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A study in Lithuania was weighing options for IKEA furniture maker expansion into Estonia and Latvia. With the former, Tallinn and Tartu were on the table.
IKEA again puts off expansion into Estonia
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The beginning-of-year study by Vilnius University of International Business and Management treated four scenarios to expand: opening shop in Tallinn, Tartu or Riga, plus the option to have the plan on standby.
The strengths and weaknesses in business environment of the three cities were thoroughly analysed. Tartu stood out by closeness to Russia and Latvia, as well as its decent customer culture and pocket-friendly real estate prices. As minuses, there was the small population and long rides to Riga and Tallinn.
To the favour of Tallinn, they noted nearness to Scandinavian capitals, a market dynamic like unto these, and the great growth potential. In the Baltic context, Tallinn strikes the eye as a city of good business environment located at trade routes crossroads.
Meanwhile, of all the three locations considered the risk of expansion in Tallinn would be the severest: both by investments costs and ranks of competitors, Tallinn is by far worse than the other two considered. Also, for the Latvian buyer Tallinn will be too distant.
According to the analysis, Riga emerged as the spot most promising. For the IKEA franchise spreading into Latvia, the estimated bill would stand at $150m.
By now, the expansion is quite certain – just a matter of time. As calculated by IKEA franchise itself, no expansion into any country ought to take longer than two and a half years. The entire Baltics is planned to be taken in five years.
The main reason Estonia and Latvia still lack their IKEA stores is the fear that the investments may not be earned back in reasonable time.
A part of the fear is the smallness of the market, and the large share of conservative-tasted consumers in the nations.
The IKEA franchise Felit UAB, owned by Icelandic investors and operating in Lithuania, launched its operations in March 2013. Pursuant to franchise contract with IKEA, Felit UAB is entitled to open IKEA stores in all three Baltics.
The initial Baltic IKEA shop was opened near Vilnius airport in August 2013. The location was explained by nearness to Lithuanian capital, as well as clients in Belarus, Poland, Latvia and Kaliningrad, Russia.