Ikea's ecommerce challenge

Ikea has been among the few constants in the fast-changing retail world that has yet to meet its match in an online competitor. The largest furniture retailer is steadfastly old-fashioned in certain ways, proudly Scandinavian and yet relevant in popular culture with a bestselling list that inspired Ikea hacks on a certain HBO set and even a $2,145 Balenciaga blue tote bag.

The Swedish brand made 95% of its sales at the checkout counters across its 403 stores worldwide during the last fiscal year. It reportedly spent 70% of its annual marketing budget on its 324-page print catalogue that took 18 months to produce although BBH Singapore’s viral Human Catalogue campaign might prove a more efficient model yet.

Meanwhile, Ikea’s website visits grew modestly from 2.1 billion in the 2016 fiscal year to 2.3 billion last year.  The retailer opened four new stores in APAC in the last fiscal year including three in Chinese Tier 2 and 3 cities Harbin, Jinan and Nantong, as well as one in Brisbane. China was among the top five retail-selling countries contributing to 5% of the sales in total, while APAC’s share stood at 11%.

Staying strong in business was by no means a stroke of luck for Ikea. The retailer does not shy away from innovation, most notably in cost-cutting measures that offer affordable prices with acceptable quality, in most cases at least. On the technology front, Ikea has embraced AR, first in 2013 on its catalogue app that allows users to view furniture items in their rooms using their smartphone before launching the proper AR-based Ikea Place app last fall.

Ecommerce has been big on its agenda in recent years too as few retailers can afford to ignore it. Ikea currently has three click-and-collect points in Asia and has indicated plans to sell on third-party sites such as Amazon and Alibaba.

While its European operations have been dogged by tax investigations since late last year, its Asian business has much to look forward to with a new store opening in India this spring as well as new stores planned in Vietnam and the Philippines.

We asked two regional experts what they think the future holds for Ikea. Read on for their analyses. 

Kevin Gentle, Shanghai

Madjor – a Labbrand company

I can’t speak much for the other markets, but from what I know in China, Ikea is doing very well. The brand had made the conscious choice of going to the market early, and it literally let the market catch up to them.

The economies related to home renovation and decoration in China is absolutely exploding now, so I think Ikea is more relevant than ever. For years it has had people who went to the store but did not buy a lot because the market was not developed enough yet. (Ed. note: Ikea has has an infamous reputation as napping ground and dating site for Chinese seniors.)

There is a whole new category of Chinese consumers now who are not only buying homes, but spending more time and money on furnishing their homes. They are paying attention to spaces that were previously neglected, when before they would only focus on the living room and not the bedroom. Ikea is not the most high-end brand, per se, but it is the go-to choice for the Chinese middle class.

I do not think Ikea’s business model needs a fundamental revamping. If anything at all, I think its business model is very dependable. Its market position is very strong, based on the fact of its operation which has the design capabilities to manufacture things for scale, in terms of price. It has a efficiency distribution system which pretty much no competitor can have.

The Ikea experience is reliant on store (retail), so the more stores they have, the better it is. Sometimes it’s a hit-and-miss where some do better than others but expanding to Tier 2 and Tier 3 cities is absolutely the right thing to do. 

Currently, Ikea has done well in integrating its CRM programmes into WeChat. What it could have done more is to redesign the experience inside the store, integrate O2O, introduce online wish list functions and ecommerce which is a big opportunity for them.

If you look at its products, Ikea has a whole range of high-margin items such as big pieces of furniture that require people to go to the stores. But there is also another range such as plates, cutleries, smaller items that its customers may have bought previously and need to replace. These items land well on online distribution, so it makes perfect sense for Ikea to develop an ecommerce presence either on its own or through partnership with players such as Tmall.

Whether which strategy Ikea should pick up, it depends on how much money it is willing to put into it. It could partner with Alibaba, which would develop a strategy that will likely work very well but it also has the strength and brand loyalty and strength to create its own marketplace for renovation and decoration. It will cost a lot of money, but that’s something Ikea could do and it very much depends on its strategic priorities.

Ecommerce would not cost foot traffic to the store, because if you think about the Ikea experience, it cannot be digitised. You usually don’t go to Ikea alone, buying furniture is a collective decision and family experience. Ikea is the kind of business where digital has nothing but upside for them. They can use digital to optmise experience inside the store, drive more traffic or allow customers to book appointments with consultants. The core advantage for Ikea is that it is not threatened any digital player.

It is true that Ikea made a bit of a blunder in their recent campaign. To be honest, I think it’s the kind of things that agency people care more about rather than the consumers. Ikea has demonstrated goodwill and pulled the ad, I don’t think there will be any effect on the brand

I think the priorities for Ikea now are how to use digital to strengthen its in-store experience, bring more people to the store, capture data and offere more value added services such as furniture assembly services. (Ikea bought startup TaskRabbit, an on-demand freelancer marketplace that offer furniture assembly and handyman services last year.)

Jane Perry, Singapore

Managing director, Geometry Global Singapore

Ikea learned quickly that its low-price strategy did not work in China when it first launched. Ikea products were considered expensive in comparison to local furniture manufacturers. China was also quick to adopt local look-alike products.  Ikea started to see real growth in China when it significantly reduced the price of many of its products to help them compete. This is going to need to be a consideration as Ikea looks to expand into markets like Vietnam and The Philippines.

That Home Times, (the furniture store supported by Alibaba Group in Hangzhou) borrows experience cues from Ikea, there’s no doubt. But their product offer is very much tailored to the China consumer. Ikea is unapologetically Scandinavian, bringing Scandinavian design to the world underpinned by insights into the local market.

I think the real threat with Home Times is their truly omnichannel offer. Home Times makes the purchase in-store incredibly easy through innovative digital solutions. Shoppers can scan an item with their smartphones to see product name, price, description, and instantly purchase using Alibaba’s mobile payment service Alipay. It’s fast and convenient.

In terms of Ikea’s warehousing model, it has worked, and it will continue to work as long as it is offering an experience to shoppers. While many big-format retailers are struggling to find their identity in the digital age, showrooming for a brand like Ikea becomes increasingly important. Ikea has built their business on offering unique, Scandinavian experiences to their shoppers. However, where the experience fails is at the point of purchase. Queues at checkout are long and self-checkout counters have not addressed this.

Whilst the warehouse model has worked well for Ikea in markets like China, in Vietnam and Philippines most people don’t own cars so traveling long distances is a problem. Ikea will need to adopt its model of building big stores out in industrial areas. Asia’s growing middle class and millennial population lives mostly in urban areas/cities.  Ikea needs to adapt its current model to this.