Photo: IKEA
Will a radical transformation lift or sink IKEA?
IKEA has announced a major reset that includes the international furniture retail giant making significant commitments to urban stores, online sales and delivery.
“We see of course that the world around us is changing,” Tolga Oncu, IKEA’s head of retail, told The Wall Street Journal, ”and we want to be part of that.”
The program includes:
- Urban focus: Thirty stores are set to open in urban centers in a further push to be “more accessible” to customers. The stores will be about a quarter the size of IKEA’s traditional big boxes located on the outskirts of town.
- Tweaked layout: With 80 percent of IKEA customers researching online before visiting stores, management will reduce the number of products displayed on selling floors and instead use the space to create mock ups of living rooms, kitchens and bedrooms. The mock ups are intended to help shoppers see how furniture fits together and bring a more experiential element to stores that’s not available online.
- More delivery: Building on last year’s acquisition of Task Rabbit that supports at-home assembly, IKEA is planning new warehouses, pickup points and other fulfillment investments.
- Layoffs and hires: Management intends to cut about 7,500 jobs, mainly administrative staff seen as redundant, in part to speed decision making. Another 11,500 will be hired over the next two years to support the new urban stores and investments in delivery, digital and in-store experiences. IKEA has about 160,000 employees.
The privately-held Swedish retailer has admitted in recent years that its out-of-town warehouses are becoming less relevant to increasingly urban-based populations and its websites have focused too much on driving store traffic rather than online purchases. IKEA has also said it would test selling its furniture on third-party websites.
“In the U.S., we’ve been on this journey for quite some time,” said Lars Petersson, country manager, IKEA Retail U.S., in a statement. “We have already made significant investments to enhance our e-commerce experience and service offerings, including new lower priced shipping & delivery, Click & Collect, financing and TaskRabbit assembly services. We are investing in existing stores to ensure they provide our customers with a refreshed family-friendly experience, filled with inspiration.”
Discussion Questions
DISCUSSION QUESTIONS: Do you see IKEA’s shift to smaller, city-center stores and heightened focus on online delivery as smart moves? What should the company retain from the traditional IKEA business model?
Poll
BrainTrust
Min-Jee Hwang
Director of Marketing, Wiser Solutions, Inc.
Sterling Hawkins
Co-founder, CART
Even the most successful retailers need to disrupt themselves occasionally, and IKEA is a good example. The move to smaller, city-center stores and focusing on online makes good sense. IKEA’s product offering is very compatible with the urban dweller, so smaller stores where these shoppers live makes good sense. Also, enhancing delivery and service offerings like set-up nicely fits with what consumers are demanding. All-in-all, thoughtful, smart moves by a smart, successful retailer.
IKEA’s model has remained unchanged for many years. However, over that time the way people shop has evolved. Massive stores, which are expensive to run, no longer pull in crowds as they once did — mainly because of the rise in online shopping. This has reduced their profitability and efficiency.
We did a lot of work for IKEA on urban stores and all the research evidence points to the fact that they will help IKEA boost market share among core audiences such as urban Millennials.
New York City is a prime example. The Brooklyn store is successful but it does not pull in many customers from Manhattan. If IKEA wants to grow share on the island, it needs to have a smaller urban presence where it can showcase some of its range and offer services like collect from store.
IKEA is a successful brand AND retailer. Their plan to modify their established formula proves they are reacting to a changing cultural and demographic landscape. Their willingness to extend their delivery program is a welcome shift. As urban customers may not have vehicles, taking the store to them and delivering their furniture purchases will prove to be a very successful evolution.
Getting closer to where the typical consumer of IKEA products live makes sense. Having rooms set up to see how things fit together also makes sense. Getting through a shopping experience in their large format was indeed a slog and may still be necessary when your kids first move into their own place, but for fill-ins and smaller purchases, the new in-town format will work.
Seems they have thought through the major changes and are in front of them in a very well organized way. Wouldn’t expect anything less from the management of IKEA.
I see it less as a shift and more as a change in future focus. When they ask themselves where they should invest, instead of larger warehouses it’s smaller stores in urban areas. They’ll still have the large warehouse. Is it good? Of course it’s good. Anything you can do that increases your penetration is great, as long as it’s profitable.
It concerns me a bit. IKEA is one of the few retailers that is a true destination. Customers are willing to travel hours to a store.
Remember that the root of all value can be found in the idea of scarcity. Smaller and more urban IKEA stores erode that value. They need to be careful here.
Great point, Tom.
Excellent point Tom. This could be a problem for them.
We were once approached by an independent retailer who had a very successful, very quirky store. And I mean successful; his customers and community loved this store. But he wanted a slick, clean layout that was opposite of what he had. We passed because my gut feeling was the move would alienate his clientele. Another company took on the redesign and the store suffered.
This is how I first read the article on IKEA’s plans; its stores are so iconic that a complete change to the format would be startling to shoppers. It’s interesting that IKEA has said its “websites have focused too much on driving store traffic rather than online purchases.” Well, yeah! People go to IKEA expecting to load up.
But that’s the suburbs, a smaller footprint in urban markets makes sense. People who live in cities need a different kind of store. IKEA vignettes are easy to shop — that plus set-up and delivery options, so what’s not to love?
This appears to be a solid move for IKEA, especially as the way consumers shop has evolved over the years. We’ve seen a desire for brick-and-mortar stores to provide an experience, and the proposed IKEA layout should fit right into that. Being able to view furniture in-store and then have orders delivered to your home could also help.
This re-group seems necessary to stay relevant and consistent with their long term planning to become more digitally available, however IKEA should also carefully consider their strengths before completely cutting the suburban cord. A NEW (quite substantial) suburban shift of Millennials with young children to home ownership and the more traditional suburban settings they grew up in is happening right now. Small IKEA stores in urban settings make sense too. Test and optimize IKEA!
IKEA’s core demographic is younger people who are setting up households, many of whom are living in cities and don’t have access to large vehicles to move heavy merchandise, which is why many have turned to Wayfair and other online sellers. IKEA’s former policy of not shipping smaller items has to evolve to serve this population and retain market share.
Retailers must adapt to the changing needs of their customers. IKEA is no exception. Each of the changes being made is very logical given the changes in the marketplace. I believe delivery and assembly will be especially welcomed by all their customers whether in the new urban location or the suburbs. Customers will welcome not having to cart the items home and then try and figure out where out where each piece, screw, and tab goes.
Radical transformation is necessary to be and stay a vibrant company. IKEA’s moves are good ones as they continue to push the boundaries to see what else might be possible. The trick is to keep an effective balance between reinvention and the core business. Few have done so well as Amazon on that front with their “Day 1” mantra to serve as a constant reminder to reinvent themselves.
As an urban-dweller, I’m all in favor of IKEA’s strategy to serve this market with appropriate-sized stores and services.
Retail is an extremely competitive industry that has arrived at a state where retailers need to “evolve or die.” IKEA is evolving by experimenting with new formats and shopping and delivery options for consumers. I wouldn’t classify this as radical transformation as they are tweaking their proven concepts by adding urban locations, assembly, delivery and eCommerce.
As they tweak their retail formats, they should retain the traditional iconic core products and services that customers know and love: FRAKTA Shopping bag, Poäng chair, Swedish meatballs, and lingonberry jam while adding accessibility, delivery and relief from the annoying assembly nightmare that sometimes exists.