Ikea – time to cut store openings

When Ikea found horse meat in its famous meat balls it had to withdraw them from its stores but this is not the only thing the company is being asked to withdraw as there are questions being asked about its core strategy.

Balls to its big store strategy?
Doubts about its continued focus on growing sales through the opening of more stores rather than putting more effort into its online operation and growing its multi-channel capabilities are being aired. For sure any changes Ikea makes will have widespread ramifications for many businesses that kit-out our homes.

Among the dissenters is Research Farm, which highlights how the company seems wedded to expanding its number of massive out-of-town boxes whereas it could potentially generate more growth from its online business – and at less capital expenditure.

Consider that in 2012 it attracted more website visits than it did people into its stores – 1.1 billion versus 776 million. This sounds great but as the business only offers a transactional site in 12 of the 40 countries in which it has stores, there are clearly many potential online sales being missed.

The company’s broad objective is to grow like-for-like sales from existing stores by 5% annually and to also generate additional sales of 5% each year from new stores. But rather than building costly sheds, Research Farm calculates that if its online sales doubled from the present miserly 2% of total group sales then this would cover the 5% being targeted from new store openings.

Many smaller, more nimble retailers are giving their larger counterparts a tough time as they are much more easily adapting to operating in a digital multi-channel world than their long established rivals. The latter are akin to container ships in their inability to change course.

Ikea certainly seems to be pursuing a line of growth that is out of step with the increasingly widespread perceived wisdom of what model a retailer will operate from. Tesco and B&Q as well as other operators of large sheds have come to the realisation that the future includes a greater embracing of digital channels and technology rather than blindly adding extra square footage.

Space race: thing of the past
Taking the decision to put the brake of the space race that has been a feature of retail since day one is a tough one and it seems the management of Ikea has yet to fully recognise how much the retail market and consumer behaviour is changing around them.

What consumers increasingly want from retailers are services that link their online and physical stores like click & collect – where goods ordered online are collected from the customers’ store of choice. This accounts for a high percentage of online sales, with John Lewis for instance stating that at peak times 35% of its internet ordered are fulfilled by click & collect.

This is not something that Ikea offers. In fact it does not even offer a competitive home delivery service of any description – especially when you compare it to the many high end big ticket retailers that recognise the value of operating a cost effective two-man delivery service, often with a personal touch.

Ikea is still operating a customer-unfriendly system of charging according to the weight of the order which, judging by the volume of many people’s trolleys on my visits to Ikea, must work out as pretty costly to the shopper.

While Ikea sticks to its store expansion strategy and dithers with whole-heartedly committing to developing its non-store elements and building a seamless multi-channel operation, others in the market should not miss the opportunity to take advantage.