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Inside IKEA’s strategy to stay relevant as consumers change

Inside IKEA’s strategy to stay relevant as consumers change
Business
Flat-pack furniture giant IKEA recently announced the biggest restructuring in its history: plans to open 30 city-centre stores, slash thousands of jobs, and create new jobs in areas like home delivery.

IKEA has weathered the carnage in retail better than many big chains. The sprawling suburban stores for which it is famous are still responsible for the vast majority of sales as shoppers are willing to travel long distances to touch and see furniture or curtains before buying. But same-store sales have been flat lately amid the growing shift to online.

IKEA recently announced the biggest restructuring in its history: plans to open 30 city-centre stores, slash thousands of jobs, and create new jobs in areas like home delivery.  (Mahesh Kumar A. / AP)

Different roles for the city-centre locations are under consideration, but a top contender is to make them showrooms where, for example, a bed can be ordered in the morning, delivered to the home and assembled by evening. To make assembly help more available, IKEA in 2017 bought an online marketplace for services, TaskRabbit, and in December it acquired 49% of Traemand, which installs IKEA kitchens in North America.

Chief Executive Jesper Brodin discussed how IKEA is working to stay relevant at a time when consumer behaviour is changing rapidly. Edited excerpts follow.

WSJ: What was the genesis of IKEA’s restructuring plan?

MR. BRODIN: About a year ago we were looking at a super-interesting gap between the market share of IKEA and consumer awareness of the brand. IKEA’s market share on average is about 10%, but love of the brand and top-of-mind awareness is much higher.

We were still affordable and relevant, but the accessibility of IKEA was mainly through our flagship stores. We did some financial evaluations, and for the first time in our history, we could prove that playing it safe would, from a growth and bottom-line perspective, be the most risky thing to do.

We were convinced the need for customers to see and experience our products in person—including in our flagship stores—will remain super relevant. But at the same time, we were seeing the risk of losing out on convenience shopping.

WSJ: How have shopping habits and customer expectations changed?

MR. BRODIN: The change of people’s behaviour from a convenience perspective has been phenomenal. I have travelled to close to 20 markets and seen more than 50 of our stores in the past year, and I always meet the customers. The story is the same. Very often they shop on their way to work in the subway, or after the kids have gone to bed.

People have less time, but lots more people are stepping into middle-income groups and needing sofas, kitchens etc.

We are moving to being accessible beyond our stores. Being accessible 24/7 opens up an enormous opportunity for us. The growth potential is there: As soon as we step into it, the growth takes off.

WSJ: You bought TaskRabbit in late 2017. How else is IKEA working to use technology to adapt to people’s changing habits?

MR. BRODIN: Fulfilling orders from stores is the biggest move. We have a footprint of 370 big stores, and one-third of their space is storage. We are looking at converting these spaces to be at the core of our fulfilment so we will be super-close to customers even while we invest in pure logistics centres, too.

We’re continuing to invest in ways to orchestrate orders in a more optimal way. The latest step is to put artificial intelligence in place.

We’re looking at how we can use AI to reduce costs in our supply chain, but also to understand customer needs and make better recommendations.

We’re speeding up tests on solutions: We have lockers in the parking lots of some stores now, so if you don’t make it until we close the store you can pick it up later.

We’re working on a shopping app. We have many apps today but you can’t shop on any of them. This is something we will put in place for this year.

WSJ: Has competition from online-only companies aiming to emulate IKEA increased?

MR. BRODIN: Definitely. Several companies have stepped into furniture. We have respect for this; some have done it in a great way. But we are ultimately not only a transactional company: We own our product range and we have developed what we offer at IKEA based on deep insights about life at home. We sit on deep knowledge that our rivals can’t offer to their customers.

WSJ: You’re launching small, city-center stores to be closer to more shoppers, but many won’t even carry products that shoppers can take home immediately. They also face expensive rents. Will these locations be profitable?

MR. BRODIN: Our kitchen-planning studio in Stockholm was profitable three months into opening. We feel confident about profitability. Over time we will look to buy properties rather than rent, using expertise from our shopping-center group. If you own your own property you’re more in charge.

I’m quite confident we will be able to drive a lot of volume in these smaller stores. The cost per square meter is much higher than for a flagship store, but the way we present and sell the range will be much more space-effective.

We’ll have far fewer things in the stores, some to buy on the spot, others you can look at and order for home delivery.

WSJ: You say the goal is to test as many new versions to reach the customer as possible. What are some of these versions?

MR. BRODIN: In Stockholm we’re testing a smaller store only focusing on the kitchen, where you buy everything online and get it delivered to your home.

In Madrid, we have two smaller stores—one focusing on the living room and one focusing on bed and bathroom. You can shop accessories and products such as lights, decoration, flowers, cushions etc., directly in the store. Both stores hold a cafe where IKEA classics with a local touch can be found.

In addition, we have some newly opened planning studios. One is on Tottenham Court Road, London, where you book times to plan your bedroom and kitchen storage. These are just a few of the examples.

WSJ: The cost of all these plans adds up. Apart from owning your property, how will you keep prices low?

MR. BRODIN: This is one of the deliciously complicated tasks we have. We are not going to let our customers pay for it. We are bullish about sticking to our tradition of lowering prices, not raising them.

We have never spent as much as we are now on keeping our prices low. Home delivery, for example, in a previous era, was a peripheral service, but now is part of the core of what we are about to become.

We will test and try and make mistakes and mitigate those, and then when we scale things up, we will have more answers.

WSJ: Same-store sales, or like-for-like, as you call them, are declining. How will you get people to visit stores more?

MR. BRODIN: The like-for-like sales are a bit deceptive since there are lots of people who do visit a store but choose to go home and order online. The role of the store is incredibly important for people to have an experience of the furniture in a physical environment. For home furnishings, the majority of people want to touch and feel things.

We need to have the latest inspirations, to update our stores and experiences more often, to become even better in food.
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