Feud Over IKEA Import Duties Ends

Swedish furniture maker IKEA said Tuesday that it has resolved its long-running feud over import duties and is recruiting staff for the official opening of its first Russian store in the Moscow suburb of Khimki on March 22 next year.


"When you are the only investor, it's easier to talk to the authorities," said Lennart Dahlgren, IKEA's director for Russia.


In April, Dahlgren said IKEA's operation in Russia would have to be postponed indefinitely. But in August the government relented, agreeing to bring weight tariffs on imported furniture in line with value tariffs, and IKEA decided to roll in.


Import duties slapped on weight would have made IKEA's retail prices prohibitively expensive for the Russian market.


Dahlgren said he had held a lot of discussions with the trade and economics ministries.


"But the final decision, I believe, was made by [First Deputy Prime Minister] Viktor Khristenko," he added.


However, Russia's import duties will still remain seven times higher than elsewhere around the globe. IKEA usually pays less than 3 percent of tariffs on its imports in other countries.


Russia's tariffs are expected to make IKEA products some 10 percent more expensive than in Sweden, company officials said.


IKEA is completing its recruiting campaign this week and intends to hire 500 people by the end of the year.


About 15,000 people are expected to visit the company's office and some 10,000 could file their resum?s with IKEA's personnel department by the end of the week.


IKEA hired 34 people last November and trained them for almost a year. Thirty of them finally decided to stay with the company.


If the IKEA shop in Khimki becomes a success story, the opening of another shop will be just a matter of time, company officials said.


IKEA invested $40 million constructing its 31,000 square meter building in northern Moscow. Total investments in the 53-hectare site will be $100 million.


In three year's time, the Khimki store could sell as much as $50 million worth of goods a year.


IKEA has defined its target client in Khimki as Ivan from the local middle class who drives a Zhiguli or Volga, not the Ivan who drives a Mercedes and buys Italian furniture.


The economic crisis has not dampened the company's enthusiasm for the Russian market. "There are millions of people in Russia living in small flats. It will take 25 years to kit them all out," IKEA's billionaire founder Ingvar Kamprad was quoted as saying in the July issue of Eurobusiness.


IKEA established its presence in Russia in 1977 when it placed its first purchase orders at Russian factories. In 1991 the company opened offices in Moscow and St. Petersburg.


Last year, IKEA purchased goods worth $30 million in Russia, one third of them being textile products.


The company plans to increase its local presence by also placing orders with Russian furniture makers.


Next year, IKEA intends to increase supply orders by $500 million and part of this amount could go to domestic factories.


With this in mind, it will launch two fairs in Moscow to select local partners.


In the future, IKEA could start building factories in Russia, but no decisions as to the location of these enterprises have been made.


Neither IKEA nor its Russian partners expect a fast payoff from expansion.


"Changes will not take place overnight," said Andrei Schnebel, executive director of Russia's Association of Furniture Producers.


"We realize that we will not be able to take any profits from Russia for at least 10 years," Dahlgren said.