HYDERABAD, India (AP) — In Hyderabad's bustling Nampally furniture market, customers explore a crowded, dusty labyrinth of shops, haggle over prices and work with carpenters to design made-to-order housewares.
This is the competition Swedish giant Ikea faces in tackling the $40 billion Indian market for home furnishings, which is growing quickly along with the country's consumer class.
India is a test case for whether Ikea should keep shifting resources toward emerging economies, including Latin America and China, given the saturation of markets in Europe and the United States — and the possibility of another global recession.
"India is an extremely important market for Ikea," said its Mumbai-based marketing manager Per Hornell. As one of Ikea's biggest markets, India will be key to its overall expansion plans, he said.
Six months after Ikea opened its first store in Hyderabad, the 400,000-square-foot cornucopia of furniture, linens, kitchenware and other goodies is drawing between 10,000 and 30,000 visitors per day, Hornell said.
The store sits within Hyderabad's Hitec City, a cluster of global tech companies in the city of 6.7 million that includes Amazon, Google and Microsoft and employs hundreds of thousands of people. High-rise apartment buildings are sprouting up to house the city's new migrants.
Just 20 kilometers (12 miles) from Hyderabad's Ikea, Nampally remains a beehive of activity — demand for India's traditional custom-built furniture remains high. But Ikea already is adding to pressure on Indian furniture sellers' profits and could eventually take a bigger bite of the market.
Mohammed Naoman, 37, bargained hard for a better deal on a dining table, agreeing to the sale only after securing 15 percent off the original asking price.
The "customer has become a little bit more pushy in bargaining," said K. Madhav Shetty, one of hundreds of shopkeepers in Nampally, which with its heat and the din of making and repairing wooden furniture is a world away from Ikea's massive, clean and air-conditioned big-box store.
Apart from the novelty and comfort of its vast showrooms, Ikea's offerings appeal to younger buyers not ready to invest in India's traditional heavy wood furniture.
But it's not clear whether all that foot traffic is translating to sales.
"People here are out to enjoy. They are here more for entertainment than shopping for furniture," said Ranjitha Kumari, a software techie who brought her two kids one recent weekend. "It is just not a furniture shop, it is an experience which I think is difficult for others to recreate."
The Hyderabad Ikea boasts the usual life-sized drawings and fully kitted-out living rooms, bedrooms, kitchens and offices to give customers a realistic feel. But the hottest sellers are the 1,000-odd items priced below 300 rupees ($4.18).
Sunil Munot, a textile businessman from Bhilwada in Rajasthan who is building a new home, traveled more than 1,500 kilometers (932 miles) to the store with his architect to have a look.
"At present for a customer like me who lives far off, delivery is a big issue. I am here only to pick up smaller home furnishing items. The bigger furniture for my new bungalow will be designed and made by local people," he said.
Ikea declined to break out India revenues, but Forrester Researcher analyst Satish Meena said that within five years the company hopes to capture $4 billion annually — or 10 percent of India's furniture and home goods market.
The long-term plans are more ambitious.
Ikea plans to open its second India story in Mumbai, the financial capital, in 2019, followed by Bengaluru, India's Silicon Valley, and the New Delhi national capital region.
By the time it's built out its planned 20 stores across India, it hopes to cover between 50 and 60 percent of the market.
"Two things that favor Ikea now: India's young population that is aspirational in nature and willing to experiment with brands outside India, and the price point which is accessible to a wider segment of customers," Meena said.
Ikea's Hornell said the company will emphasize online sales and offer to dispatch assembly teams, like India's online-only competitors Urban Ladder and Pepperfry, rather than ask customers to wrestle with its often challenging DIY assembly.
"More and more Indian consumers are going digital and put a premium on accessibility and convenience, reflecting their typical hectic life situation," Hornell said.
India's massive and increasingly prosperous middle class is luring other big foreign names, like Dnube, Dubai's top furniture brand, which opened its first shop in India in Hyderabad in November.
Ikea also is competing with Amazon and Walmart-owned Flipkart.
And like other retailers, it faces a new 18 percent goods and services tax.
"More than the big posh showrooms or malls it is the burden of government taxes which is making our business difficult," said Syed Nayeemuddin, another shop owner.
In India's highly fragmented and disorganized home goods market, there are few norms for customer and after-sales service, so Ikea and other foreign brands could help the industry as a whole by introducing standards, said Shafique Porbanderwala, president of India's Association of Furniture Manufacturers and Retailers.
But Ikea and others may struggle with the idiosyncrasies of the local market, said Surinder Bantia, the managing director of Bantia Furniture, one of Hyderabad's biggest brands.
"Local players know the pulse of the local customer and will be willing to go extra mile to meet their needs. Leave alone meeting the needs, the foreign companies would not know what is a 'shadi-khana' set and what is 'maile-daani," he said, referring to a furniture dowry given to newlyweds and a clothes hamper.
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Associated Press writer Emily Schmall in New Delhi contributed.
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