IKEA opens in Chengdu

Rising middle class helps foreign retailers expand in smaller cities

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CHENGDU--IKEA opened its fourth Chinese outlet in Chengdu, the capital of Sichuan province, on Nov. 29, marking the Swedish retailer’s first move into a second-tier city.

Since IKEA, the world's largest furniture retailer, entered China in 1998, it has opened three stores, all located in China’s most developed markets--Beijing, Shanghai and Guangzhou. The Beijing store is the second-largest IKEA outlet in the world, after its flagship store in Stockholm.

The company’s new move into a less-developed market signals that a middle class is emerging in the mainland’s interior.

“Chengdu was chosen as the location because it offers the most potential after the big three,” said Charles Sampson, Beijing-based CEO, China of Saatchi & Saatchi, which created the launch campaign. “The style of Chengdu is informal and enjoying life, a good fit with Ikea brand values.”

At the moment, he admitted, “home decoration is in the early phase. Most people prefer to spend their leisure time outside the home. Ikea expects to be in the forefront of changing consumer behavior just as they have been in other major cities.

Covering 27,000 square meters of floor space, the Chengdu site is nearly twice the size of the Guangzhou store that opened last year. It can hold up to 7,000 customers at one time, and IKEA hopes it will attract two million customers annually.

Advertising aimed at women, who play the lead role in household purchases in Chinese households, uses “some interesting nontraditional ideas” alongside conventional print, said Mr. Sampson.

IKEA shuttle buses traveling between the store’s entrance and nearby transit hubs, for example, are furnished with cheerful IKEA decor like brightly colored rugs and curtains and furry white seat covers.

The retailer’s delivery vans feature three-dimensional photographs of IKEA products like beds, chairs, lamps, storage boxes, and even stuffed fish in a mock aquarium. The ads give the impression that giant versions of IKEA products are being driven through city streets.

It also developed a set of branded playing cards, in which each card displays a product or an image of an IKEA-decorated environment pulled from the store catalog. The cards are given away in popular hangouts like teahouses and restaurants. Media planning was handled by Mediaedge:cia in Beijing.

“Playing cards is a very popular pastime in Chengdu and we wanted to enter peoples' culture to show that Ikea is a brand that understands them and is close to them,” said Mr. Sampson.

The launch of the Chengdu store is also a sign of how competitive China’s exploding retail market has become. IKEA is one of a handful of major foreign brands expanding operations in that market, including B&Q, Home Depot, Wal-Mart and Carrefour.

Home Depot, for example, already operates a large outsourcing business in China, but earlier this month, it acquired a major stake in the Chinese chain Home Way for $100 million. Also in early December, Best Buy Co., America’s largest consumer-electronics chain, announced it will open its first store in China.

Last October, Wal-Mart stepped up its presence on the mainland by acquiring the Taiwanese retailer Trust-Mart for an estimated $1 billion. Trust-Mart has more than 70 hypermarket retail outlets in nearly 30 Chinese cities. The world's largest retailer hopes that deal will help it surpass Carrefour, whose sales in the mainland last year were about $2.2 billion, nearly twice Wal-Mart’s.

IKEA, meanwhile, is planning two more stores. One, in Shenzhen, a manufacturing center just over the border from Hong Kong, will open in late 2007, followed by another in Dalian, a prosperous seaside resort town near Beijing, in 2008. IKEA plans to have 10 stores in China by the end of 2010.
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