Those looking for affordable, ready-to-assemble furniture products of world renowned IKEA shall no longer be bound for Kuala Lumpur or Singapore, as the company will set foot in Indonesia from 2014.

Indonesian publicly-listed retail giant PT Hero Supermarket (HERO) was the one tapping the opportunity to secure the franchise of IKEA, whose concept and trademark are owned by Netherlands-based Inter IKEA Systems B.V.

Both companies inked the franchise development deal last Thursday, according to a statement submitted to the Indonesia Stock Exchange (IDX) on Monday.

“According to the franchise development agreement, IKEA gives rights and responsibilities to the company [Hero] to open and operate IKEA stores in Indonesia,” the statement said, without providing details on the investment value and store locations.

“The company [Hero] must establish IKEA stores according to the agreed quantity starting from 2014 to 2021. There are possibilities to increase the number of IKEA stores after the period ends.”

Hero corporate secretary Vivien Goh also declined to disclose details on the company’s plan on IKEA when contacted by The Jakarta Post.

Indonesia’s consumer goods sector has been seen as a lucrative market in recent years, as the country’s economy, which is heavily reliant on household consumption, grew above global averages at more than 6 percent in the past two years.

IKEA’s presence in Indonesia — which will add to the Swedish furniture retailer’s 325 stores in 35 countries — will boost competition among home improvement retailers like PT Ace Hardware Indonesia (ACES) and PT Cahaya Sakti Multi Intraco, which owns the Olympic Furniture network.

Ace Hardware has 57 stores nationwide, while there are 49 Olympic Furniture branches with 30 distribution points to supply products to more than 3,600 traditional stores and 250 modern retail outlets.

“Like Olympic, IKEA offers functional furniture products for a low price and targets middle-to-low income society,” said Ambar Tjahyono, chairman of Indonesian Furniture Industry and Handicraft Association (Asmindo), who believed that Olympic would be the most affected by IKEA’s presence in Indonesia.

Ambar, however, remained upbeat that the IKEA expansion would not hurt the furniture industry in Southeast Asia’s top economy, due to the quality and uniqueness of other products.

Meanwhile, the Indonesian Franchise Association (AFI) saw an opportunity from IKEA’s arrival.

“We can learn how to improve and renew designs of our furniture,” AFI chairman Anang Sukandar said.

IKEA is among many companies looking to tap the rising consumer demands from the Indonesian economy, the fourth-largest in the world, after crises in Europe shifted attention to emerging markets.

“There are about 50 Malaysian companies, 10 Singaporean and 16 United States firms who want to join an exhibition to be held in June. If they want to join the exhibition, it is likely that they want to enter the country,” Anang said.

Shares of Hero rose to an all-time high of Rp 19,400 a piece following the IKEA franchise deal announcement on Monday, up 8.38 percent from the prior day. As of December, Hero operated 533 stores, including the Hero and Giant supermarkets.

Source: Jakarta Post

Posted and edited by Riona, Hanbao News Department

Contact: rionach@cltimber.com