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How Much Growth Will Ikea’s $2.2+ Billion Omnichannel Investment Get It?
IKEA plans to spend over $2.2 billion over the next three years to support its omnichannel growth strategy in the U.S.
The investment will be the largest that IKEA has made in its U.S. business in almost four decades since entering the market. The company plans to use the funds to open new stores and pickup locations closer to its customers.
“The U.S. is one of our most important markets, and we see endless opportunities to grow there and get closer to the many Americans with affordable products and services,” Tolga Öncü, head of IKEA Retail, Ingka Group, said in a statement. “More than ever before, we want to increase the density of our presence in the U.S., ramp up our fulfillment capacities and make our offer even more relevant to local customers’ needs and dreams.”
So what will $2.2 billion get IKEA?
The furniture giant plans to open eight new stores and nine “Plan and Order” locations. It also intends to open 900 new conveniently located “Pick-up” stations to retrieve items ordered online.
IKEA has opened 15 Pick-up and two Plan and Order locations in the past year, making clear how ambitious its growth plan is for the U.S.
The first 8,000-square-foot Plan and Order store opened last year in Long Beach, CA. Customers book appointments to meet with design specialists and order products shipped to their homes or picked up at an IKEA store or Pick-up location.
“We know U.S. customers have a strong desire for more ways to shop and experience IKEA, and this growth plan will allow us to meet that need,” said Javier Quiñones, CEO & chief sustainability officer, IKEA U.S. “We are committed to continuing to grow in this market with our thousands of co-workers and millions of customers who look to IKEA for home furnishing inspiration and solutions at an affordable price. Our priority is to become more accessible, while staying as affordable as possible for the many people, which is especially important given the increasing costs of living.”
Discussion Questions
DISCUSSION QUESTIONS: What do you think of IKEA’s growth strategy for the U.S. market? What will IKEA’s plans mean for its retail competitors?
Poll
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Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
This is a big and important move for this already highly successful global juggernaut. IKEA furniture remains a mainstay for its cool design and affordable prices. The IKEA model is very effective and a big part of it is the unique product and design sensibility that IKEA owns. There’s no doubt that the expansion of IKEA will impact competitors but, the fact is, there’s nothing quite like IKEA.
IKEA is currently under potential in the U.S. Its traditional model of large stores to serve big catchment areas doesn’t work as well here as it does in Europe. This new, more flexible approach — which involves a combination of more big stores, smaller shops, pickup locations, and investments in digital — will help increase reach. That said, while the scale of the investment is significant, more will be needed if it wants to continue to grow share in a serious way. Rivals should sit up and take notice. As the largest furniture retailer in the world, IKEA has economies of scale and volumes that allow it to offer value that few others can match.
This bold investment proves the U.S. market is vital to IKEA’s success. Aligning with consumer expectations of convenience and omnichannel choice will boost IKEA’s competitiveness.
Rivals can expect the home category to heat up as IKEA invests in growing sales and share.
I’m not a fan of IKEA because many years ago I experienced bad customer service and poor product quality. Those negative experiences were magnified by the distance I had to travel to resolve my issues and the fact that IKEA could not resolve them on the first try. I was asked to return at a future date so I lived with broken IKEA furniture for a few years. I know it’s a popular and successful brand and this new strategy may help them capture segments of the U.S. market that it may have missed with its current model. It is definitely a force to be reckoned with and that won’t change as it becomes more accessible.
There is an entirely other message to be found in your comment regarding bad customer service. It doesn’t matter if just one shopper is treated shabbily. That customer will never return. Sadly, many companies do not consider the value of “never.”
IKEA is very smartly riding the demographic wave. The home furnishing trend for the growing Millennial demographic is smaller and less expensive. The urge to have that Architectural Digest home, or something akin to that thinking, is gone. Just as IKEA builds its business and products very uniquely for Japan and Asia, they very consciously monitor their potential customers and adjust to the local dynamic.
While many manufacturers don’t see “cheap IKEA” as a major threat, they will take a big hit in the next decade as IKEA becomes a standard for how to furnish a home. Millennials are no longer the biggest cohort of home buyers. More than half would prefer the flexibility of renting and urban living.
IKEA has a lot of loyal fans and its growth has been constrained by its lack of presence in many markets. For example, there is only one IKEA store in North Carolina (in Charlotte), which is 2.5 hours from the Raleigh area. There are a lot of markets that could support an IKEA store or a “Plan and Order” location or a couple “Pick-up” stations. In addition to adding more locations, IKEA has the potential to extend its brand to higher quality furniture, which should be a concern for its “competitors.”
In most cases in the modern retail world, availability is the best capability to leverage to drive significant business growth. IKEA’s $2.2 billion investment in omnichannel capabilities is brilliant. There has been a perpetual race for retailers to mitigate the last mile and shift their e-commerce digital businesses from a dilutive to a profitable operating model. As retailers are challenged to enable new capabilities to get the product to the customer.
IKEA’s investments in micro-fulfillment capabilities with their nine “Plan and Order” locations and opening 900 new conveniently located “Pick-up” stations to retrieve online items are the remedy the company needs to drive growth from the convenience and last-mile perspectives. Considering all the challenges around homeownership for the next generation, we will be in a transient society, where people move every couple of years to a new home or apartment. IKEA will serve these consumers in a cost-friendly and convenient way.
Customers have been asking for this for years.
This will have serious implications for Target’s home business.
In my opinion, IKEA’s omnichannel investment is a smart strategy. By investing in technology-based stores that are easily accessible, customers can interact with and view products, thereby improving their overall shopping experience. Additionally, establishing new pick-up locations closer to customers will further enhance the shopping experience, allowing customers to conveniently place their orders online and collect their purchases from these locations at a time that suits them.
However, there might be some “hiccups” in implementing these efforts and the staff or persons in charge of operations may experience some inhibitions at first because they are not accustomed to these new developments. But these “hiccups” are part of doing business, and IKEA will certainly be successful if they consider all these factors and accept the challenges. The key for IKEA will be to remain determined, to constantly analyze its actions, and take corrective measures when needed.
As for the competition, I believe most of them would simply observe how IKEA fares before making their own move, as none of them would be willing to make such a significant investment to compete with IKEA at this point.
Customers have been crying out for a well-rounded omnichannel offering from IKEA for many years.
While other players have appeared potentially offering a better service than IKEA have offered, the “Quality and Design, IKEA of Sweden” mark has remained constant as being highly thought of.
Customers want to see and feel product and have it delivered — customers have become accustomed to the delivery model so the strategy of smaller footprint inspiration and solution-based showroom-only stores that do not hold all inventory makes a lot of sense.
IKEA’s plans to invest heavily to grow its omnichannel strategy in the U.S. is a smart move. Retailers need to be making these kinds of investments to stay competitive. In fact, a Google study found that omnichannel strategies drive an 80 percent higher rate of incremental store visits – which IKEA is poised to capitalize on.
Adding pick-up locations makes IKEA more accessible to customers who had to travel hours to shop at the furniture giant. With these pick-up points IKEA can seamlessly blend in-store and online together, reaching the widest possible audience and overcoming some of the geographical challenges posed by the spread-out nature of the American market. And it puts them in a strong position to overtake many of their competitors.