IKEA pricing under fire

Products and prices on IKEA Korea's website. The Swedish company will open a 27,668 square meter store in Gwangmyeong City, Gyeonggi Province, on Dec. 18, just in time for Christmas. / Courtesy of IKEA

By Yoon Ja-young

IKEA is opening its first shop in Korea next month amid much expectation among consumers and concerns from domestic furniture manufacturers. The global home furnishing brand opened a Korean Website, Thursday, presenting photos and prices of around 8,000 products to be sold here, from furniture and lifestyle appliances to children's toys.

Customers here seem to be much anticipating the opening of the IKEA store. The news of it opening its Website made it become one of the most sought after keywords at portals through Friday.

"We've needed this. The local furniture industry was very fishy in setting the right price," an Internet user, "newk," commented at Naver, the country's top portal.

Some Internet users, however, said they were disappointed with the price. "Bobo" said, "A TV stand is priced twice as high for Korean customers," adding IKEA seems to be mimicking Korean conglomerates that "regard local consumers as pushovers."

A TV unit labeled Besta Burs was priced at $249 at IKEA's U.S. Website, while it was priced at 449,000 won, or $408, in Korea.

Other users, meanwhile, defended IKEA, saying the price is similar when including tax or delivery fees. At a glance, some products were priced cheaper in Korea while others seemed to be more expensive. In an earlier meeting with the local media in May, a representative from IKEA said it considers the affordability of the consumers in setting the price for each market.

IKEA will be opening the 27,668-square-meter shop in Gwangmyeong City, Gyeonggi Province, on Dec. 18, just a week ahead of Christmas. Gwangmyeong is located to the southwest of Seoul. It plans to open a few more shops in Korea, mostly around Seoul.

Founded in 1943 by Ingvar Kamprad, IKEA grew into a global company by offering do-it-yourself home furnishing products at reasonable prices. Its sales continued to rise in the past three years to 29 billion euros in 2013 from 26 billion euros in 2011, and it is ranked at 31st in the world in terms of brand value. It currently employs around 150,000 people in over 345 shops in 42 countries.

The advancement of IKEA has been regarded as a major threat to domestic furniture firms since a few years ago when the former's plan was first revealed.

Currently, the biggest local furniture brands are Hanssem and Hyundai Livart, but analysts don't expect IKEA will cause them an immediate problem since they have different target customers.

"IKEA has a gigantic shop in the suburbs where the land price is relatively cheap...It has a huge showroom and warehouse, and helps the customers directly take the product and install it do-it-yourself, providing a delivery service for additional fees if the customer requests it," said Park Joong-sun, an analyst at Kiwoom Securities.

"In Hanssem's business model, meanwhile, the shops are located in downtown and residential areas, to maximize the consumer convenience," he said.

When considering the road and traffic conditions in Korea, "The main target customers of IKEA will be young people who want to purchase reasonably-priced goods in a free atmosphere," he said, adding that consumers aren't likely to overlap.

However, the global company is likely to seriously damage small manufacturers, which make up over 70 percent of the furniture market.

"It seems that IKEA will compete with non-brand furniture factories near Ilsan and Hanam furniture complex, which have only price competitiveness," he said.

Park Han-woo, an analyst at HMC Investment and Securities, also expects bigger damage to small manufacturers than big local brands.

"With the advancement of IKEA, people will continue preferring brand furniture in the market. They will continue growth in the local market where non-brands take a bigger portion," he said.

Some expect IKEA to damage not only furniture manufacturers but also the interior industry and retail outlets where items overlap. IKEA has been expanding its business to include children's goods and even restaurants.

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