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Pretty much every foreign correspondent trekked out to the store and wrote a story along the lines of: “the fruits of capitalism come to Russia,” to tap in the euphoria that accompanied the store’s opening (and most did a bit of shopping while they were here).
Built for a potential market of 10mn Muscovites, the store was one of the biggest in the chain and Dahlrgen told bne IntelliNews that while the product lines on offer had been slightly abridged to reflect the post-crisis state of the economy, the offering was largely the same as in the stores in Western Europe.
What the company didn't expect was the out-of-the-ballpark success of the store. The Moscow IKEA soon became the highest grossing IKEA, on a per square metre basis, of all the stores in
double digits and the country was hit by multiple crises, of which 1998 was the worst. IKEA opened a few months after the second Chechen war had started
as Russian tanks rolled into Grozny and flattened the city. Moscow was to suffer from a string of terrorist attacks and metro bombings that reached its apex with the Nord Ost theatre hostage drama in 2002, where at least 170 people died.
Putin brought an end to all that with his now famous “oligarch meeting” the following summer. As the decade wore on stability arrived and incomes soared, for which Putin is still much respected. The retail sector flourished.
Kamprad’s vision meant that IKEA became a pioneer for the development of the country's light manufacturing sector
The noughties saw the beginnings of
a diversification of the economy, but light industry has only really taken
off since the 2014 oil shock led to yet another steep devaluation of the ruble. Now Russian wages have fallen below even the level of the Chinese, leading
to a huge rotation of orders away from the low-cost Chinese producers to the flourishing Russian light manufacturing sector. In a recent interview with the CEO of Fix Price Dmitry Kirsanov, a hard discounter that has just raised $2bn in an IPO, the company used to import three quarters of its good from China and the rest was locally produced. Now those shares have been reversed.
IKEA has continued to build up its Russian business and now boasts a total of 14 stores across the country. Russia
is the fourth-biggest market by revenue after Germany, US and Sweden, and the biggest of the emerging markets.
There are now a total of three stores
in Moscow, two in St Petersburg and more in the regional capitals of Nizhny Novgorod, Yekaterinburg, Kazan, Novosibirsk, Rostov-on-Don, Novaya Adygea (in Adygea near Krasnodar), Samara, Omsk and Ufa. Currently there are plans to open at least five more stores.
The company’s history has not been entirely smooth. In 2016 IKEA was caught up in a corruption scandal and a court in Russia's Smolensk region froze RUB9.3bn ($146mn) on the accounts of IKEA, ruling against the Swedish flatpack furniture giant in a case initiated by a local entrepreneur.
In summer 2016, the company threatened to cut back its $1.54bn investment programme in Russia after losing another long-running RUB500mn ($8mn) legal dispute in Smolensk against Konstantin Ponomaryev, who claimed the company owed him back rent for electricity generators serving the stores.
In another case, IKEA's head office
in Moscow was raided in connection with a separate dispute over property ownership rights, which the company’s lawyers claimed was a blackmail attempt.
“Now Russian wages have fallen below the level of the Chinese, leading to a huge rotation
of orders to the flourishing Russian light manufacturing sector ”
the chain. The demand for high-quality attractive furniture at affordable prices was enormous and Muscovites had a lot more money squirreled away than the official statistics suggested.
"I did not have enough time to look around, because I came here looking specifically for a fold-up chair for our dacha. But then, well, the sofas here are so nice too,” Lyudmila Petrova,
a pensioner, told AP on the opening day twenty years ago.
Russian light industry
The noughties in Russia were a good time. In the West Boris Yeltsin was seen as an icon of democratic progress and the great hope for the transmission
of Russia into a respectable market economy. The realities on the ground were very different.
Yeltsin is widely hated in Russia today as the oligarchs ran wild, inflation was in
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across the region. In Poland it was manu- facturing, not retail, that got the ball roll- ing, and that has always been a core part of IKEA’s business in Emerging Europe.
But the overvalued ruble of the 90s meant that it made no sense to set up local production and Russia largely missed out on the classic emerging market early-stage development phase when light manufacturers move in to set up production to take advantage of cheap labour costs. There was no point in setting up a factory when it was cheaper to simply import lower- cost, higher-quality goods from Western Europe.
Once the retail arm was established IKEA began to help Russian companies making its furniture by financing their workshops and factories, supporting these businesses with soft credits, which were at liberty to work for other people and make non-IKEA goods.