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IKEA is Transforming its Retail Experience for the Modern Consumer

by Victor Hoong on 29 Apr 2019

In this article, retail innovation expert Victor Hoong reflects on IKEA's small store format, and how its business model is evolving to meet the changing needs of consumers in the digital age.

Disclaimer: our views below do not represent that of IKEA or its staff. All sources of information are from the public domain and no input or view has been taken from IKEA in the development of this article.

IKEA has just opened another of its small store formats on New York’s Third Avenue. A definitive shift from the gigantic blue and yellow maze stores, this is one of the many steps the Swedish furniture giant has taken to transform its proposition to match the changing habits of consumers around the world.

IKEA first conquered the retail sector with its famous concept of well-priced self-pick and self-assembly design furniture. However, this winning formula has been challenged by recent trends of online shopping, increasing urban dwelling and customers seeking greater convenience. Understanding that its USP’s were no longer fully matching the needs of today’s omnichannel shopper, IKEA is embracing change.

We are seeing an amazing transformation story underway at IKEA – let’s take a look at three of the major shifts it’s made.


Increasing opportunities to connect with the consumer

As part of its mission to “create a better everyday life for the many people”, IKEA aims to increase its reach and interact with 3 billion consumers by 2025. Digital channels offer an obvious opportunity to increase reach and IKEA are investing here heavily. However, it’s the investments the retailer is making into the physical touchpoints where things are getting really interesting.

Until recently, the big box, blue-yellow maze stores have been the only IKEA we have known. But with over half of the world’s population now living in cities and the trend in urban dwelling set to continue, IKEA has had to evolve. Cue the plans to open 30 smaller stores in major cities across the globe, with flexible sizing depending on location – like the New York store. Two smaller stores have also opened in London and Warsaw, with announcements for stores to open doors in Sydney in May, and in Tokyo in 2020. The smaller formats have focused on specific room categories — such as kitchen and bedroom planning — while still allowing  consumers to explore the wider IKEA brand ecosystem.

In addition to the small format stores, IKEA are also investing into pick-up points as an alternative to home delivery or their big box stores, as well as pop-up stores focused on specific themes or events. Right now in Switzerland, an IKEA vending machine is even on tour at main stations across the country!

The launch of new store formats by IKEA seems to be intended as complementary to the big box stores, not as a replacement. The overriding theme has been increasing brand awareness with consumers and access to engage with and explore its brand ecosystem.


Developing “ecosystem thinking”

The second shift we see is that IKEA is opening up its business borders and engaging with partners to create new products and services. While the outcomes of the partnerships with adidas and Lego are still a secret, we have recently seen the results of the Sonos partnership. Speakers that can stand vertically as a bookend on a shelf, or become a shelf when mounted on a wall – or the Symfonisk table lamp, which is a speaker inside a lamp. On a partnership with the non profits Milbat and Access Israel, IKEA has adopted 3D printing to make furniture more accessible for people with disabilities.

IKEA has also complemented its product offering with new services, such as the 2018 announced partnership with Xiaomi, which could help the company catch up with IoT and smart home developments. These partnerships are a clear example of how an ecosystem can help an organisation create new offerings by sharing capabilities and resources. Instead of doing it all by yourself by acquiring or building elements in time- and cost-intensive processes, a partnership is a highly advantageous approach to create new offerings.


Extending value proposition scope

While the ecosystem approach extends innovation within the core offering, there are changes happening to extend it as well. What does the future of IKEA look like, then?

Manhattan’s recently opened planning studio is a great example. Visitors are scheduling appointments for one-on-one sessions with one of the 25 on-site consultants to design their future home. They are browsing through the model homes which imitate living arrangements familiar to most New Yorkers. We see IKEA is taking away the user friction connected with IKEA products and it’s original self-assembly concept in order to deliver greater customer convenience. To increase accessibility, products are being shipped to them and thanks to the recently acquired Taskrabbit, customers can outsource the time-consuming assembly of IKEA products at a small fee.

What is happening is a change of the core IKEA offering from products to outcomes. We believe IKEA is now viewing its customer value proposition not only as creating and selling furniture but extending to decorating living spaces. The acquisition of Taskrabbit and the opening of more and more planning studios are only the first steps in investing in new resources and capabilities to support the delivery of this new value proposition.


IKEA is investing in transformation for the consumer

IKEA has improved digital capabilities as well as logistics operation to achieve its ambitious goal of making home delivery cheaper and more efficient. Its gross profits have grown steadily from €10 to €15 billions in 2009 to 2016 even amidst consumer digitisation trends. Testimony to IKEA’s dedication to transformational plans to meet new consumer needs, profits have dropped in 2017 and 2018. As part of those transformational plans, in 2017-18 €2.8 billions have been invested, mainly on digital and sustainability efforts. As well as establishing 14 new distribution centres for its online business, IKEA has also bought wind farms in Finland and Portugal and forests in Latvia and the US.

IKEA is a great company. Its historical growth and business performance are stellar. And such success can build a kind of momentum that can make it difficult to change. We are happy to see that IKEA has made some bold choices to invest heavily and turn its tanker in a new direction. It’s a massive change and a difficult course to navigate, but we respect the leadership courage it takes to face the challenge head-on. We’re looking forward to watching IKEA’s effort produce results and hope to see them blossom as a retailer that made the choice to do things differently.


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About the author

Victor Hoong is the co-founder of Riverflex. An ex Deloitte partner, has 16+ years of experience developing digital strategies and roadmaps for major brands and retailers.

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