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Will IKEA be strong enough to remap the Vietnamese furnishing market?

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A source from the Hanoi People’s Committee said IKEA is planning to develop a system of retail centers and storehouses in Hanoi with investment capital of $450 million.

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IKEA is moving ahead with a five-year plan to expand to Southeast Asian and South American markets. As for Southeast Asia, the Swedish manufacturer plans to enter Vietnam and the Philippines after it opens in Singapore, Malaysia and Thailand. The company will open 25 shops a year.  

Analysts say that IKEA has great advantages in the Vietnamese market. The brand has been known to Vietnamese for many years. IKEA has massive production which allows it to set low selling prices. 

Gilimex, Nam Phat Steep and Scansia Pacific have been doing outsourcing for IKEA for  many years. 

The businesses said under contracts with IKEA, they could make net profit of 4-5 percent per product, much lower than the amount they can expect from other partners (15-20 percent). However, orders from IKEA are always big, which can bring stable profits.

IKEA sets international standards for Vietnamese outsourcing enterprises to observe and it also gives support to enterprises to develop FSC (forest stewardship council) growing areas. Thus, the cooperation with IKEA with help Vietnamese penetrate the world’s furnishing market worth $140 billion.

IKEA’s presence all over the globe is also a big advantage. Despite the stiff competition, IKEA has been growing rapidly with revenue of $39.3 billion in 2017. However, the growth rate is slowing down.

By penetrating new markets, IKEA hopes the manufacturer will obtain 8-9 percent growth rate in the upcoming years. Emerging markets are places where IKEA has good positioning as it targets the middle class which is booming.

The Vietnamese wooden furniture market has an average consumption level of $21 per head per annum.

A report from Hawa showed that domestic furnishing sales reached $4 billion in 2018 and the large scale has attracted thousands of enterprises, most of which are distributors and retailers.

These include Nha Xinh (now AKA), Pho Xinh, Nha Vui, X’Home, Tavico and Home’Furni. 

In Vietnam, IKEA will have to compete with foreign rivals including UMA from Sweden, Ashley from the US, Index Living Mall from Thailand and Kimsfullhouse from South Korea. 

Meanwhile, sources said more furnishing brands from Denmark, Germany and Sweden are jumping into Vietnam.

In 2018, Vietnam spent $500 million to import wooden furniture products, 63 percent of which were from China, 11 percent from South Korea and the remaining from Italy and other sources.


Source: VietNamNet

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