Hyderabad, capital of the recently formed Telangana state and a city with a strong and diversified retail base, is likely to secure its position on the global retail map with the opening up of the first Indian IKEA store in July 2018.

Here are some of the reasons why the Swedish furniture retailer might have chosen Hyderabad as its next location:

The city is backed by the state’s industry-friendly policies and has the availability of cheap land.

• It is poised to be India’s next major technology and software development hub after Bangalore, hence attracting a pool of professionals with high income propensity.
• The commercial (office) sector in Hitec City[1]-Gachibowli, which falls under the direct catchment for IKEA, is undergoing rapid growth. This area is likely to witness an increase in office supply of 35 million-40 million sq ft [2]in the next five years, of which 60-70% is likely to be absorbed by the time developments open.
• The city’s retail market, traditional since inception with local brands predominating, has evolved due to the growth in IT/ITeS, office and tourism sectors and influx of people such as international students and working population. This has resulted in an increase of brand-conscious young people who are propelling retail sector growth and in turn attracting popular international retailers. Global brands present in high streets and malls have plans to expand in the city, with a supply of about 7.16 million sq ft of retail space[3] expected in the next five years to meet this demand.
• A considerable portion of the city’s population residing abroad are familiar with IKEA as an iconic brand, thus helping to create demand for the flagship store.
• The city’s upper- and upper-middle-class population is well-versed with design, quality and branding when it comes to home furnishing, and will likely embrace IKEA’s concept once its doors open to the public. Coupled with the growth witnessed in the office and hospitality sectors, IKEA will likely see strong demand.

Impact

Hyderabad is expected to carve a niche for its retail sector, attracting investment and enhancing retail growth. Big global players[4] will likely follow, creating a conducive business ambience.

Other chain impacts[5]:

• Employment: the flagship store is likely to employ 400-700 direct and 2,000 indirect workers.
• Local sourcing: with an aim to double local sourcing by 2020 and enhance its “Make More in India” initiative, IKEA has organised events in Hyderabad to identify potential suppliers in categories such as sofas, bookshelves and mattresses as well as products made from sustainable materials like bamboo and jute and other natural fibres. IKEA is likely to explore metal, glass and plastic raw materials, providing support to local suppliers and artisans.

Moving forward, Hyderabad is poised to revamp its retail scene thanks to international retail stores coming on-board. This will cause a ripple effect and help to grow the sourcing chain and strengthen supplier linkages. This in turn will encourage further growth in the retail sector and create a positive impact on both the city and state economies.

[1] Hyderabad Information Technology and Engineering Consultancy City – Hitec City – was launched in the 1990s as a JV between Larsen & Toubro and the then Andhra Pradesh Government.
[2] Source: JLL REIS, 2Q18
[3] Source: JLL REIS, 2Q18
[4] Walmart signed an MoU with the Telangana Government in April 2017, to set up new stores in Hyderabad, Karimnagar, Nizamabad and Warangal, among others, over the next 5-7 years. Walmart has one store in Hyderabad.
[5] Source: http://ikea.in/ikea-india

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