Swedish furniture behemoth IKEA has made a minority investment in Goldman Sachs and TPG Growth-backed Indian startup Livspace, which helps consumers manage home renovations and interior design, according to an announcement.
The deal has been routed through Ingka investments, the investment arm of Ingka Group, which is a strategic partner in the IKEA franchise system representing 90 percent of total retail sales of the retail giant through 367 stores in 30 markets including India.
Financial details pertaining to the transaction, however, were not disclosed.
DEALSTREETASIA first broke the news on Monday, hours before Livspace officially announced it.
Per the statement, Livspace will deploy its newly raised funds across areas such as developing new home interior solutions and products, market expansion as well as growing its offline footprint. Avendus has advised Livspace in the current transaction.
“We look forward to the immense collaboration possibilities in areas such as catalogue and marketplace integration, retail technology, and online-to-offline innovations,” said Anuj Srivastava, co-founder and CEO, Livspace. “On one hand, the investment gives us the opportunity to create one of the best omnichannel interiors and furniture purchase experience for homeowners. On the other hand, interior designers and vendors can anticipate a richer design and supply experience.”
The deal will pave the way for Ikea to enhance its online retail operations in India as it aims to create a multichannel experience for its customers.
“This minority investment aligns closely with the digital direction of Ingka Group and our core business, IKEA Retail, and we are looking forward to exploring new opportunities together with Livspace”, said Krister Mattsson, head of Ingka Investments, Ingka Group.
According to industry experts, it will be a unique deal as IKEA is in the same space as Livspace… “Raising capital from a direct competitor will help Livspace leverage IKEA’s experience and vast reach as it enters the next phase of growth and expansion,” said an analyst on condition of anonymity.
The strategic tie-up with IKEA may also help Livspace, which is believed to have clocked over $100 million in annualized gross revenue by March 2019, expand internationally.
While the deal is seen as a strategic investment in Livspace, such tie-ups/investments will be critical for IKEA to get into the Indian consumer’s house, especially in a market that is heavily fragmented, and where consumers still prefer solid wood.
Buoyed by the rapid growth of the Indian retail sector, brick-and-mortar and e-commerce are increasingly looking to merge into, what is fashionably being referred to as ‘omni-channels’. Retail firms are currently viewing physical stores and online portals as their ‘point of sale channels’, rather than fundamentally different businesses, a trend that has already gathered steam in the US and China.
Livspace, founded in 2015 by former Google executive Anuj Srivastava and his friend Ramakant Sharma, who was earlier with Myntra, counts Sequoia Capital-backed HomeLane, Pepperfry and Urban Ladder as its competition. It is currently on an expansion spree as it aims to tap the country’s growing consumer market, thereby focusing on services such as home interior design renovations or new home design.
The startup was in news late last year for garnering a $70 million funding in a Series C round, led by Goldman Sachs and TPG Growth. Its existing investors Bessemer Venture Partners, Jungle Ventures, and Helion Ventures had also participated in the round.
Livspace claims to be India’s largest home interior and renovation platform. The company brings together homeowners, interior designers and vendors, allowing homeowners to design their homes in a predictable and fuss-free way. India’s home interior and renovation market is expected to reach $23 billion by 2022.
IKEA is no stranger to such strategic investments in startups. In December 2018, IKEA had invited 20 growth-stage startups from around the world to be part of its Bootcamp programme. Last week, the world’s biggest furniture retailer said it was in talks to invest in battery startup Northvolt for the latter’s factory. In October 2018, IKEA had joined the $11 million round for Tallinn-based startup Click & Grow, which produces indoor gardens. A year earlier, it had taken up a $40 million Series D round for New Jersey indoor farming group AeroFarms.
Even as IKEA received the government’s (FIPB) approval to open retail stores in India in 2013, it launched the first store in the country in Hyderabad only in 2018. This is primarily because the furniture giant has not had an easy start in the country due to foreign ownership regulation. Patrik Antoni, the then Deputy CEO at IKEA India, had indicated that company had already invested Rs 4,500 crore including in land and that it had plans to launch an e-commerce platform in 2019.
The retailer, that has been sourcing from India for over 30 years for its worldwide stores, had earlier reportedly announced its plans to invest Rs 10,500 crore to open 25 stores by 2025.
The Indian retail industry, which is a preferred retail destination for global behemoths, is expected to grow to $ 1,200 billion by 2021 from US$ 672 billion in 2017, per industry data. With a change in lifestyle and disposable income going up in the hands of consumers, the sector is witnessing significant growth not only in metros but also in tier-II and tier-III cities.