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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.

Here’s what you should know today.

1. Ikea is mulling 3rd party ecommerce sales

Ikea is mulling selling its ready-to-assemble furniture and home goods online through third parties.

In a statement emailed to Retail Dive, the company stated: “At IKEA we are curious and want to explore new areas and get new insights on how to reach and serve more of the many people. One part of that is that we are open to the idea of piloting and testing making IKEA products accessible through other online platforms than our own.”

The logistical sweet spot may be why the company has been so slow to ecommerce. Former Ikea CEO Peter Agnefjall​ attempted to spin Ikea’s slow migration to digital into a positive, saying last year that its late entry into online commerce could allow more nimble mobile capability from the outset. “We could have been faster, I could agree to that,” Agnefjall told CNBC last year. “But by being late we can skip a step in the technology development, straight to mobile and tablet.

Online furniture sales have emerged as a major growth area in ecommerce, rising 18% in 2015, second only to grocery. Some 15% of the $70 billion U.S. furniture market is now online, according to IBISWorld data.

Read the rest of the story here.

 

2. India’s Supr Daily raises $1.5M to expand its milk and grocery delivery service

The Supr Daily service is designed to bring formality and order to India’s chaotic system of morning milk deliveries.

Government reports suggest that as much as 68 percent of milk is ‘tainted’ as delivery people will water their milk down in order to get more bags and income for their lot. The milk can include additives like detergent, caustic soda, glucose, white paint and refined oil to mask coloration.

 Milk is the main hook for Supr Daily service but customers can also buy every day essentials like bread, eggs, butter and coconut milk to save regular trips to the shops.
Supr Daily started out with limited reach very deliberately to test the viability of its service, and now Kumar and fellow co-founder Shreyas Nagdawane are eyeing expansions. Initially that will be to cover all of Mumbai, and then later into one of India’s other tier-one cities.
Read the rest of the story here.

 

3.  Recommended Reading: Selling stuff is no longer the point of retail stores

That’s the future of retail, according to a new breed of startups that have embraced physical stores as places for “brand experiences” rather than mere sales. Consider Outdoor Voices, an athletic apparel brand that has gained a cultlike following among young, primarily female fitness enthusiasts.

The company’s four stores are home base for gatherings like “dog jogs,” community yoga, and brunch parties. As CEO Tyler Haney explained at the TechCrunch event, its stores “are not about revenue, but community.”

In the middle of it all are the upstarts, among them Glossier, Outdoor Voices, Warby Parker, Harry’s, Bonobos, Rent the Runway, Everlane, and Cuyana.

They are leveraging newly available real estate to experiment with boutiques, showrooms, and pop-up shops. Using physical spaces to build offline community has another advantage: It’s one place where Amazon doesn’t care to compete.

Read the rest of the story here.

Singapore is the most mature ecommerce market in Southeast Asia where 60% of respondents report shopping online. Singaporeans also spend the most online in the region – on average a shopper purchased online goods worth $1,022 in 2016.

Statista data shows that Singapore’s ecommerce market is expected to increase from $3.3 abyillion this year to $5.1 billion in 2021 growing annually by 11.2%. And the number of online shoppers is forecasted to rise from 64.8% of the population in 2017 to 80.9% in 2021.

Which categories present good opportunities in Singapore’s ecommerce market in the near future?

Singapore ecommerce outlook

Singaporeans mostly shop online for electronics & media

Electronics & media is currently the leading ecommerce vertical in Singapore, similar as in Thailand. It’s predicted to remain as such in the near future, Statista data shows.

  • Electronics & media ecommerce market in 2017: $918 million or 27.6% of total ecommerce revenue
  • Electronics & media ecommerce market in 2021: $1.345 million of 26.5% of total ecommerce revenue
  • Annual growth rate (CAGR): +10%
  • Market’s largest segment: Consumer electronics with a market volume of $679 million in 2017

Currently, there aren’t many players in Singapore who sell online physical media (e.g. books, DVDs, games), consumer electronics (e.g. TVs, stereo systems) and/or communication devices (e.g. computers, smartphones, tablets).

The annual growth rate of online sales in this category is not the fastest, but ensures that in five years time, more than one fourth of all projected online sales in Singapore will come from selling TVs, computers, books and other devices and media.

Furniture & homeware to grow the fastest

This vertical is expected to grow by nearly 15% annually within the next five years from 2017.

  • Furniture & appliances ecommerce market in 2017: $452 million or 13.6% of total ecommerce revenue
  • Furniture & appliances ecommerce market in 2021: $782 million or 15.4% of total ecommerce revenue
  • Annual growth rate (CAGR): +14.7%
  • Market’s largest segment: Furniture and Homeware with a market volume of $317 million in 2017

Selling online furniture and household goods such as kitchen and bathroom accessories, textile furnishings will account for nearly half of the market volume in this vertical.

Below is a few examples of companies currently selling products in this vertical.

Some local players like Horme and Star Living are already seizing this opportunity whereas global giants like Ikea have not yet taken advantage but will most likely move online.

Fashion to become the second largest vertical

Fashion ecommerce in Singapore is expected to have the second highest annual growth rate following furniture. This will make fashion the second largest vertical by sales by 2021, up from the third largest vertical in 2017.

  • Fashion ecommerce market in 2017: $769 million or 23.2% of total ecommerce revenue
  • Fashion ecommerce market in 2021: $1.243 billion or 24.5% of total ecommerce revenue
  • Annual growth rate (CAGR): +12.7%
  • Market’s largest segment: Clothing with a market volume of $584 million in 2017

The fashion ecommerce vertical is unsurprisingly quite crowded in the Lion City. From local marketplaces such as Reebonz and Megafash to local brands like Charles & Keith and global brands like Uniqlo, many have already added online to their sales channel to be where their customers are – in the digital environment.

Hobby and stationery products are big in Singapore ecommerce

Selling toys, baby items, sports and outdoor products, and stationery online is also a big market in Singapore. It is projected to be the third largest vertical in sales by 2021 making up 23% of Singapore’s total ecommerce.

  • Toys, hobby & DIY ecommerce market in 2017: $844 million or 25.4% of total ecommerce revenue
  • Toys, hobby & DIY ecommerce market in 2021: $1.178 billion or 23.2% of total ecommerce revenue
  • Annual growth rate (CAGR): +8.7%
  • Market’s largest segment: Hobby & stationery (e.g. musical instruments and office supplies) with a market volume of $529 million in 2017

Food & personal care to grow 55%

This category is expected to grow to $528 million within the next five years. Although it is the  smallest of all verticals in terms of sales, it is still projected to produce a steady annual growth rate of nearly 12% in the period from 2017 to 2021.

Singapore’s online grocery segment is quite advanced compared to other Southeast Asian countries, while there are limited numbers of beauty online sellers.

  • Food & personal care ecommerce market in 2017: $339 million or 10.2% of total ecommerce revenue
  • Food & personal care ecommerce market in 2021: $528 million or 10.4% of total ecommerce revenue
  • Annual growth rate (CAGR): +11.7%
  • Market’s largest segment: Personal care with a market volume of $231 million in 2017

Looking ahead

Although the country’s ecommerce growth is not the fastest projected in the region, an online shopper in Singapore is expected to spend on average $1,234 in 2021, according to Statista. This stands to be three to four times more than annual online shopping spending in Indonesia and Thailand, nearly 10 times more than in Malaysia, 13 times more than in Vietnam and 26 times more than in the Philippines.

The showroom is quiet.

Fanie Fikri, Head of Marketing at Fabelio, one of Indonesia’s up and coming startups, isn’t worried, the usual mall traffic is out to lunch.

“Our experience centers contribute a healthy 15% of our total revenue.”

He’s referring to the number of customers who have “signed in” to any of the company’s two offline experience centers to view Fabelio’s line of Ikea-esque furniture before buying it online.

To promote a product such as furniture, it’s almost mandatory to have an offline presence and it must be working as the company has raised $3.5M in total funding and was a part of SPARK 40 2016 top individuals building the ecommerce ecosystem.

ecommerceIQ invited out Fanie for coffee to discuss how the company markets affordable coffee tables and artisanal items to the masses and the habit of purchasing furniture online.

What was buying furniture like?  

“A complete mess.”

Fanie explains that his father used to find a carpenter on the streets of Jakarta, attempt to describe his coffee table vision and haggle for an agreeable price. He would also need to return a few times in a week to check on its progress because very rarely would it be without blemishes or completed on time.

One could understand the frustrations with buying artisanal furniture in Indonesia and why it was such a big deal when Swedish furniture giant IKEA opened its first store in the archipelago three years back.

It also showed the shift in taste of Indonesians from traditional teak furniture to a more minimalistic and functional design.

Furniture is not dominated by one brand and Ikea only captures 18% market share in Indonesia so why not offer another option online?”  

Startups, do your research.

If a company expects potential visitors to spend at least $250 per order on its website, it would be wise to conduct extensive market research first. Furniture is one of those items that people prefer to have home delivered, but who is the audience?

Unlike IKEA, that focuses on younger people with higher education, medium income, and are not very status conscientious, Fabelio targets new Indonesian families who have the growing luxury of decorating as the average top income earners are 30-34 year olds (Euromonitor: Income and Expenditure Indonesia).

Consumer expenditure in Indonesia on household goods and services is also forecasted to rise in the next 13 years.

The company has held many focus groups comprised of young couples, with and without children, to understand what its consumers are looking for. Fanie, a local Indonesian himself, knows that many young professionals are living in “Koskosan” – temporary rooms that are already fully furnished – so they wouldn’t be Fabelio’s main customers.

The company deduced the following from marketing efforts:

    • Focus groups revealed that Indonesians prefer wooden furniture but the look cannot be too raw, it needs to be extremely well polished. Women typically decide on the household’s smaller purchases but males have the final say on larger purchases.
    • Paid search keywords in Bahasa – “furniture”, “buy furniture online”, “dining room table”, “chairs” – hold the highest marketing return
    • Showrooms “experience centers” are the company’s build trust and inspire, are able to capture names and emails in a visitor log book to track efficacy
    • Event sponsorships are important to reach the right audience, in Fabelio’s case, Indonesia housewives, who still have 78% influence over their spouse’s income. The company partnered with Femina Group, a popular magazine for women, to provide the furniture for its offline pop shop

 

Fabelio partnership with Femina Group’s fashionlink pop shop at Fabelio’s experience center in Senayan City, Jakarta.

What about the Swedish competition?

Although both companies offer minimalistic designs, Fabelio ensures competitive pricing and more room for customization.

Like IKEA, the company also offers “Fabelio Design & Build” that is a B2B interior decorating service. The offices of Go-Jek, Qraved and Singapore Airlines all contain a splash of Fabelio.

Home by Fabeliois the company’s newest venture that caters to customers with basket sizes of 20M IDR and up. If clients are purchasing multiple pieces of furniture, why not send in a professional interior designer for free to transform the entire space?

Although it’s been only 4 months since its launch, over 100 customers have currently signed up for the service.

Furniture may seem as a one-off type of buy but Fabelio sees 20-25% repeat purchases within six months. Fanie also shares other factors that attribute to the company’s success:

    • Extremely vigorous QC process that includes testing weights on the tables, balance of chair legs, polishing uneven colors and surfaces to reduce number of returns (only 10% of returns are due to quality issues)
    • More logistics control with its own dedicated fleet and free delivery and installments in West Java whereas IKEA charges for both. Fun fact: the Fabelio trucks have travelled 120,000km, equivalent to 3X around the globe’s circumference.
    • Having “Ready Stock” items delivered within 4-7 business days and “Made to Order” items delivered within 3 weeks

“We don’t see IKEA as an enemy, they are more of a mentor we can learn from. What we want to know is why our customers who’ve been at IKEA come to Fabelio,” comments Fanie.

Fabelio’s design for its own future

The company hopes to offer delivery to other parts of Indonesia beyond West Java, the country’s largest consumer market, and open more experience centers. The challenge is finding a sweet spot between high foot traffic and rental price.

Fanie shares that although Fabelio plans to expand to new markets, namely Singapore and Malaysia being the most mature and ready for furniture ecommerce, the company wants to cater to Indonesians properly first.

There is already one piece of Fabelio furniture in all 267 neighbourhoods of Jakarta, minus Thousand Islands Regency. Maybe the next coffee table for your new home won’t have to be from Ikea but Fabelio.

The Fabelio team

AUTHOR: CYNTHIA LUO

Here are the top headlines you should read about today.

1. VGI Global Media PCL buys 90% stake in Rabbit Pay from BTS Group

The acquisition was for $56 million (1.95 billion baht). VGI Global Media PCL will also leverage from Rabbit’s various platforms, such as Rabbit Finance and Rabbit Daily. Read the rest of the story here.

 

2. Kobe Bryant has launched a $100 million LA based Venture Capital fund

Kobe Bryant invested in Alibaba Group back in 2014, and Jack Ma has opened roads for Bryant in the tech industry. Now that Bryant has launched his own fund, there will be more opportunities for further partnership. Read the rest of the story here.

 

3. Singapore’s iFashion Group has acquired Nose, a Malaysian fashion brand for $5 million

For iFashion, this is the latest in a string of acquisitions made by the company of late. Only last month, it acquired Dressabelle for $5.5 million. iFashion’s aim is to aggregate business across Southeast Asia via mergers and acquisitions. Read the rest of the story here.

 

4. Samsung, Tencent race to become Asia’s most valuable firm

Their surge – both have gained by a third this year – has made them the world’s best performing large-cap tech stocks and highlights how these nimble Asian firms are thriving while rivals Apple Inc and Alibaba have struggled. Read the rest of the story here.

 

5. IKEA Group tests ecommerce in China

If the trial is successful, Ikea plans to roll out its ecommerce services across China as part of its multi-channel retailing strategy. Read the rest of the story here