IKEA’s entry in Hyderabad could mean upheaval for those from the unorganised furniture business and even for those from the organised sector.

As IKEA opens in Hyderabad Nampally furniture sellers anxious about their business
news IKEA Wednesday, August 08, 2018 - 19:57

The sellers at the Nampally furniture market view the opening of the IKEA store in Hyderabad with apprehension. While some sellers say the international store would surely impact their business, others are banking on the demand for low-cost second-hand furniture to sustain them.

The Nampally furniture market is the go-to place for Hyderabadis who wish to buy affordable furniture but are not too keen on the aesthetics. Many of the items sold at the market are refurbished second-hand goods, ranging from chairs to cupboards to divans that come with storage options. Every Sunday the market swells up in size when passable second-hand furniture is sold at prices that depend on your bargaining skills and without a bill.

The furniture sold at the market is part of the 90% that forms the unorganised furniture market in India. This is the market that IKEA hopes to enter as it opens its doors to the public on August 9 with its sprawling 4,00,000 sq ft store of Scandinavian design perfected over decades and a price catalogue that promises to be competitive. With a presence in 24 countries, the company will open its second store in Mumbai soon and is expected to pump in Rs 10,500 crore into the Indian furniture market.

But for the local furniture sellers, business off late has not been all that great.

“We have lost our competitive edge with the main furniture market due to the Goods and Service Tax (GST). Buyers don’t find our products cheaper anymore when compared to an established furniture store,” says Mohammad Ashraf, who runs a shop that specialises in buying broken furniture items, repairing and then reselling them.

The repaired furniture resold by Ashraf looks brand new but there is a cost involved in this process and this cost has gone up since the introduction of GST. Items such as nuts, bolts, fabricated steel parts for chairs, clamps are being taxed at 18%.

Furthermore, GST is applicable on second-hand goods under the Margin Scheme, under which Ashraf would have to pay the tax out of his profit margin. But a vast majority of the furniture sellers at Nampally furniture market don't provide a bill of purchase.

“Earlier there would be a cost difference of Rs 1,500 between a chair from our stop and a chair sold at a furniture store, but this difference has now come down to Rs 500. Tell me, would you prefer to buy a factory-made chair from a big store or a repaired, second-hand chair, when the cost difference is just Rs 500?” he asks.

To keep prices competitive with the formal market, most of the furniture sellers do not add GST to the product. The GST on furniture is 12% while some products fall under 28%, thus no bill is generated.

“We have a GST pin number but if I add GST then the price of our products would be the same as that from an established furniture store,” admits Irfan Javed, another furniture shop owner. “We bank on the fact that big stores have bigger bills to pay, such as huge rents, electricity bills and staff salaries. These costs are factored into their products, which made our products cheaper in comparison. Now if I add GST that edge is lost,” he adds. 

If the unorganised sector is feeling the squeeze in profit margins due to tax reforms, those from the organised sector, who had earlier protested the 12% GST on furniture, are bracing for a bigger pinch.

“We are expecting customers to move to IKEA and ditch traditional stores, there is definitely going to be a squeeze,” says Randeep Reddy, president, Telangana Furniture Association.

Most of the furniture stores in Hyderabad source their products from Tamil Nadu, Karnataka and Maharashtra. IKEA will be sourcing 20% of their products from local vendors but it is presently unknown what these products are. “We will wait and watch for a month and then decide what course of action to take,” adds Reddy.

Mohammad Imran, another furniture seller from Nampally, seems to be the only one staying positive as IKEA gears up for a big opening barely 15 km away.

“Not everyone in Telangana wants to or can afford to buy from IKEA. The furniture sold here at the market will always be cheaper and hence more affordable. Our making charges are lower. IKEA sells furniture for the rich and we for the less rich,” he smiles.