Why Brazil still is a no-go for IKEA

In developed markets, IKEA is positioned as a low-priced mass-market brand, but in emerging markets where low prices are the norm, it targets a growing middle class that aspires to international lifestyle products – among the BRIC, China has already 18 stores and Russia 14 stores.

The company plans to open three new Chinese stores in Guangzhou, Suzhou and Chengdu, while in Russia their revenue fueled an 11 percent increase in full-year (2015) sales.  And Ikea will likely enter India next, and has been heavily researching the Indian consumers.

But in Brazil, things are always a lot more complicated. On one of my previous posts,  I mentioned why is so complicated for foreigner companies / brands to enter this ever-changing country. Here is some of the reasons I think Brazil is going to be a massive effort for Ikea, if they do choose to take up this challenge:

  • Brazil has very high taxes for imported goods, around 75% or greater over FOB cost. Local companies such as Tok & Stok also face this problem, but probably have already optimized their purchasing to reduce tax impact;
  • Ikea also chooses to buy much of its furniture from very strictly managed local subcontractors. Perhaps, this means that high import duties are not to blame this time. However, many of those goods still would not be competitive enough (Price x Quality) to compete with the Brazilian market equivalent (eg. Tok & Stock);
  • Logistics is a serious problem in Brazil. Ports are slow, the country is huge and internal transportation is limited and expensive;
  • Competition is serious: Brazil already has a strong furniture market with established players, some of them having a model similar to Ikea’s;
  • I suspect that the lobby-groups of Brazil’s large furniture industry have simply prevented Ikea from establishing itself in Brazil. Protectionism is very common in Brazil and happily promoted by politicians.

As long as they haven’t figured out how to solve all of these problems and have a good business plan for Brazil, it is unlikely that they will open a store there. The good news is that they do have an office in Brazil, studying these issues and prospecting the market.

 

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