IKEA’s Strategy for Staying on Top
What comes to mind when you think about IKEA? BILLY bookcases, Swedish meatballs, hours trying to assemble furniture? All of those things are characteristics of the iconic retailer. But what you may not know is that IKEA’s minimalist furniture helped it to bring in sales of € 41.9 billion in 2021. IKEA also had five billion online visitors last year. Clearly IKEA knows a thing or two about how to sell furniture but it is not sitting back and taking it easy IKEA is constantly thinking of new ways to reinvent itself. If you are curious about how IKEA plans to keep its competitors at bay then consider these six elements of its strategy.
1. Smaller format stores in city centres. IKEA, which got its start in 1943, isn’t afraid to change with the times. Although IKEA is mostly known for its suburban sprawling stores which can be as large as 200,000 square feet in recent years it has focused on opening smaller stores in city centres. With these stores IKEA no longer expects customers to travel long distances just to get a feel for its merchandise, instead IKEA hopes customers only have to travel 30 minutes to reach a store. “Understanding that many L.A.-area residents are often frustrated by being stuck in traffic, we identified geographic areas in the market that are beyond a 30-minute drive from existing stores and where affinity to IKEA is extremely high,” said IKEA Area Manager Janet McGowan.
Last week IKEA opened a small format store in downtown Toronto, the first store format of this kind in Canada. The store is 66,000 square feet with more than 2,000 items customers can purchase and take with them while the larger furniture on display in the store can be delivered to the customer’s home. In line with IKEA’s ongoing digital transformation customers can also scan merchandise using IKEA’s app and then pay at a cashier. At this store customers can also use IKEA’s app to scan a product’s QR code to add the item to their online shopping cart to have the item delivered or available for pick up. The store also has omni-channel features including giving customers the ability to pickup online orders at the store. Not wanting to be left out IKEA’s famous Swedish meatballs are still on the menu in the store’s in-store café.
While it might be hard to image this location doesn’t even have parking. “IKEA Toronto Downtown – Aura combines our home furnishing inspiration and expertise with omnichannel retail solutions in a small store format to uniquely meet the needs of downtown residents,” said IKEA Canada CEO aMichael Ward. IKEA also hopes by locating these stores in city centres customers will visit more frequently.
2. Stores as fulfillment centres. With millions of people working and learning from home during the COVID-19 pandemic, home furnishing stores have been key beneficiaries. Demand for online orders spiked for IKEA during the height of the pandemic making the retailer realize that its stores had the inventory customers were looking for. Now IKEA is spending part of a $3 billion investment to update its stores so they can also serve as fulfillment centres. This model will help to speed up the delivery of eCommerce orders, with customers in certain markets receiving delivery of online orders in as little as 24 hours. This is a significant change since in the past IKEA customers often had to endure long wait times to receive their online orders.
“To make that work, the flow of goods needed to change, the supply mechanisms needed to change, and also the floorplans of the store needed to change.” said Barbara Martin Coppola, IKEA’s former chief digital officer. “Ecommerce is open 24 hours a day, while traditional stores are not, which means we’ve needed to learn how to operate at two speeds, while operating from one space.” “Goods can be delivered from the stores, or from different distribution centers — and algorithms are helping figure out where the goods are being sourced from.”
In Finland instead of building a new centrally located warehouse, IKEA redesigned a store located in Kuopio that now also serves as a distribution centre for eCommerce orders. By making this change the time it takes customers to get their online orders from IKEA is cut in half along with a significant reduction in the cost to deliver items. By investing in these changes as well as updating its website IKEA continues to see growth in its online channel with online sales increasing by 73% last year to represent 26% of IKEA sales.
3. Food to lure you in. How many times have you gone shopping for a couch at a local furniture store and ate a plate of Swedish meatballs while you were there? IKEA didn’t have to add food courts to its stores but it did and those food courts are so popular that in 2019 IKEA was named the world’s sixth largest food chain. Those food courts also generate large amounts of foot traffic for the retailer. “Ingvar [IKEA’s founder] was known for saying, ‘You can’t do business with someone on an empty stomach!’” said Antonella Pucarelli IKEA’s chief commercial officer.
“Because it’s hard to do business with hungry customers. When you feed them, they stay longer, they can talk about their [potential] purchases, and they make a decision without leaving the store. That was the thinking right at the beginning,” said Gerd Diewald, the former head of IKEA’s food operations in the United States.
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4. Sustainable practices. IKEA has bold ambitions when it comes to sustainability. It plans to decrease its climate impact per item by 70% by 2030. Within that timeframe IKEA also aims to only make products made of recycled or renewable materials designed to be reused, recycled or resold. “At IKEA we don’t want to merely be a part of the sustainability movement – we want to lead it. If we want to reach our sustainability goals, we have to challenge ourselves and test our ideas. The climate crisis cannot be solved in theory, it has to be solved in practice,” says Jonas Carlehed, sustainability manager at IKEA.
IKEA’s commitment to protecting the environment is not lip service. It put its ambitions on display when it opened its first store in 2020 that sells only refurbished and sustainably manufactured merchandise. The store is located in a mall in Sweden called ReTuna where tenants only sell reused, organic or sustainability produced items. IKEA is sourcing items for its ReTuna store from municipal recycling centres. “We are making a huge readjustment, maybe the biggest IKEA has ever made, and one of the keys to reaching (the targets) is to manage to help our customers prolong the life of their products,” said Carlehed. IKEA also announced in 2020 it is buying back used furniture in 27 countries in order to resell, recycle or donate them.
5. Value for your money. Today’s consumer is strapped for cash. They were struggling financially before the pandemic and then the pandemic hit making it even more difficult for consumers to keep up with the cost of living.
Make no mistake, part of IKEA’s appeal is that its merchandise is affordable. If it wasn’t no one would have the motivation to assemble their furniture themselves. IKEA is so in tune with the customer’s desire for value that it determines the price of a new piece of furniture first then constructs the item to fit within the selected price range. "I agree the outlook [for consumer spending overall] looks a bit gloomy. That means value for money and time, affordable solutions that are of good quality, function and design and sustainable will increase in demand," said Tolga Öncü, retail operations manager at Ingka Group, Ikea’s largest franchise.
6. Continued modernization of the shopping experience. Speaking about how IKEA is updating the customer experience Coppola had this to say: “the Shop & Go feature in the IKEA app — available in a few countries — which allows you to use your own mobile device to scan, pay for items and skip the checkout line in the store, that requires a complete modernization and reengineering of all the tech landscape within IKEA. It also requires a different way of operating to fulfill the goods to be bought.”
IKEA also sees an omni-channel model as key to a better customer experience. “Online and offline are not two separate channels,” said Öncü. “For our customer, we see it as a total IKEA experience, which includes perhaps a visit to a store, visit to a smaller-format, visit to the Ikea app, visit to our website — so they all play different roles in the total experience of IKEA.”