Posted : 2013-06-23 14:59
Updated : 2013-06-23 14:59

IKEA faces hurdle in opening store in Korea

This is the site for IKEA's first Korean outlet near the Gwangmyeong KTX station, Gyeonggi Province. The Swedish home furnishing giant's planned entry in 2014 has drawn protests from furniture makers here.

By Lee Hyo-sik

IKEA CEO Mikael Ohlsson
IKEA's planned entry into Korea in 2014 is feared to deal a decisive blow to already-struggling furniture makers here. Since December 2011 when the Swedish home furnishing giant announced its plan to establish a presence in the country, it has drawn protests from concerned local furniture firms.

They fear IKEA's pricing advantage the most. The firm outsources production of its do-it-yourself products to manufacturers around the world, enabling it to keep costs and consequently, selling prices, low. IKEA's effective marketing strategies also concern domestic companies.

IKEA, founded in 1943 in Sweden, is the world's leading home furnishing company with nearly 340 stores in 43 countries. In 2012, it recorded 27.5 billion euros in global sales. It plans to open its first outlet in Gwangmyeong, Gyeonggi Province, in 2014.

In 2011, the firm bought 78,198 square meters of land for 234.6 billion won ($200 million) from Gwangmyeong City. The firm currently awaits a construction permit from the city government.

"IKEA's advance, which I think is a sure thing, will reshape the industrial landscape," said Lee Yong-won, secretary general at the Korea Furniture Association, a lobby group for local furniture makers. "Large firms will enter a life-or-death contest with IKEA. For smaller ones, I think at least 30 percent will be forced out of business."

Lee said IKEA is capable of selling furniture at half the price of locally-manufactured products, thanks to its purchasing power, and efficient marketing and supply management.

"Local firms import particle boards to produce finished furniture products. They pay an 8 percent tariff when bringing the raw materials into the country," the secretary general said. "But IKEA will not pay any import duties when bringing its finished goods into the country. This is a serious pricing disadvantage for domestic furniture markers."

In August 2012, the association jointly set up a "Furniture Industry Development Special Committee" with other interest groups representing furniture markers, as well as furniture companies like Hanssem. The committee is designed to help local firms cope with IKEA's advance into the local market by introducing measures to strengthen their competitiveness amid intensifying competition.

Furniture shops in Gwangmyeong and nearby cities submitted a petition to the Gyeonggi Provincial Assembly, asking it to stop IKEA from opening its first Korean outlet. In response, the provincial assembly recently approved the petition, pressuring the provincial government not to allow the opening.

Shop owners have also organized a series of rallies in front of Gwangmyeong City Hall and the Gyeonggi Provincial Government. They claim the multinational retail powerhouse will destroy mom-and-pop stores and traditional markets in the area, urging the government to extend financial and other support.

However, the provincial government approved IKEA's plan for the construction of two six-story store buildings on its 78,200 square-meter site on June 17, according to Gwangmyeong City.

"In return for the construction approval, IKEA has to revise its construction plan in accordance with recommendations made by the provincial government," a city official said. "We will give a green light to IKEA when it submits a revised scheme. But I think it will take some time for the company to do so."

A public relations representative for IKEA Korea said it has no specific plan yet as to when it will open its store. "All we can say is we are preparing to open a shop some time in 2014. We are currently waiting to get construction approval from Gwangmyeong City."

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