Swedish Giant IKEA Late to Ecommerce But Goes Full Blown Digital

Written by: Cynthia Luo on September 15, 2017

THE BACKGROUND

IKEA. There is no other furniture brand as iconic as the blue and yellow giant famous for its ready-to-assemble flat-pack furniture, dizzying warehouse stores,  and difficult to pronounce product names (GRÖNKULLAFYRKANTIG).

The Swedish giant claims its beginning started in 1926 when founder Ingvar Kamprad was born but it was only at the tender age of 17 when he started a mail order business selling pens, watches, jewelry, and picture frames after receiving seed money from his father.

Furniture would be introduced into the company’s product offering five years later and become a success.

IKEA ecommerce
Ingvar Kamprad, the founder and senior adviser of IKEA, is the world’s 10th richest man. Source: Aftonbladet

Six decades later, IKEA’s 300+ stores around the world require over 1%of the global supply of wood to make over 100 million pieces of furniture. No business can come close to the Swedish conglomerate’s size…right?

THE CHALLENGE

While no furniture business has been able to even remotely achieve the same brand identity and global scale that IKEA has in the last 60+ years, the world’s shift to ecommerce has forced the company to re-think its retail strategy.

The biggest threat comes from low-cost manufacturers going direct to consumer by following a “Warby Parker business model”, popular examples include Interior Define and Bryght in the US.

“By cutting out high-rent showrooms and warehouses, big-budget ad campaigns and big-name designer, these companies can offer great prices and bring in greater profits.” – NYT

“This year has been quite challenging in terms of sales. After many years of good sales, this year we have seen weaker launches, stiffer low-price competition and changing consumer behavior. We are revising sales targets downward for the year, but remain very optimistic and ambitious,” Jesper Brodin, IKEA CEO, then MD, told a global suppliers’ conference in Almhult earlier this year.

“People are making choices in different ways. Retail is getting tougher, and there is a bigger fight for the marketplace than ever before. We need to be much more aggressive and the price-volume equation, which is part of IKEA’s DNA will help us.”

With the success of ecommerce companies like Amazon making headlines everyday, IKEA, along with every other retailer in the world is being reminded that retail is evolving and the traditional company finds itself having to learn new tricks.

THE STRATEGY

While late to the online shopping scene, up until 2016, the company was officially present in 28 countries and offered ecommerce in 14 of them. Even with no new ecommerce ventures in 2016,

IKEA recorded at 30% jump in online sales to $1.6 billion, a small fraction of total sales but nonetheless impressive.

“We weren’t one of the early adopters but we’ve matured in our thinking about it,” Peter Agnefjall, former IKEA CEO told the New York Times. “We realised this is not a trend, it’s a megashift.”

The company has never been one to shy away from innovation. Its successes include its in-store cafeteria and very own startup incubatorfocused on food innovation, disruptive technologies, customer experience, disruptive design, sustainability, manufacturing, supply chain, and analytics.

It’s not then surprising to learn that IKEA has become one of the first to actually incorporate VR into its brand new mobile app launched only yesterday.

IKEA Place is part of the first wave of augmented reality apps that work with Apple’s new ARKit technology and iOS 11 to allow customers to “place” furniture in their apartments. While late to the show, the company has managed to outpace other pure players.

IKEA ecommerce
IKEA Place uses VR to allow users to easily visual what a piece of furniture will look like in their homes. Source: IKEA

Its push into applications could be attributed to world’s growing affinity for the mobile phone and by analyzing its own customer behavior. In Australia, the company’s website pulls in 40 million visits per year – 50% of which comes from mobile.

At this point in time, IKEA sells its products only on its own websites but has dabbled in the idea of establishing an official presence on Amazon but no confirmation has been made by the company yet.

There has however, been a partnership between IKEA’s “smart light bulbs” and Amazon’s virtual assistant device Echo to promote the latter’s line of smart home products. Owners of IKEA’s voice controlled light bulbs will be able to adjust the brightness of the bulbs through voice command by not only Alexa but Google and Apple’s Siri as well.

IKEA ecommerce
IKEA Smart Light Bulbs controlled by voice command.

“Unlike other companies, IKEA doesn’t fear the cannibalization of offline channels by online channels.

This is not without precedent, IKEA’s UK online store becoming the region’s largest outlet, without absorbing sales from existing stores.

“It’s just one among our many initiatives to make our products available for as many people as possible. And we are seeing big opportunities by leveraging upcoming digital technologies to their fullest,” said Inter IKEA Group Chief Executive Torbjörn Lööf.

THE FUTURE

IKEA Group is aiming for 50 billion euros in sales for 2020 and to open 18 new stores by end of year. It also has been eyeing growth opportunities in India and Southeast Asia but execution has taken much longer in these emerging markets.

As a fully independently owned company, IKEA must ensure that an average of 30% of the production value of sold goods should be sourced from within India, and within five years of the initial investment. As ecommerce is new to the Scandinavian company, it must test various fulfillment models including pickup points, third-party depots and the use of small-format stores for click and collect.

But the company hasn’t stopped making strides towards its aggressive target and continues to invest heavily in ecommerce. IKEA recently announced that a shoppable IKEA webstore would go live in Singaporein two weeks and in Malaysia in 2018.

IKEA ecommerce
Jesper Brodin, IKEA CEO. Source: dagensps.se

New IKEA CEO Jesper Brodin, who recently succeeded Agnefjall in May this year, will focus on building multi-channel retailing in almost all of its markets before 2017 finishes. He definitely has a tough job ahead moving the giant forward.

But according to Agnefjall, the CEO job involves “working 365 days a year, 15 to 16 hours per day”, which explains the admirable dedication founder Ingvar Kamprad still has for the company.

“Oh, I have so much work to do and no time to die,” he said.

Amen to that.

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