said Maeztu, the chief executive for India. Ikea has sourced out of India for nearly three decades. Some 45,000 people work directly for 50 Indian Ikea suppliers, and another 400,000 are employed in the extended supply chain. Ikea sources products worth 315 million euros ($355 million) from India, and plans to double this by 2020. "Today, we source mostly textiles, and we would like to expand to other categories, like mattresses, furniture items like bookshelves, and other sustainable materials, like bamboo and acacia." Tkea's aim is to maximize India's sourcing potential for all its Indian stores. Nikkei staff writers Kiran Sharma in New Delhi, Wataru