Innovative Retailers – IKEA

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The Name: IKEA
The Place: Too many countries to mention – but about 325 stores in around 35 countries.
The Story: It starts with another youngster in a shed – Ingvar Kamprad, stuck in the depths of southern Sweden with a helpful aunt. In 1930-something she helps him buy 100 boxes of matches which he sells on individually at a handsome profit. And a global retailing genius is born.

IKEA big box: A familiar global sight. 

Some history please, but keep it brief: IKEA stands for the founders initials plus the initials of the farm and village where he grew up respectively. Kamprad founded it in 1943 when he was 17 and at first sold pens, seeds and Christmas cards in the aforementioned shed. But in 1948 he added furniture to the range, and in 1949 a mail order form was sent out with the Swedish Farmers Gazette.

Don’t make me laugh! It reached 285,000 people. They bought stuff and by 1951 it was necessary to produce the first IKEA catalogue – which was and continues to be free to everyone. Jump to now and they print 197 million of them.

Alright, I’ve stopped laughing: In 1955 they start designing their own furniture, in 1956 they introduced self assembly products, and in the 1970s and 80s they really got going on the alternative design thing. Companies who made buckets were used to produce their chairs. Sofas were covered in materials like denim from a totally different industry. And supermarket trolley manufacturers helped them with sofa frames.

And where does it stand now? According to Businessweek, IKEA has become a curator of people’s lifestyles. It’s a one-stop-sanctuary for coolness. Anyone anywhere who wants to be middle class is a target and it is a quintessential global cult with their mantra ‘to create a better everyday life for the many people’.

IKEA bookshelves: Everytime, everyplace, everywhere.

Seriously though, it’s about low cost isn’t it? Certainly IKEA turns normal retail rules on its head. Its designers start with a functional need and a price – a very low price. From there they cut every cost corner they can without compromising on the quality to be able to design it. As has often been said: ‘Designing beautiful but expensive products is easy, whereas designing beautiful products that are inexpensive and functional is a huge challenge.’

Do they rise to it? Absolutely. IKEA replaces one third of its product lines each year. And almost uniquely among retailers they move heaven and earth to make things cheaper to buy year-on-year. Former CEO Anders Dahlvig has written that sales prices were reduced from 1999 to 2009 by around 2% each year. And still turnover in 2010 was Euros 23.1 billion, up 7.7% on the previous year, with 734 million store visits around the world.

Anywhere particularly booming? Russia, China as you would expect and er…Portugal. The average-spend is bizarrely the same wherever you are – from Sweden to Russia – and the best selling lines are the best sellers worldwide. It’s a phenomenon.

Well, the customer knows best: And what the customer doesn’t know is how much money IKEA makes out of their co-operation in the ‘IKEA Way’ of shopping. This involves the customer basically choosing, collecting, transporting, and assembling the products themselves. Dahlvig says in his book ‘customers must be even more integrated in the sales process, doing more themselves while having the perception of an improved service level’.

So the experience is exactly the same all over the world? They’d like it to be. Dahlvig writes that in 2006 a set of key performance indicators (sales, productivity etcetera) was set up which revealed that the difference between the best and the worst performing stores was more than 100%. So they try to move all stores up to the KPI performance level of the best 25%, improving results ‘practically without any new development.’ But he admits that IKEA is better at innovation than execution. And we can add to that, especially when it comes to marketing gimmicks.

Howso? IKEA is famous for its marketing ploys to entice customers in. Customers might be invited to become Ministers of Kul (Swedish for fun) and live in a store for a week before it opens, or start a queue to get thousands of dollars of free goods. They are expert at creating a story and spreading the buzz. It all worked marvellously until…

Until…Until they decided to open a store in Edmonton, near Hackney in north London. And the citizens there showed IKEA what happens when you open a store at midnight with the promise of discounted goods until 3am next to one of the poorest boroughs in London.

Shopping in Edmonton 2005.

Ouch: Thousands turned up, it all got nasty, and the store was open for just half an hour before it closed again. But on the bright side, someone did write a play about it. And then there’s China.

Riots? Not quite. Dating. According to the Wall Street Journal the Chinese have just never seen anything like IKEA stores and at the Shanghai branch senior citizens have decided it is a place to find love. Hordes of them turn up once a week, avail themselves of the free coffee, bring their own food to eat and just take the place over. IKEA is planning to exploit the growing middle class in China and increase store numbers from nine to 15 by 2015 but firstly they have to get over the Chinese liking for sleeping in their show beds and bringing videos to watch on their sofas. Apparently it is called ‘retailtainment’.

Is nothing sacred? Well, it’s the retail wild west out there but back in the old world the innovation is in more traditional avenues. IKEA UK has invested in a wind farm in Scotland, which provides 30% of total IKEA UK electricity. And there is also a forestry organisation which sources wood across 48 countries to try to increase the amount of certified wood. In 2002 IKEA Recovery launched in 100 European stores where returned products are mended instead of thrown away. And there are reports that IKEA is thinking of creating its own retail bank in Russia.

Crikey. Is that safe? Only licensed banks can run credit operations in Russia so the theory is that if they have to apply for a banking licence anyway, they might as well run a bank.

Can a shop run a bank? Well, it would be Ikano Finance – a separate entity which is still owned by Kamprad and his family. IKEA already charges 70p on all credit card transactions in the UK as a challenge to the charges placed on them by the credit card companies. They say it gives them a whole new revenue stream to use in the cost cutting drive for all customers. Perhaps a bank is just the next step on the path.

So what’s left to conquer? India of course. Although the government in New Delhi remains unsure about allowing foreign ownership of Indian single brand retailers. But when they do allow it, expect IKEA to storm in. Honestly there are people in Mumbai who don’t even know what a Billy bookcase is.

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