The ice is broken: the story of the Swedish giant IKEA’s entry Ukraine

The ice is broken: the story of the Swedish giant IKEA’s entry Ukraine

16.05.2020 09:00
Микола Маранчак

IKEA has already begun recruiting personnel to the Ukrainian department. After many years of waiting, the world’s leading home products chain is preparing to be opened in Ukraine. 

At the end of June, several job openings appeared on job search sites for IKEA in Ukraine. What the domestic retailers and consumers have been talking about for so long has finally happened: the Swedish corporation has moved from words to action and is preparing to enter the Ukrainian market  after 13 years of difficult negotiations and repeatedly revised plans. The year unequivocally stood out rich for the long-awaited brands release: Koton, DeFacto, H & M, and now  also IKEA. RAU remembered all attempts of the Swedish chain to enter the Ukrainian market, then all this ended and evaluated new prospects.

In May 2018, Deputy Prime Minister for European and Euro-Atlantic Integration of Ukraine Ivanna Klimpush-Tsintsadze said that the Swedish retailer IKEA should be enter the Ukrainian market this year. However, officials made similar statements before. In 2012, then the Minister of Economy of Ukraine Petro Poroshenko claimed in an interview with IA Bloomberg that an agreement on the IKEA release to Ukraine has already been achieved. But even then the words were only words.

No money

For the first time IKEA announced its intention to expand into the Ukrainian market in 2005. The retailer planned to entry Ukraine with the shopping center MEGA project. The corporation’s leaders met with Ukrainian President Viktor Yushchenko and Kiev Mayor Alexander Omelchenko, who supported the company’s plans. According to various sources, the Swedes planned investments in the chain development were to be from $ 1 billion to $ 1.7 billion. The first MEGA facility, with ​​150,000 sq. declared square and cost $ 300 million, IKEA was going to build near Kiev. Of these, the retailer was supposed to take himself 20 000 – 30 000 sq., for the space rest – to pick up international tenants.

The problems began already at the choosing place stage. IKEA representatives   requested 70 hectares plot near the Schastlivoe village on the highway Kiev-Boryspol, allegedly selected personally by the brand Founder Ingvar Kamprad. But the city authorities refused, arguing that this was the rare plants protection in the forest.

The company decided that it was necessary to wait. IKEA confirmed in a comment that company count on changing the layout after the election measure, which were to be held in 2007.

The fact that the issue with IKEA “stuck” exactly at the Mayor Alexander Omelchenko level, the publication was confirmed also by the Kyiv city council deputy Natalia Novak. However, Leonid Chernovetsky repeatedly denied the Swedes the land allocation after winning the city elections. The company reacted extremely negatively, directly stating corruption in the Ukrainian government. IKEA’s former General Director in Russia, Lennart Dahlgren, who also worked in Ukraine, in comments to the newspaper Kommersant Ukraine said: “There is no money in the IKEA-system for bribery. Why would the land in Kiev cost three times more expensive than in Moscow or in London”.

The End of Hopes

In parallel with the negotiations in Kiev, IKEA selected places in four more cities –  the Dnepr, Odessa, Kharkov and Donetsk. In 2007, the European Bank for Reconstruction and Development intended to allocate $100 million loan to subsidiary company IKEA Group, IKEA Dnipro LLC. The funds were intended to finance land acquisitions and the MEGA shopping centers construction in Ukraine. The company still acquired one of the land plots – 64 hectares in the Belyaevsky district in the Odessa region. The Kiev authorities also woke up and offered the Swedes the land plot on the territory in the Kiev tank repair plant in Darnytskyi district, but IKEA refused. It was not possible to agree on the required plot acquisition for construction in the Kharkov and Lvov regions, although negotiations with the mayors were being conducted.

After a series of unsuccessful attempts to acquire the right plot and, finally, to begin construction, the Swedes patience is exhausted. The mood worsened corruption scandals in the IKEA Russian division, as a result of which several top-managers were dismissed. IKEA began to firmly declare an intolerant attitude towards corruption in the official office. As a result, in 2010, IKEA declared that company do not plan to build new shopping centers in Russia in the next 3-5 years, while declaring that it is stopping searching for new land plots, as well as postponing the MEGA shopping center construction in the Odessa region. “The group considers the retail market of Ukraine to be interesting in the long term. However, while the IKEA management decided to postpone plans for the shopping centers construction here.  We do not refuse from the land plot in the Odessa region “, –  the company’s public relations service in Russia and the CIS commented on the decision.

In the same year, IKEA sold its few assets in Ukraine, in particular, closing production in the Ivano-Frankovsk region. It became clear that, the situation could be reversed, as with most other world brands, only by the real fight against corruption, and not by beautiful statements.

The situation with corruption around the IKEA land plot was later confirmed also by the former Minister of Foreign Affairs of Ukraine Leonid Kozhara. “IKEA was asked for a grand bribe, in a few tens of millions dollars. Since IKEA works publicly, corruption always opposes, it refused to enter the Ukrainian market”, –  he told portal.

Business is not politics

In the following years, the IKEA theme became a “litmus test” for Ukrainian politicians. The IKEA release into Ukraine has become a symbol of improving the domestic economy state and new government success. Therefore, every new government spoke about negotiations with it. In 2012, then Minister of Economy of Ukraine Petro Poroshenko made a loud statement in an interview with Bloomberg: “It was agreed that IKEA enters Ukraine. IKEA is a symbol. When IKEA is not allowed to enter the market, it is not IKEA suffers, it suffers the image of Ukraine “.

In 2015 the image was recalled in the KSCA, stating that the retailer is looking for about 40 hectares for the shopping center in Kiev, but all applications from the retailer have been scuttled. “At the moment, the IKEA group companies does not plan to develop on the Ukrainian market “, –  it was said in response to a request for a possible store opening in Kiev.

The question was tried to lobby the Minister of Economic Development Aivaras Abromavicius, who previously worked with the Scandinavians and could influence them. But the promised meeting with the Swedish Ambassador did not bring any results. IKEA remained indifferent to these attempts.

Light version

In May 2017, the head of the PJSC Mandarin Plaza board Alexander Chernitsky said in a comment to the Interfax-Ukraine agency that IKEA could become the tenant of one of the largest in the country SEC Yuzhyi, the square of ​​which will be 450,000 sq. However, the opening timing of the shopping and entertainment center is still unknown, and it is unlikely to happen in the next three to five years.

However, this is not a problem for IKEA, because in Ukraine any developer will do anything to attract such a famous tenant. Three months later, the investment policy department of the Lvov regional state administration Head Roman Mathis wrote on his Facebook page that IKEA management managed to reach an agreement on the company’s production facilities location on the Lvov region territory. The retailer’s official office did not react again, and the social chain covered a wave of jokes and memes  “Sho, again !?” on the next statement about the IKEA’s entry Ukraine.

Gromadske appealed to the Swedish retailer in search of answers, which was suddenly confirmed – there are plans for IKEA, but the exact time of its implementation was not specified. Nevertheless, one important nuance was in the answer – to enter the Ukrainian market the company intends to franchise.

The same information was soon confirmed by the Kiev Mayor Vitaly Klichko, who met in December 2017 with the IKEA business development manager in South-Eastern Europe Vladislav Lalich. During the talks, he was promised “the administrative barriers and bureaucracy elimination, and the business simplification”. At the same time, it was a question of franchising in Ukraine, as IKEA South-Eastern Europe, implementing IKEA’s retail business strategy in Croatia, Serbia, Romania and Slovenia, is part of the IKEA Group (Ingka Holding B. V.), the largest IKEA franchise in the world.

A source familiar with the situation told two months later, in February 2018, that the retailer was extremely cautious in matters concerning Ukraine. “IKEA will enter the “light” version. The first (store in Ukraine) will be perhaps before the year end. This is an optimistic option”, –  he said.

The entry the Ukrainian market is unlikely to take place according to the scheme “land search – the shopping center construction”, and, most likely, will be accompanied by the sales square lease, possibly with a large online-store and warehouse, according to the portal. In any case, the Swedes already run around a similar format at home and the result was satisfied. This could be the best option for the chain rapid access to Ukraine, which was fulfilled 75 this year.

Words, words, words

In the current year, the number of applications for IKEA has only increased. In late April, the Cabinet announced plans to create an interdepartmental working group to assist the process of IKEA’s entry into the country’s market. The Office for attracting and supporting investment UkraineInvest reported on this in Facebook. Thus, IKEA was guaranteed “a comprehensive and effective solution of product certification, licensing, customs and other issues.”

A month later, in May 2018, another official, Vice Prime Minister for European and Euro-Atlantic Integration of Ukraine, Ivanna Klimpush-Tsintsadze, declared that the Swedish retailer IKEA should enter the Ukrainian market this year.

“Ukraine is an attractive place for many Swedish companies wishing to expand its business. We welcome the fact that this year already well-known Swedish companies IKEA and H & M will enter the Ukrainian market”, –  the Ukrainian Vice Prime Minister said at a meeting with the Swedish Foreign Minister in Stockholm.

But all the statements were again more of a political nature, and there was only enough optimism for a month. In June, the IKEA headquarters found that, it turns out, its chain has long been working in Ukraine, with a small remark – all stores use the trademark illegally. Swedish Ambassador in Ukraine Martin Hagstrom expressed in his interview to the Business editor his concern over the lack of observance of intellectual property rights in Ukraine. “I know that for IKEA, as for other companies, the issue of intellectual property rights respecting remains very important. In Ukraine, there are many companies working under the IKEA logo, but not having anything to do with it. And it is very important to solve this issue”, –  he said.

Without obligations

If we assume that the statements made over the past two years are valid, then in the next year or two, the IKEA shopping center full-fledged opening can be forgotten. But we can expect the IKEA franchise opening in one of the newly built metropolitan shopping centers and, possibly, the production startup in Lvov. Or, perhaps, the company will remember its assets in Odessa. That is, the IKEA startup in Ukraine can be complex and include also other options not yet announced.

But the problem, because of which the Swedes could not gain a foothold in Ukraine, has not gone anywhere – corruption is still called international rankings as one of the country key problems.

On the other hand, the H & M, Decatlon, Koton and some other brands entry the Ukrainian market, which RAU erected almost fiction a year and a half ago, can serve as a positive signal for IKEA. And the company seems to have decided to take a risk: the search for personnel has already begun.

It is interesting that in the description of vacancies the employer is specified, as IKEA City Shop in Kiev. The chain began to develop this format of reduced stores last year. Such outlets are designed for the cities central part offering a wider range of e-commerce services. This step is a response to the growth of online- trade and home delivery, which is a challenge for classic IKEA shops located on the cities outskirts. Thanks to digital technology, the products offered in the new “urban” format stores will be presented “in a new way”. The store square will be up to 5,000 sq., which means that it will be less than one fifth of the standard IKEA store size.

Most likely, something like this should be expected in the foreseeable future and in Kiev IKEA City Shop.

Read more

Officially: H&M will open the first store in Ukraine in August 2018

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