IKEA becomes largest foreign landowner in China

IKEA becomes largest foreign landowner in China

Staff Reporter 2013-07-16

In line with the belief that retail outlets built on its own land is integral for the complete materialization of its business concept, IKEA China has insisted on operating only on property it wholly owns since it entered the country 15 years ago. It is now one of the largest landowners in the nation.

Over the past 15 years, IKEA has changed the interior tastes of Chinese people with its simple yet trendy products. The property ownership of IKEA China actually complies with the consistent global practices of the company. INGKA Holding BV, the parent firm of IKEA group, boasted assets of €44.74 billion (US$58.5 billion) in 2012, of which fixed assets — including property, factory buildings, and equipment — accounted for 45%.IKEA China’s property policy has drawn criticism over the years since it caps the pace of expansion. The interior decor firm has only opened 12 retail outlets in the country, expected to creep up to 14 by the end of the year, a number dwarfed, for example, by the 400 outlets of Walmart, 229 of Carrefour, over 80 of Metro and 130 of TESCO. Of its 12 outlets, 11 are built on land owned by IKEA, with its Guangzhou branch being the only exception.

Two new outlets to open at the end of the year — one in Beijing and the other in Shanghai — and three newly purchased plots of land in Chongqing, Wuhan, and Hangzhou puts IKEA at 16 plots of land in China, totaling 640,000 square meters in space, or 40,000 square meters per outlet. Among other major foreign retailers in China, only Metro and TESCO own plots of land comparable to IKEA in space, while all of Carrefour’s 220 outlets are built on leased land and Walmart has only one outlet, in Dalian, which is constructed on its own land.

Inter IKEA, an affiliate of IKEA, also owns a large amount of property in China. In Aug 2009, Inter IKEA Shopping Center Group stepped into the Chinese market by building a Chinese headquarters in Shanghai. In three years, it had snatched 700,000 square meters of land in Wuxi, Beijing and Wuhan, even more than the total space of land accumulated by IKEA China over the past 10 years. Inter IKEA plans to invest over 10 billion yuan (US$1.63 billion) in building three new shopping centers in China by 2015, boasting over 530,000 square meters of floor space, all built on its own land.

According to the Beijing-based Economic Observer, IKEA China and Inter IKEA China contributed 50% of the funds for their property investments, unlike Chinese property firms, which rely heavily on banking loans or investor funding.

A recently released study shows that land purchases has become a trend among major retailers in China, due to continuously rising rental costs. IKEA has benefited handsomely from rising property prices in China in recent years. In 2009, for instance, Inter IKEA purchased 172,000 square meters of land at 790 million yuan (US$128.7 million) in Beijing, as part of a 5 billion yuan (US$810 million) shopping center project. The land cost has soared 80% in just one year.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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