How Online Retailing Will Transform IKEARelease date: February 5th, 2013 (131 pages) PDF/Powerpoint format. Price: GBP1,200.00 |
Abstract
The rise of e-commerce and increasingly intense online competition in the furniture market will make it vital for IKEA to radically transform the business model away from the single focus on the big out of town shed. Even with today’s restricted transactional online offer, available in just 12
out of 40 countries, IKEA have attracted more website visits than physical store visits (1.1bn website visits compared to 776m store visits in 2011), leaving a lot of scope for IKEA to convert views into online sales.
IKEA’s board has planned to grow like-for-like sales by 5% from the existing store estate and to boost sales by a further 5% through new store openings. However, were IKEA’s online sales to double from the current level of around 2% of total sales and keep their strong sales momentum, this would all but cover the 5% growth targeted from new store openings, sharply reducing the need for costly new store development!
The company intends to amass 500 stores worldwide by 2020, compared to its current 338. The report shows that overemphasis on store expansion is the wrong route for IKEA to go down. Instead the analysts suggest stretching the online store to countries where it isn’t yet available, adding more of the product range to the online store and exploiting the potential of mobile applications.
There are issues that will need closer attention in order to ensure a smooth transition to a true multichannel business. Online operations must be integrated more strategically into the existing physical store model to drive up footfall and offer complementary growth through services such as Click and Collect.
Right now IKEA does not offer a competitive home delivery service compared to the likes of Amazon and eBay, still charging customers according the weight of their order. In Germany, IKEA’s most important market, pureplay competitors such as Home24 already offer a completely free delivery service. In order to
slash delivery times, IKEA’s supply chain is in urgent need of revision. To cut costs and keep inventory levels low, closer cooperation between production stages and real time data mining will be necessary.
That said, although the online store is of massive significance for IKEA’s future growth plans, physical store expansion plans remains critical further afield. Opportunities to expand the racecourse store model into emerging markets must not be missed, as there are large levels of untapped demand in the Indian and Chinese markets. Back in Europe, the current decline of the high street is putting downward pressures on real estate prices in city centres, opening up another opportunity for new store development and format diversification such as IKEA’s city centre stores.
The internet will affect IKEA’s business model in other ways too. The soaring ownership of tablets means that IKEA’s app offer needs an overhaul and the catalogue needs to become entirely digital. A transactional service, encouraging customers to purchase goods using an IKEA app should also include a mobile payment option, so customer would be able to use IKEA’s in-store Wi- Fi to cut checkout-waiting times.
IKEA’s conservative attitude towards the web has resulted in lots of missed sales, and online expansion is the future for the retailer, hence strategic decisions taken in 2013 will be vital.
Table of contents
Executive summary: How online retailing will transform IKEA | p15 |
Introduction: IKEA’s business model | p21 |
Introduction: from humble beginnings to creating the “go to” place for furniture | p22 |
Introduction: Top dog, all about the big-box store, furniture showcasing, flat-packs | p23 |
Introduction: Benefits of flat-packing, low prices, high quality and a diverse product range | p24 |
Introduction: Designer-manufacturer relationships, product standardisation | p25 |
Introduction: Supply Chain optimisation, Swedish food halls, shop in shops | p26 |
Introduction: Real estate portfolio and charging rents, sustainability agenda | p27 |
Introduction: Careful material sourcing, the rise of online as decline of the catalogue? | p28 |
Recent key developments | p29 |
IKEA: Keeping IKEA private, East German labour camps controversy | p30 |
IKEA: The push for online and leasing kitchens | p31 |
IKEA: Saudi Arabia catalogue controversy, a turn towards transparency, store openings | p32 |
IKEA: New 30,000 sq m store in Poland, a new man at the top | p33 |
IKEA: Strong performance in China, investment in UK pays off | p34 |
IKEA: AR features and removing self check-outs in the US | p35 |
IKEA: Student accommodation venture, French bribery controversy, Turkish online store | p36 |
IKEA: Billy reinvents itself in the US, donations to refugees | p37 |
IKEA: Indian plans subject to regulations, renewables push in the UK | p38 |
Financial benchmarks | p39 |
IKEA: Total sales, growth, net income and margins, 2008-2012 | p40 |
IKEA: Outlets, sales per outlet, selling space, average space, sales density, 2008-2012 | p41 |
IKEA: Catalogues printed, app downloads, website visits, store visits, 2008-2012 | p42 |
Financial benchmarks – by country | p43 |
IKEA: Countries, sales, outlets, space, sales densities, 2012, (1) Australia – Germany | p44 |
IKEA: Countries, sales, outlets, space, sales densities, 2012, (2) Iceland – Russia | p45 |
IKEA: Countries, sales, outlets, space, sales densities, 2012, (3) Slovakia – USA | p46 |
IKEA: benchmarks and rankings 2012 | p47 |
IKEA: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (1) | p48 |
IKEA: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (2) | p49 |
IKEA: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (3) | p50 |
IKEA: 2012 rankings of stores per country | p51 |
IKEA: 2012 rankings, sales densities in € per sq m, the attractiveness of Russia | p52 |
IKEA: 2012 rankings, sales per store in €m | p53 |
IKEA: 2012 sales per region in €bn and percentage shares of total IKEA sales | p54 |
IKEA: IKEA’s strategy in CEE, retail and real estate | p55 |
IKEA: Key Markets Analysis | p56 |
Germany: Difficulties in finding suitable OOT space in IKEA’s biggest market | p57 |
Germany: Scandinavian shopping centre in Lübeck and further store openings | p58 |
USA: 38,700 sq m store to be opened in Miami, home visits programme | p59 |
USA: Giant leaps towards energy self-sufficiency, self checkouts removed | p60 |
France: Strong performance in IKEA’s 3rd biggest market, online growth, competition | p61 |
France: Police files scandal, airport lounge, store openings | p62 |
UK: Boost in investment pays off, 6.3% l-f-l growth, spread of the market hall | p63 |
UK: City centre expansion plans, online improvement, total UK coverage | p64 |
UK: Happy to Bed initiative, price cuts, gross margin improvement | p65 |
UK: Enduring dominance, progressive outlook, Öl Mörk Lager | p66 |
Sweden: Saturated market, store growth, furniture buy-back, online opportunity | p67 |
In store strategy, continuous 50 year optimisation | p68 |
IKEA: In-store experience, children’s play areas, Swedish foodhalls as moment of truth | p69 |
IKEA: Racecourse store design perfection, breath taking items, in-store events | p70 |
IKEA: Footfall drivers, in-store returns, Wi-Fi connection, click & collect | p71 |
IKEA: Self service checkout, a perfect fit to the IKEA culture | p72 |
Location, format and online expansion strategy | p73 |
IKEA: Format diversification, the city centre store, innovative delivery solutions | p74 |
IKEA: City centre stores to revive the high street, smaller but taller, IKEA pragmatism | p75 |
IKEA: Online strategy, belated start, huge future potential | p76 |
IKEA: UK success, reducing delivery charges, supply chain re-organisation | p77 |
IKEA: New standards in last mile fulfilment, home deliveries | p78 |
IKEA: delivery times shortening, direct 2C model, costs of bulky delivery, click & collect | p79 |
Loyalty, retention and customer engagement | p80 |
IKEA: The 3D kitchen planner, convenience, revenue enhancing, installation service | p81 |
IKEA: The planner as market research tool, engagement and conversion enhancer | p82 |
IKEA: IKEA Family loyalty programme, 54m members, 3-5 visits per year | p83 |
IKEA: member benefits, collecting email addresses, special offers | p84 |
IKEA: use of the card, recommendation, data collection, creating a social network | p85 |
Marketing | p86 |
IKEA: Selling rooms rather than furniture, advertising, charities | p87 |
IKEA: Renewables strategy, energy efficiency, sustainability in the supply chain | p88 |
IKEA: Environmentally friendly products, educating customers, future outlook | p89 |
Supply chain strategy | p90 |
IKEA: The benefits of a vertical integration strategy, efficiencies of scale | p91 |
IKEA: Key sourcing initiatives, low cost countries, supplier concentration | p92 |
IKEA: Towards vertical integration, customer centric supply chain | p93 |
IKEA: Just in time business model, emphasis on supplier relationships | p94 |
IKEA: JIT II, the benefits of load sharing, direct to consumer model as online ramps up | p95 |
Competitive threats – online and copycats | p96 |
Threats: The internet, established and potential competition | p97 |
Threats: The internet, home delivery costs | p98 |
Pure play competitors: Home24 in DE and the NL and Fashion-For Home in UK | p99 |
Pure play competitors: low inventories, free deliveries and assembly | p100 |
Pure play competitors: crowd sourcing, going multichannel | p101 |
The Copy cat: The Lutz Group copying IKEA’s business model | p102 |
Emerging Markets: opportunities further afield | p103 |
India: Growing demand and relaxed regulations | p104 |
India: Issues to tackle, food service as a crucial component of the business model | p105 |
China: Rapid growth, store expansions, increase in homeownership | p106 |
China: a fragmented market, expansion into second-tier cities, local adaptation | p107 |
China: Local adaptation, fake stores, problem of population ageing | p108 |
Turkey: Consumer demand and large scale investment increases in Turkey | p109 |
Strategic recommendations | p110 |
Recommendations: City centre stores, the future role of the OOT store | p111 |
Recommendations: How to drive physical footfall, range updates for OOT first | p112 |
Recommendations: from four styles to a three tiered range architecture | p113 |
Recommendations: Using AR and Wi-Fi in store | p114 |
Recommendations: Strengthen the link between online and physical store, click & collect | p115 |
Recommendations: Creating destination status, updating food ranges | p116 |
Recommendations: Marketing strategy, from the kitchen to the smart living room | p117 |
Recommendations: Online, the delivery solution, product personalisation | p118 |
Recommendations: brand power online, buy back scheme, repeat custom | p119 |
Recommendations: changing demographics, the gardening opportunity | p120 |
Outlook: The future for IKEA | p121 |
Outlook: Outlook: Outlook: Outlook: Outlook: Outlook: Outlook: Sources: Ambitious plans to double turnover and rapidly increase store count | p122 |
huge investment into sustainability, how online will affect IKEA in future | p123 |
How online will affect IKEA in future, more tablets less catalogues | p124 |
Improving transactional capabilities, improvement of 3D planners & the app | p125 |
Delivery service of bulky products, direct to consumer model, mobile payment | p126 |
Social media marketing, the move to the living room | p127 |
From living rooms to austerity bedrooms | p128 |
p129 | |
Table 1: Total sales, growth, net income and margins, 2008-2012 | p40 |
Table 2: Outlets, sales per outlet, selling space, average space, sales density, 2008-2012 | p41 |
Table 3: Catalogues printed, app downloads, website visits, store visits, 2008-2012 | p42 |
Table 4: Countries, sales, outlets, space, sales densities, 2012, (1) Australia - Germany | p44 |
Table 5: Countries, sales, outlets, space, sales densities, 2012, (2) Iceland - Russia | p45 |
Table 6: Countries, sales, outlets, space, sales densities, 2012, (3) Slovakia - USA | p46 |
Table 7: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (1) | p48 |
Table 8: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (2) | p49 |
Table 9: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (3) | p50 |
Table 10: 2012 rankings of stores per country | p51 |
Table 11: 2012 rankings, sales densities in € per sq m | p52 |
Table 12: 2012 rankings, sales per store in €m | p53 |
Table 13: 2012 sales per region in €bn and percentage shares of total IKEA sales | p54 |
Figure 1: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (1) | p48 |
Figure 2: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (2) | p49 |
Figure 3: 2012 rankings, sales per country in €m, shares of total IKEA global sales (%) (3) | p50 |
Figure 4: 2012 sales per region in €bn and percentage shares of total IKEA sales | p54 |
Figure 5: Selection of IKEA KPIs | p55 |