Would it be accurate to describe IKEA as the most successful retailer of all time? As of yearend 2015 it generated global sales of £35 billion in global sales. It operates 298 stores in 26 countries. Conspicuously it is not a retailer that “floods” markets with stores: in the UK it has only opened 19 of its “sheds” in the UK in 29 years.
It is simplistic in the extreme to make such a bold statement about any retailer. However it has enjoyed enormous success and continues to drive sales increases despite the changes that have taken place in the retail arena globally.
How then has IKEA continued to succeed and prosper? In this blog we consider the key factors for its success and assess how it has responded to the technology developments.
It has been around since 1943, when it was founded by Ingvar Kamparad and opened its first US store in 1985. A recent article (Shouldberg, 2015; “Is IKEA the most influential retailers of the past 25 years?) identifies a number of its key success factors.
Firstly he argues that IKEA has transformed the way in which we think about household furniture and how we buy it. While previously people saw furniture items as expensive purchase items that were made to last for around twenty year, IKEA debunked that perception and marketed a broad range of items that were seen as clean and simple and most importantly good value. While furniture items can be purchased more cheaply in deep discount retailers, they tend to lack the focus on design and trendiness that IKEA are famous for.
Its vertically integrated approach to sourcing and manufacturing items is also identified as a key strength of the business.
Can this model continue to thrive and prosper? Many giants of the retail firmament have disappeared off the radar in recent years. In the UK the most recent casualty was British Home Stores (BHS).
How is IKEA responding to this so-called “new era for retailing?
I have noticed a couple of initiatives over the past year or so that are worthy of mention and discussion.
IKEA is quickly re-defining the concept of physical space. Once derided by the critics for erecting hideous sheds the size of two football pitches and destroying the environment, it can be argued that IKEA has made a virtue out of the relatively small number of such trading outlets. Similar global retailers are furiously trying to rationalise their store portfolio as more and more shoppers shop online, IKEA has not had the same problem. The small number of large outlets continue to be destination targets for shoppers.
In the last year or so IKEA has introduced a new physical format to its operations: the order and collection point (google IKEA you can see a brief clip which outlines this concept).
In the most recent one at Westfield Stratford City Shopping Centre we can see some of its features.
The store is hidden away near the food area in the centre. The front of the IKEA operation is minimal: with floor to ceiling glass and a steel frame network. It is contained within a 9,500 square feet retail space.
It has a number of display rooms: two bedrooms, a functional kitchen area and a dining room.
The most noticeable feature is that it looks like an Apple store. The majority of the space is made up of Apple computers and IPads. These allow shoppers to browse through the very large number of items on the IKEA catalogue.
Shoppers can order what they want online, pay for the order and pick it up on the next day. Alternatively they can elect to pay a £35 fee to have it delivered to their home.
IKEA advisors are available to provide guidance for the shoppers.
The order and collection point carried a minimum number of items: forty, which can be purchased and taken away by shoppers if they so desire.
IKEA argue that this is a new form of concept store and is meant to be a “point of inspiration” for shoppers. It allows shoppers to engage with the items, albeit on a “virtual” basis.
We should note that in the broad context this is not a new approach. IKEA is actually following the trends of similar retailers in terms of expanding the range of channels through which shoppers can engage with items, evaluate the items and make a purchase.
It can be argued that IKEA follows a logical approach to retail development with this initiative. It means that in existing markets, they need no longer worry about going through the time-consuming and costly process of developing new store locations. Instead they can sell a very large range of (in many cases) bulky items by making use of these much smaller semi physical / virtual retail spaces. The Westfield opening potentially gives IKEA access to over millions of shoppers who visit the shopping centre annually.
It has also embraced the concept of “retailtainment”. This is evidenced by its opening of a pop-up do-it-yourself restaurant and food store in London (Shoreditch) at the beginning of September 2016. This creates the combined concept of a shopping and dining experience.
The pop-up outlet operates for three to four weeks and then closes down.
It combines a Swedish food store, a virtual reality kitchen booth, a kitchenware store and a lecture theatre for workshops which address cookery-based themes. It opens from 10am to 10pm. It also contains a Dining Club, where members can book the venue to host a brunch, lunch or dinner party for up to twenty individuals. A sous-chef is available to prepare the meal. Typically Scandinavian dishes feature such as venison and wild mushrooms.
The motivation for this “innovative” initiative stemmed from a survey of 2,000 shoppers which revealed their passion and enthusiasm for celebrity chefs and TV programmes such as The Great British Bake-off.
In tandem with these initiatives, IKEA plans to open stores in India and Serbia in the coming months.
How do we assess this strategy?
IKEA clearly is integrating its physical and virtual channels in line with many similar operators. Overall it is following rather than driving a trend.
Its initiative with the pop-up store is imaginative and provides it with an opportunity to tap into the psych of the UK shopper. The “pop-up” concept is relatively inexpensive to set up. If it works it can be extended to other areas; if it flops it can be terminated without too much financial pain to the company.
In terms of overall performance IKEA is certainly hitting the numbers in terms of sales and profitability. Recent financial figures reveal that it has experienced an increase of over seven per cent in sales (£34.2 billion) year on year for 2016. It is on track to become the world’s leading multi-channel home furnishings retailer.
So it is full steam ahead for IKEA. Let’s monitor its performance over the next couple of years.
I leave you with one statistic. World-wide, it sells one of its Billy Bookcases every ten seconds.
My goodness: my IKEA!!