September 27, 2007 -- On September 14, Ikea, the world's largest home furnishings retailer, started constructing its fifth store in Dalian on its fifth China store. Along with the new Dalian store, Ikea has also announced to open two other stores in Nanjing and Shenzhen in 2008, unveiling its plan to enter second-tier cities in Mainland China.

Currently, there are already four Ikea stores in China - in Shanghai, Beijing, Guangzhou and Chengdu.

According to Ikea's corporate report, Ikea China experienced a sharp expansion of 38% in sales revenues between from Sept. 1st 2006 to Aug. 31st 2007. However, its China stores only contributed 1 percent to Ikea's global sales, and about 35 percent to 40 percent that of Ikea's Asia Pacific business.

"These disappointing figures have driven Ikea's headquarters to concentrate more on the Chinese market, which has been regarded by many home furnishing competitors, say Home Depot and B and Q, as the most promising market," Wenjun Huang, analyst at Euromonitor told Emerging China.

But for Ian Duffy, president of IKEA Asia-Pacific, Ikea has made satisfying achievements in China since 1998 when Ikea first set foot in Shanghai. "We have found the key to success in the Chinese home furniture market, and the next step will be speeding up our development in China," Ian Duffy, said in a news conference on August 30. He said that Ikea planned to open two to three stores every year from 2008.

"Obviously, speeding up development means Ikea will enter more second-tier cities to promote their Swedish furniture," Huang noted. "According to the statistics of Ministry of Construction, China's real estate market saw a blooming growth during the 1995 to 2004 period, and it will be a long-term trend. Therefore, indoor furniture providers and home improvement retailers, such as Ikea, will certainly benefit from this trend," said Huang.

At present, Ikea is not only facing rivals such as B and Q and Home Depot, but also challenges from local competitors such as Hola and Ilinoi, which have already built large retail networks in second-tier and third-tier cities.

HOLA, a home-furnishing store from Taiwan, has opened seven stores in Shanghai, Beijing, Hangzhou, Chengdu and Ningbo since 2004. Ilinoi, which calls itself the Chinese Ikea, has opened stores in numerous cities, including Beijing, Shanghai, Tianjin, Shenyang, Dalian, Qingdao, Xi'an, Chongqin, Wuhan and Hefei.

"Ikea doesn't know us, but this is our biggest advantage. Moreover, it takes Ikea nearly two years to change their product designs, but for the same process we only need three to four months," Shi Xiaoyan, president of Ilinoi told Emerging China.

"Ikea's new round of expansion will definitely intensify home furniture market in China. The one who settles down in third-to-second-tier cities first gets the largest share of Chinese home furnishing market," said Huang. "But first of all, the provider should take into consideration what is the consuming preference for local target consumers," she said.