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Ikea pricing policy under fire ahead of first Korean store opening

Global furniture giant Ikea opens its first store in South Korea on Thursday, a much-anticipated market entry that has stumbled at a number of commercial and cultural hurdles along the way.

Expectations are high for the Swedish firm's 131,550 square-metre (32.5-acre) outlet in the city of Gwangmyeong, south of Seoul, especially among young, urban consumers.

Koreans have long lamented a lack of choice in a domestic furniture market often criticised for its overpriced, limited designs.

But it is IKEA's pricing policing that has been called into question ahead of Thursday's opening, which has also been tarnished by a gaffe over a hot-button diplomatic issue.

When the retailer unveiled the website for its Gwangmyeong store last month, the initial reaction was one of angry disappointment at a price list that seemed significantly inflated compared to Ikea stores elsewhere.

"Apparently Ikea thinks South Koreans are a bunch of suckers. A company like this should be punished," said one of thousands of angry comments posted online after the price disclosure.

Seoul's Fair Trade Commission also stepped in, saying it would analyse the alleged price discrepancies and make the information available for consumers.

If the prices on the Ikea website triggered shock, there was patriotic outrage over a decorative wall map that marked the waters to the east of the Korean peninsula as the "Sea of Japan" - a red rag to Koreans who call it the "East Sea." The nomenclature is a hugely sensitive issue in South Korea which is mired in a long-standing series of territorial and historical disputes with Japan.

A storm of media criticism and condemnation from the Gwangmyeong city council forced Ikea into an apology and a promise to stop selling the map.

"We acknowledge that Ikea has made a mistake in underestimating the sensitivity of this issue and for this, we sincerely apologise," the company said in a statement.

Despite the teething problems, expectations for the Ikea store are still running high in a market that has not always been friendly to foreign retailers.

Wal-Mart, the world's biggest retailer, and its French rival Carrefour both bowed out in 2006 after their big-box stores - focused on dry goods like clothes - failed to draw customers for a decade after their entry.

But there are successes as well, including British supermarket Tesco which entered South Korea in 1999 in a joint-venture with electronics giant Samsung.

Their Homeplus stores, focused on fresh food and beverages favoured by local consumers, won over local consumers and now compete with the top South Korean supermarket player Lotte Mart.

Tesco brought out Samsung earlier this year to make Homeplus a wholly-owned subsidiary.

A major concern for Ikea is a lack of local familiarity with its flat-pack, construct-it-yourself philosophy.

DIY is a largely foreign concept in a local market used to fully-assembled furniture.

British home improvement retailer B&Q only lasted two years before it pulled out after its DIY ethos failed to click with Korean customers.

Ikea will be offering assembly services for a fee, but that will push prices up higher.

South Korea's furniture industry is largely dominated by mom-and-pop stores with fewer than 10 employees.

Even a handful of big, well-known firms have relatively moderate business, with the annual sales of the top player, Hanssem, barely exceeding 1 trillion won (US$902 million).

So there are obvious concerns about the arrival of the Swedish powerhouse, which opened its first store in China in 1998 and Japan in 2006, and has around 350 stores in more than 40 countries.

"It's something of a crisis for us," Lee Yong-Won, the head of the Korea Furniture Association, told AFP.

Some major sellers have tried in recent years to replicate Ikea by opening big showrooms, slashing prices and innovating designs.

But smaller players may be pushed out, Lee said, adding that the industry had remained "complacent for too long." "Maybe this will bring some long-overdue reform," he said.

"Who knows? We may even look back on this as a moment that helped us find a way to survive in the long term."

Source : Business Times

17 December 2014

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