IKEA to Freeze New Investment into Russia

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Oct. 8 – Sweden’s IKEA Group, one of the world’s largest home product retailers, turned down its plan to invest up to US$1 billion in the construction of a giant shopping complex in Moscow.

The shopping complex was expected to be the largest in Europe with a total area of 400,000 square meters over 50 hectares of land in the Mytishchi district of the Moscow region, which IKEA already bought.

The company will focus on existing stores rather than expanding to more sites, new IKEA CEO for Russia Per Wendschlag said on Wednesday.

“No new sites will be opened in the next three to five years. We will take a break and work with what we have,” he said.

IKEA entered the Russian retail market in 1999 and currently operates 12 stores across Russia. There are two more in the regional cities of Samara and Ufa that are two years behind schedule in opening. They will start to operate as soon as the company manages to solve the problems with local bureaucrats.

The opening of the Samara complex has been postponed eight times since 2007, and is now held up because of safety code violations. Construction of the Ufa mall was delayed after inspectors found problems with the contractor’s building permit and foreign labor force in 2008.

Last year, Anders Dalvig, IKEA’s president, announced the suspension of all investments in Russia due to “unpredictability of the country’s administrative procedures in some of its regions.”

At the same time, a major owner of IKEA Ingvar Kamprad accused Russian power companies in cheating the company for US$188 million by presenting inflated bills for electricity and gas.

The company has also experienced difficulties with Moscow regional officials in its plans to expand near Moscow.

Renaissance Capital analyst Natalia Zagvozdina is sympathetic with the company’s problems on the Moscow market.

“The Moscow region is shooting itself in the foot. IKEA is a great employer and has very good, adequately designed products that the local market cannot produce,” she said to The Moscow Times.

IKEA has invested US$4 billion in Russia since opening its first store in 2000.

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