Ikea celebrates its 80th anniversary this year: the perfect time to take a moment to reflect with Tolga Öncü, Head of Retail at Ikea’s retail holding company Ingka Group. After the Covid troubles, the interior design chain sees better than ever where its priorities and opportunities lie.
Flocking back to Ikea
So far, the broken fiscal year 2023, started in September, is exceeding expectations. Thankfully, as net profit plummeted from 1.5 billion euros to barely 0.3 billion last financial year. Now that the pandemic is over, store visits are rising sharply again, while online is also still growing.
“In most of our major markets, we are seeing catch-up. Product availability is also better again. We now see the opportunities to scale up further and complement our proposition,” Öncü said in an interview with RetailDetail. Still, the manager does not give any concrete figures at the moment.
“People are finding their way back,” and the macroeconomic situation is no stranger to that, according to Öncü. “Purchasing power and consumer confidence are dropping, there is a lot of worries connected to inflation interest rates. That works both ways for us: we are not immune to it, but all in all, these are the times when the Ikea model excels. We have always focused on low costs and low prices – something the many people strongly appreciate nowadays. It becomes a great strength compared to others.” In this way, the chain is also attracting new customers: people who have never come to Ikea before or haven’t stepped inside for years.
Kamprad’s stinginess now pays off
“We don’t sit with an excess of costs that someone has to pay for. Although, of course, there are increases in our cost lines. As always, we then look for opportunities to reduce somewhere else.” The 80-year-old chain owes its existence to cost reduction: it is the whole reason of its DIY furniture. Founder Ingvar Kamprad remained notoriously stingy throughout his life, even as a multibillionaire.
However, it does not automatically mean that Ikea shops will reorganise or cut back, according to the top executive. “Rather than reducing shops or staff, it is about how to invest smarter in expansion and in the existing shops.” Shops must also play an increasingly important fulfilment role, a consequence of the e-commerce growth.
In particular, it means automating: in Croatia’s Zagreb, for example, Ikea invested in robotics, quadrupling capacity over the same space. At the warehouse in Zaventem, Belgium, the hundredth drone just took to the air to check stocks. Öncü: “In those areas, we see the biggest opportunities.”
Investing 3 billion euros
Meanwhile, the combination of digital channels, its well-known stores and new formats is starting to bear fruit. As a result, the furniture giant intends to continue investing in this omnichannel combination. From 2021 to 2023, the company set aside three billion euros for the purpose.
Among other things, a new app to let consumers scan their purchases in the stores and services such as video calls with employees for interior advice (“remote selling”) should help the digital channels play an increasing role in overall turnover. “At the same time, we are bringing our online insights to physical shops. When you combine these two in a geographical area, that’s where one plus one becomes becomes three, I would say.”
Technology helps the experience both in shops and at home. One of the questions Öncü is considering is how Ikea can display more in a smaller space. For home, there is already the revamped AR tool Ikea Kreativ, which allows consumers to make a 3D scan of their space and then fill it virtually with Ikea furniture.
City shops are a whole new market
Smaller city stores, in turn, are a good addition in mature markets, Öncü observes. “In Paris, for example, we already have six traditional shops, but opened two more in the city centre. The effect: visitor numbers in the existing shops as well as online have increased and the total performance in Paris is better than before. We see the same in London or in Stockholm, where we opened a city shop in Gallerian shopping centre last summer.”
In Stockholm, the city shop is attracting a new, local audience. Two thirds of visitors there are not Ikea customers, but “so-called new people”. But they do come in, go online, download the app and eat in the food corner. “It brings in a whole new market,” the head of retail beams.
In New York, however, two such urban shops closed last year: the Ikea Planning Studio and Ikea Queens. Teaching money, he says: “That was one of the first Planning Studios, meanwhile we have opened another 80 or so and I would say that we are starting to nail down the success criteria. You have to remember that for 78 years we only had our traditional stores. So as always, some tests will succeed, some won’t.”
Swedish meatballs in San Francisco
In London, the Livat mall is another such test, albeit one that is catching on. More of these malls are on the way: the next one opens this spring in San Francisco, in a mall that has stood empty for seven years. A lot of the focus will be on food, with collaborations with local chefs and businesses in addition to typical Scandinavian cuisine.
Even for existing shops, more collaborations can be expected in the future, not only on the consumer side but also on the back end. For example, Ikea aims to make all ‘last mile’ deliveries 100% electric, a field that is still a gap in the market according to Öncü. He therefore sees strong opportunities for collaborations there.
Finally, what Ikea would like for its 80th birthday? Most of all: to continue to invest in transforming the chain, to take the achievements of the past and the formula into the omnichannel future.