No IKEA in Brazil: local furniture brands pose fierce competition

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In one of my previous posts I explained that IKEA is not present in Brazil – the only BRIC country has yet to have the Swedish brand. 

IKEA is massively successful in Russia and China. In India, IKEA already opened its second brick-and-mortar store, followed by expanding its online stores to Mumbai, Hyderabad and Pune, and having plans to open more stores in 2021 in different locations.

So, why is Brazil the odd-one-out in the IKEA’s emerging markets success? The reasons are many:

Brazil has very high taxes for imported goods, around 75% or greater over FOB cost. Local companies also face this problem, but probably have already optimized their purchasing to reduce tax impact.

Logistics is a serious problem in Brazil. Ports are slow, the country is huge and internal transportation is limited and expensive.

On top of all that, there is a lot of competition with other already established furniture brands, some of them having a model similar to IKEA’s.

One of them is MadeiraMadeira, born in Brazil in 2009. The company made headlines in the international press for getting a USD$ 1 billion valuation after raising USD $190 million in late stage financing from investors led by SoftBank’s Latin American investment fund and the Brazilian public and private investment firm, Dynamo.

Being exclusive online, MadeiraMadeira has seen huge profits coming from the shift to online shopping in Brazil as a result of the global COVID-19 pandemic – eCommerce penetration in Brazil was at 7% before and now grew to 17%.

MadeiraMadeira works as a platform for their own label products, plus other furniture brands can use the site to sell their products. There are more than 10,000 sellers on the MadeiraMadeira platform and roughly 2.5 million stock keeping units.

To tackle Brazil’s logistic problem, the company combined third party sales with private labeled goods and its own shipping and logistics facilities, meaning that could serve online retailers and home furnishing stores across the country more efficiently.

Money from the most recent financing the company plans to add same day delivery, expanding its private label range and its logistics capabilities, with the addition of new warehouse facilities to expand on its existing ten locations.

IKEA definitely has a huge challenge if they ever are serious in opening a store in Brazil. Last time I heard, tdo have an office in Brazil, studying these issues and prospecting the market. Only time will tell if IKEA can figure out Brazil’s massive potential in the furniture market.

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