bne IntelliNews – IKEA to sell its Russian stocks and factories

Swedish furniture giant IKEA will reduce its operations in Russia, lay off some employees, sell inventory and start looking for buyers for its four Russian factories in the Leningrad, Kirov and Novgorod regions, the company’s press service told Reuters. RBC business portal.

“IKEA’s retail business in Russia remains on hiatus. This decision will lead to optimization, which will also affect many employees,” IKEA told RBC, adding that it does not see the possibility of resuming sales in the future. predictable.

The company employs 15,000 people in Russia, operates 17 stores and a distribution center. IKEA also owns 14 mega malls. In 2020, IKEA’s sales in Russia reached 1.6 billion euros (4% of total global sales).

IKEA hasn’t pulled out for good as the company has hinted it could restart if relations with the West improve, but the June 15 announcement is a blow to Russia’s prestige and bodes ill for the recovery of the Russian economy.

As bne IntelliNews reported, IKEA has built an empire across emerging Europe with a total of 49 stores, but the Russian company has always been the crown jewel.

The departure of the Swedish furniture icon is probably even more significant and shocking than the departure of McDonald’s, as the two companies have wanted to do business since Soviet times and the launch of the two is etched in Russian consciousness as a landmark event. . The new Russian owners of McDonalds, who rebranded the stores as Tasty. Period., launched last weekend in what was considered an end-of-era event.

The opening of IKEA’s flagship store in Khimki in northern Moscow in 2000, the same month that Russian President Vladimir Putin was first elected president, is widely seen as a landmark event that marked the end of the Yeltsin’s chaos in the 1990s and the start of a decade-long boom that brought a Western standard of living to Russia.

Queues to enter the Khimki branch snaked around the parking lot and within months every apartment in Moscow looked the same as they were all furnished with IKEA furniture. The store had a restricted product range, due to declining revenues in Russia at the time, but quickly became the most profitable IKEA branch in the world in terms of sales per square meter.

Culturally, it has also been transformative. The first IKEA ad campaign in Russia had the slogan “One in ten Europeans is made on our bed” and became an instant classic in the world of Russian advertising, achieving almost 100% brand awareness among Russian consumers. The “real Swedish coffee” that accompanies each store was also a cultural phenomenon, reports The Bell.

Of all the Western outlets that moved to Russia during the boom years, none was more committed to Russia than IKEA.

IKEA founder Ingvar Kamprad saw Russia as a golden opportunity since Soviet times. With its vast forests, large population and almost total lack of comforts, Kamprad began to lobby the Soviet government in the 1970s for permission to start operations. He met Nikolai Ryzhkov, Chairman of the Council of Ministers of the USSR in 1988 to sell him the idea of ​​opening an IKEA in every city with a population of more people and even started the production of furniture in the Tallinn Standard furniture factory before the collapse of the USSR but did not go further than that.

Everything changed after the fall of the Soviet Union in 1991, but it took another ten years before the first store opened. Ironically, plans to launch the Khimki store didn’t really begin to gain momentum until 1998, amid the default and devaluation of that year’s Russian financial crisis.

“It was a strange experience,” said IKEA CEO Lennart Dahlgren, who was behind the creation of the first store. bne IntelliNews in an interview a few years later. “I arrived in Moscow only a few days after the [1998] crisis happened and as I got off the plane it seemed like all the other foreign CEOs in town were getting on to leave. But despite the chaos, IKEA stuck to its guns to achieve phenomenal success. The second store in Moscow was opened in Teply Stan a year later, and the company began to roll out these stores in the so-called million ki that Kamprad had lobbied for two decades earlier.

At the same time, IKEA has invested in production facilities, offering local partners subsidized loans and guaranteed take-off contracts to build a lightweight furniture manufacturing base to support its sales. The first Russian furniture factory was opened in Tikhvin, Leningrad region, in 2002. By 2022, IKEA had 17 stores and 14 Mega shopping centers in Russia, as well as four factories, and is among the most well-known brands and most popular in Russia. Russia. Today, IKEA has around two dozen furniture-making partners, all of whom will now have to find new customers, which experts say won’t be easy.

IKEA has pioneered best business practices and good corporate governance, but it has had its share of bureaucratic problems. He was caught up in a three-year corruption scandal in Samara over permits and he was also accused of illegally felling birch trees for his furniture factories in Ukraine.

But the business continued to thrive despite these problems. Today, it employs 15,000 people, considered the most promising Russian market after the Chinese market, which accounts for around 5% of its global sales, The Bell reported. IKEA does not release financial data for its Russian operations, but analysts estimate it invested 4 billion euros in its Russian operations in 2021.

Due to the war in Ukraine and the extreme sanctions imposed on Russia, IKEA suspended sales in Russia in early March and will now reduce its presence by selling its factories. Rival furniture chain Hoff and Russian multi-industrial conglomerate AFK Sistema have both expressed interest in buying the factories. IKEA staff have been kept on the payroll until August and will continue to have insurance until the end of this year.

“IKEA in Russia will reduce the number of employees in its own production facilities and begin the process of finding new owners for the four factories in the Leningrad, Kirov and Novgorod regions,” a company press release read.

Stores are currently closed but merchandise remaining in stock will be sold online. It’s possible IKEA will move production to China where it also has factories and forms new supply chains for Russia, according to Vedomosti, but the company hasn’t officially announced any such plans or said what will happen next. its existing stores. Restarting its activities in the future when relations with Russia stabilize remains a possibility.

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