Global quality furniture retailer IKEA said on Tuesday that it will expand its store in Australia to 11 with the addition of two locations in Melbourne and Sydney. At the same time, the premier retailer announced deep discounts of up to 50 per cent covering 900 items to remain competitive.

The expansion in Australia by the Swedish furniture maker is taking place despite the country being one of the most expensive place to do business.

David Hood, managing director of IKEA Australia, explained that Australia is a natural market for the furniture maker and retailer because of its youthful population and strong home construction sector. Proof of this is the company's annual sales of $31.5 billion.

"It's more costly to employ people in Australia. I look at hourly rates and all the other bits and pieces, it's not just the pay you get per hour to work," Smartcompany quoted Mr Hood.

In the coming years, Mr Hood said IKEA would even double its store network in the country while continuing to offer hefty discounts to shoppers.

IKEA was established in the 1940s and has expanded to 287 stores in 26 nations, including recent store openings in China and Russia, and it plans to open outlets in India. China and India represent a huge potential for IKEA and other retailers because of the combined 2 billion plus population of the two Asian giants, although the high-end tag prices on most IKEA products may be beyond the reach of ordinary Chinese and Indian wage earners.

Jon Manning, chief executive of Price Prophets, said IKEA must be flexing its procurement muscles to be able to offer up to 50 per cent discounts.

"There is a prudent consumer operating right now . . . And IKEA is going to squeeze as much as they can in their supply chain and pass that along to consumers. It's a fallacy that they can just executive a 50 per cent decrease and make it up with volume."

Besides the furniture sector, market experts forecast a bleak Christmas for the overall Australian retail sector as residents hold tighter to their wallets and in spite of marketing efforts such as the planned Click Frenzy on Nov 20 which will offer discounts on all online purchases for 24 hours.

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