Q&A | IKEA Gurgaon is a complicated and big project for us, says Global CEO Brodin
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Jesper Brodin, Global CEO of IKEA, says, his organisation tries to think long term, and not just being here for the short term when it comes to driving our business, but actually establish ourselves for decades and a long period ahead, when asked about IKEA’s strategy for India, in an exclusive interview.
IKEA Gurgaon is bigger than a single brand mart — it is going to be a shopping centre, and there will be some other facilities as well. This facility is truly a complicated and big project, says Jesper Brodin, Global CEO of IKEA, in an interview with CNBC-TV18. Edited excerpts:
Q: Let’s talk about the view on India. And we know you have, of course, been a long term committed investor to India. But you also need to have a lot of patience as you keep saying to stay committed and invested in India. Since you’ve just returned from visiting your Gurgaon facility, which is still in the works, would like to know what’s the current status of the project?
A: The status is— it looks good. We are deep in construction right now. This project will be, as quite often these days, not only an IKEA store, but it’s going to be a shopping centre, and there will be some other facilities as well. So that means it’s a quite complicated and big project for us.
We try to think long term, and not just being here for the short term when it comes to driving our business, but actually establish ourselves for decades and a long period ahead.
And I can tell you a fun story. Actually. One of the last times I met our founder, who passed away a few years ago, as an old, successful entrepreneur, and I asked him about the future. How should we think about the future? He said, you should think long-term. Then I asked him how long term and he said, 200 years. However, I can promise you we’re going to open Delhi before 200 years.
Q: So you’ve got Gurgaon coming up, Noida still a couple of years away from being ready for operation and Delhi no plans yet?
A: In greater Delhi, we are looking at actually doing what we have rarely done before — we’re going to open online first. So we are deep in preparations now for logistics, and then the store will come in maybe one and a half year or thereabouts. And as we then progress with Noida we’re looking into other sites and opportunities in Delhi. To this date, we don’t have more to share, but my team will probably be able to respond to you before I meet you in the snow next time.
Q: So by 2030, how large is the IKEA presence likely to be in India?
A: Well, that is what we’re working with right now. The first chapter for us was to build the first store, which opened some five and a half years ago in Hyderabad. That was to prove to ourselves we could and that there was a market and there was an interest. And you can say the experience has been phenomenal for us, the interest is massive. After that, we opened in Mumbai, Bengaluru and now Delhi is on the map. The long-term plan for us is to establish IKEA in all big cities and then expand in an omni-channel context in India so we can reach as many people as possible.
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On one hand, we have to be a bit patient because building big IKEA stores takes a bit of time. And building industry capabilities for the volumes that IKEA is supporting is a game of not only supporting IKEA, but making sure there are entrepreneurs, investors, there is export as part of it, because in the beginning, we need to build volumes, rely bit on exports before it can benefit the domestic market. Normally it takes a decade or thereabouts to get all of these things in place. So we are in a hurry to build those volumes, so that we can reach more people and also work the economy of scale to bring even more affordability to people.
Q: You talked about your big stores. But let’s talk about the experiment with the small stores. You have decided now to close the R-City store in Mumbai and consolidate your operations. Could you explain why you felt the need to do that. Was it an experiment that didn’t work out obviously as per your expectations? Are you giving up on the small store format plan?
A: We have concluded that the small stores will be part of the IKEA concept as we see it. We started the project around 2018, and I think and we said we need to experiment not only with online services but also how do we bring IKEA closer to the city centres. And the analysis wasn’t that difficult to understand — a lot of people, limited capacity to move to the outskirts of the city. So we wanted to bring the physical experience to people in a smaller format. And I think we have done probably 40-50 of those, and we might have closed some 10 of them.
Typically, we learned that we need to be in a prime location, we need to also build it in a certain flow so that it enables for people to find what they need to find. The Mumbai store that we recently closed, was one of those where we weren’t in hotspot enough. These smaller stores are smaller decisions for us, because of course, the investment is very small compared to Gurgaon. But I’m sure that we’re going to continue to find ways in India to establish smaller stores.
Q: So you’re not giving up your small store strategy?
A: No. Hopefully, we will test and try many more things here. And part of that will be sometimes we have to give up and say that didn’t work.
Q: One of the other things that is interesting about IKEA is your reorientation into the world of digital and e-commerce. And in many ways you’ve come late to this party, which has sort of taken off post-COVID, what’s been the big lesson for you through that?
A: We were late in entering into the online journey. And I reflected over that, I think sometimes your success can be your biggest enemy. So we were basically pushing the buttons around 2017. Already, then we have started the preparatory work for online. But we were not that far, to be honest. It’s a wonderful story, because we took an around the world journey, met customers in 16 countries and they all said, we love IKEA, we want to go to IKEA, but we want to be able to access you on a Tuesday evening, when we put the kids to bed, and we just need to buy something and get it home delivered. We didn’t have that capability.
So we started to work on it. And interesting enough and challenging of course enough pandemic came along. And suddenly two things happened, the interest for life at home was a peak in every country all over the world at the same time. And secondly, online was the only way we could maintain a business. So we had weeks and months where online was 100% of IKEA.
At the time of the outbreak of the pandemic, we had few countries that were ready, but we managed to in four or five weeks actually get all of IKEA online prepared. And so you can say in a way the pandemic helped to speed up things for IKEA.
Today even if we missed a lot of opportunities to progress, we have the capability to run both our stores, run the online side, the services. People asked me some seven, eight years ago, are you going to be online or offline? Interestingly enough, 87% of my customers are both. So there are very few people who use only one channel.
Q: But what’s been the big learning for you because as you pointed out you didn’t anticipate this change in the marketplace. And when it happened, it happened so fast and furiously. Have there been other examples or other lessons through the course of your career and your journey at IKEA, where you’ve been slow to respond, because one of the jobs of a CEO is to anticipate change, how do you now incorporate the lessons from this experience into being able to anticipate change better?
A: It’s a big question. And it’s a lovely one, I think, to a certain degree deliciously complicated, because what you have to do, I think, with a legacy company as IKEA that has 80 years now of experience, how do you actually from a leadership point of view, both love the past and create the future?
I think if you lean towards creating the future only, you might lose yourself. You might copy others and lose the strengths that you’ve built over the years. If you get too romantic and if your rearview mirrors are bigger than your front window, you will look for the answers in the past and you will miss the trends of the future.
So in a way, I think the beauty is not to put the past and the future against each other. But it honestly means for any company with years of good legacy to avoid complacency, to be afraid of your own success, to make sure that you invest in the fragility of ideas, to allow yourself to do mistakes, to test things, to close to move on. And I do believe that part of leadership is more difficult than claim the past if you say, because the past is known, the future isn’t. So therefore I think as a leader, you have to do a much better job in anticipating and being open to the future.
Q: So what is your process of being able to do that? I mean, how do you create a culture where you encourage people to take risks, where you encourage people to make mistakes, trial, and error, incubate new ideas, how do you create that culture? Is there a process that you’ve put in place?
A: If you would have asked me 10 years ago, I would have said, yes, now I would say I don’t know. But the interesting thing is, you can to a certain extent, manage and lead processes for development and innovation, I think the next level is that you need to have a transformative leadership. So you need to have the courage to talk about creating the future, and creating visions of that future without having the proof points.
But more and more over the years, I’ve started to believe that it’s even more important to build a culture. And that culture will be the strongest way for you to enable not only your, management, but the whole community, including your partners, that curiosity of the future, and exploring the future is part of what we do. So that cultural element, I think is something I try to stimulate.
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As an example, I think in my desperation, maybe but so I have invented the go banana card, and that has been handed out quite a lot to people, which means you have the go bananas card and that means that it’s basically an apology for a mistake that has not yet happened. But the good thing is, I’ve already co-signed an apology for that mistake.
Q: A go bananas card, so that’s what you hand out to people, is it?
A: Exactly. It symbolises to say, it’s not only allowed, I expect you to do mistakes. And when you do, we can apologize or we can laugh about it and we move on, of course not serious mistakes that would be harmful in any way to business or people as such.
Q: So how many go banana cards have you handed out?
A: Do you want a banana card? We are talking about probably a couple of thousand banana cards now. And the thing is, I’m happy to hand out the banana card to anyone who’s happy to take a risk. And we do follow-ups as well on these mistakes.
Q: Have any of those ideas that have come via banana cards actually translated into business decisions?
A: Many. So I think people are using it, it’s become a fun thing as well. We see our country managers in our big countries, to store managers, to people working in digital exploration, refer to that. And some of them are very tactical and also use it afterward to apologise for something that went wrong. I will tell you a funny story, the banana card partly looked like a Swedish driver’s license, by accident I gave that to a policeman in Sweden, on a customs control, and he said it is not applicable, so that’s my mistake.
Q: You talked about curiosity and exploring the future and not romanticizing necessarily the past but ensuring that you protect the past as well as move forward into the future. What shape do you see IKEA taking as you move towards your century?
A: It is an interesting question because you can say what will be the same and what will be different. And, as always, it’s difficult to predict the future. But I would say, if I would be a little bit courageous to at least say with some certainty, I think what we know for certain is that homes will be important in 10,50 100 years, 200 years from now.
So the aspect of homes and what it provides for functionality, but also emotionally what it means for people will continue to be ever so important. And therefore, I place myself with confidence that the role of IKEA, you can say on one hand could be seen as commercially selling furniture, that’s what we’re really here to do and what we had to do in India to be part of a movement making homes better, safer and affordable for millions of people.
And as much as the P&L is an important instrument, obviously for achieving that the passion that I hold, and my team holds is that we will actually make homes better, this, I’m certain of. How to do it? Some of the changes that will, and actually, I would say we see the early signs already now, and it is in a way, a lovely perspective that is offered to us. We live in a generation and in a decade when a lot of crisis are happening at the same time.
And I think it’s inviting all of us to rethink some of the actions that we have been taking, and how do we want to set ourselves up for the future. So what we change is, obviously retailing has already changed and we continue to change. How do you reach people is part of what we do, digitalization is of course, an important aspect of that, including AI and what not, but maybe the biggest transformation for us is sustainability.
So becoming 10 billion people on the planet and becoming more people in India means basically, we will need to become much better in sharing resources, making sure everybody’s part of the movement. So aspects of circularity into our business model is no longer just a good idea, it’s a necessity. Aspects such as renewable energy for carbon, climate change, for the air that we breathe, is an absolute necessity, but all of these things are also a necessity from a cost point of view. So I would say the biggest transformation I think we have ahead of us is sustainability.
Q: It’s interesting that you talk about sustainability because I think while everyone is good-intentioned about wanting to move forward on that there are many aspects of it, that are complex, it requires change within the organisation. It also requires perhaps, to sort of work with external stakeholders. But there’s a cost involved as well when we talk about the green transition, what’s been the biggest lesson and the biggest learning for you as IKEA, as you’ve made this transition towards circularity etc, what is it that you would like to share as your learnings with other companies?
A: Having been part of IKEA since 95, if I would pick only one learning that I have in IKEA, it is truly, that I’m deeply convinced over these years, and the proof points that it is a good business to be a good business. It started for me in actually South Asia, with implementing the strictest code of conduct that I think still exists today in production, for people, and for the environment.
At that time, I still remember as a junior in the company, the hesitations, and the fear of costs, which is always there, only to find out as we implemented that our code of conduct improved quality. As we improved quality, it lowered cost, it improved motivation for people. And as it improved motivation for people, you have retention, you had less cost of change, you had improved quality across the whole lifespan. And I believe, as a fundamental principle for the future, we need to believe that being good for people and the planet is also going to be good for business.
If you think about the opposite, exploitation of nature, and exploitation of people, for some business models could be possible in the short term, but except for the ethical perspective, that’s a dead end.
By being in harmony with nature and being in harmony with people, we think we can prosper and grow. And as such, in IKEA today, one of the coolest things I think we have achieved in the last decades is, since the Paris agreement, we have grown our business by almost 31%. At the same time, we have decoupled carbon by 24.3% absolute. So there you have one of the strongest proof points in the world that not only IKEA stores, but from the forest to the consumer, we are capable of decarbonising ourselves, and it’s not being done by adding cost or prices.
So it seems decarbonisation is economically the smart thing to do. And having said that, obviously there are some hurdles, there are some pain points, there are some places where we need to go and speak to the governments, the government of India to say we need your help to get there, change the infrastructure for the future. And here, I believe we are also quite optimistic because both governments and companies, big companies now have understood that climate change is not something we can pass on to the next generation. It’s us and it’s now.
Q: You talked about the government of India, and there have been many changes in policy with the idea of encouraging companies to make in India, to make an India not just for India, but to make in India for the world. IKEA of course been using India to procure for your export markets for many, many years now, take us through what you see on that front over the next five to 10 years — using India to make for the world?
A: I’m very optimistic about the prospect, there are a couple of puzzle pieces that we also need to work together government and big companies to make it happen. It’s not only an opportunity that can happen, but it will happen. And the question is more, how soon can we make it happen? Today IKEA sources about 30% of the sales already in India. And remember, India, still retail wise, we are still in the beginning only. Normally, we need some 10-12 stores to get critical mass in more areas. So it is a game of building up the retail capacity and at the same time investing in production capacity.
Normally, we would like to work with local partners to do that, we invest in the retail side and we ask industries to invest in furniture production if you like. And then to balance the timing here, export is essential. And it will also be good for the long run, of course, for India to be taking a share in the export industry, where today, India is not I think represented at the right levels.
The Indian government has an ambition of $2 trillion for exports and we would like to offer our competence, our markets outside India, but also, of course, the growth that we’re building within India to be part of that change. And for that to happen, I think one of the most important topics right now is to get together the quality control right.
So in the endeavor of setting and harmonising the landscape of requirements for products, and that needs to be set in a way so that we the industry in total, actually can fulfill the demands, fulfill it without adding unnecessary cost to the customers, and make sure that it’s also harmonised for the export. And this is one of the things that we are now — we are on one hand appreciated to be part of the dialogue, but it’s also one of our worry points right now, how do we make this happen? So we harmonise for exports and make sure that we are capable of delivering.
Q: So this is an impediment at this point? Is it because there’s a lack of regulation? Or is there too much regulation? What is the big worry?
A: I think it’s a super interesting topic because we are impressed by the speed of the government in acting on those changes. If you look at the last period, there has been an incredible ambition to move into modernization. So the idea itself is perfect and it’s the right one to embark on.
We have sometimes complained about governments being too slow, now we say wait a minute the industry needs to be part of making sure we actually can deliver to it. So it requires, I think, a couple of more rounds of deep engagement with us, with representatives of the financial industry in India, and to consider the benefit both of the domestic opportunity of growth, but also the opportunity of taking the export. I’m sure this will happen because it makes all the sense in the world, it’s common sense, but we have still some work to be done in order to remove some of the worry points for us as a business.
Q: So given the fact that you said you’d require at least 10 to 12 retail stores in order for you to be able to really scale up production and that’s the experience globally. You’re very far from that number here in India. So do you believe that that could be a decoupling of what you do in India for retail versus what you do in India for the export market?
A: Obviously, the market allows for much more than 10 IKEA stores. Even if we will be much more ambitious than that, our global market share is normally short of 10%. So we have never had the ambition to dominate any market. But what we can do is, we can stimulate a movement. And we have seen that in many countries that a lot of people benefit from including in particular I would say the value chains, both in production but also in services, and so on.
Historically, IKEA brings at least a factor of times 10 when it comes to providing jobs, so 10 times more than ourselves. And I think in India, it’s obviously even more. Going forward I am eager to find ways to how we can meet more of the Indian consumers faster. And it is a game of investing. We have committed to ₹10,500 crore investment and I can tell you we will over-deliver and we are right now looking into what is the next step that we will take from investing in India. But some of the aspects that I referred to before need to be sort of checked and crossed before we can move into the next level of investment. And with that in mind, I think online digital capabilities, and possibly experimenting with new ways of finding customers would be part of our moving a little bit faster in India.
Q: So by when do you think you’ll be ready to make the announcement about the next leg of your investments?
A: I can promise you that my team will come back to you, within this year, at least. Again, we have a couple of discussion points with officials and with representatives of governments to make sure that we gain enough confidence to say, we are ready to take the next step of investment.
Q: Is it likely to be the same number that you replicate? Or a higher given the consumption story that you see?
A: I promise you it is a number you will like.
Q: But within 2024 is when you will decide the next phase of investment?
A: We will do so.
Q: You said that, in every market that we operate, you are about 10% or more, but you don’t want to dominate the market. That’s a very different philosophy from other companies. It’s the market share game that drives most of the people. How do you manage to sort of strike that balance?
A: I don’t believe in dominance. I think any sort of dominance leads to arrogance at the end of the day, and we have seen that also within IKEA in some areas in some fields. When we became number one, we stopped developing. I have a beautiful story from our founder, many years ago, he and I met with one of our product teams in the Center of Product Development and Design in Sweden, and the group we met, they took a risk, knowing him and they told him that we have a problem. And he said, what is the problem? We are the best and they were actually — we had the best sales, we were the best in our industry, we have the best quality, so we’re not sure what to do now.
And I thought to myself, this is going to be a long day. And in that thought, he said something beautiful, he said, of course you’re the best, but that doesn’t mean you’re good and then he left. That is a remark that stays with me, greatness is not about dominance, it’s about being on the way, it’s about having the capability as we spoke to in the beginning of our talk today. It’s the capability of recreating yourself, in spite of your own successes, so to say. So I think if we can have 10% market share and be part of making homes better, and also stimulate others to do well we are super happy.
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