Business

The Tiny Ikea of the Future, Without Meatballs or Showroom Mazes

The world’s biggest furniture retailer wants younger shoppers who don’t drive.
Corrected

Ikea’s newest London outlet opened in late 2016.

Source: Ikea

Whether in San Diego, Novosibirsk, or Tokyo, the Ikea experience is almost as standardized as its flat packs. The blue-and-yellow big box, the vast showroom maze, the Swedish meatballs in the cafeteria—this formula propelled Ikea of Sweden AB to global No. 1 in furniture retailing, with €38.3 billion ($45.7 billion) in sales and more than 400 stores in 49 countries.

There are no meatballs in Ikea’s newest London outlet, part of a shopping mall in a redeveloped urban neighborhood near the 2012 Summer Olympics complex. One of two dozen small-scale stores that Ikea has opened since 2015, it measures only 900 square meters (about 9,700 square feet), while the typical suburban Ikea sprawls across more than 25,000 square meters. It has a few model rooms fitted out with furniture and accessories, but hardly anything can be purchased and taken home immediately. Instead, shoppers use touchscreen computers to place orders and arrange for delivery or pickup later.

Even the do-it-yourself ritual is optional: Customers can request assembly help from TaskRabbit Inc., a San Francisco-based startup that Ikea recently acquired. TaskRabbit will dispatch someone to their homes to assemble that Billy bookcase.

Ikea is trying to future-proof its global dominance with these smaller outlets and with other initiatives including pop-up stores and expansion of its e-commerce footprint. “We will test and try to develop a new world of Ikea,” says Ikea Chief Executive Officer Jesper Brodin.  “It’s a revolutionary speed that we’re taking on right now.”

The store measures about 900 square meters, vs. 25,000 square meters for a typical suburban Ikea.
Source: Ikea

Ikea can’t afford to move slowly. Foot traffic at its traditional stores has been stagnant for most of the past five years, as young people—long its core customers—move into big cities, drive less frequently, and do more of their shopping online. Young couples who might earlier have spent a weekend afternoon at Ikea are more likely now to do their browsing online.

“The entire premise that Ikea developed was that consumers would be willing to drive their cars 50 kilometers to save some money on something that looks amazing,” says Ray Gaul, an analyst at Kantar Retail in London. “Young people like Ikea, but they can’t or don’t want to drive to Ikea,” he says. “Ikea has no choice but to invest in better services.”

Ikea also is scrambling to catch up in e-commerce. Online sales of furniture and appliances worldwide are expected to grow almost 12 percent annually over the next three years, outpacing better-established categories such as consumer electronics, according to research by data analytics group Statista Inc. Yet Ikea offers online sales in only half of the markets where it operates, according to Bloomberg Intelligence.

The company is battling aggressive competitors such as Wayfair Inc., a Boston-based home-furnishing e-tailer founded in 2011 that now does more than $4 billion in sales across the U.S. and Europe. Amazon.com Inc. last fall launched its own furniture lines, including a midcentury-modern brand called Rivet aimed at cost-conscious millennials. Ikea says it plans to offer online sales globally by the end of 2018 and will soon begin selling goods on third-party sites such as Amazon and Alibaba Group Holding Ltd.’s Tmall, although details haven’t been disclosed. 

The 24 smaller-footprint outlets that Ikea has opened are in Canada, China, Japan, and countries in Europe; so far there are none in the U.S. Each is slightly different, allowing the company to test various alternatives: downtown streets vs. shopping malls, with or without cafes, which are in stores ranging from London’s diminutive size to about 4,000 square meters.

Customers use touchscreen computers to place orders, request assembly help from TaskRabbit, and arrange either to have items delivered or to return later to pick them up.
Source: Ikea

At the London store, the only refreshment offered is from a coffee machine.  Instead of a supervised kids’ play area, another staple of the Ikea experience, there are a couple of tablet computers loaded with Candy Crush. Still, with as many as 20 staff members on duty at peak times, customers can expect “more of a personal shopping experience” than at a traditional Ikea, says London store manager Mirco Righetto. Employees help customers plan larger projects such as kitchen renovations with the aid of virtual-reality software.

To try out new formats, Ikea recently opened a pop-up in central Madrid that offers only bedroom furnishings. Another, in Stockholm, specializes in kitchens and invites shoppers to cook on the premises.

The company is also rolling out new technologies. An augmented-reality app launched last fall, called Ikea Place, lets customers visualize how their purchases will look inside their homes. Part of the digital expansion includes an overhaul of logistics capabilities to speed the process of ordering, pickup, and delivery.  “It's a huge investment to make sure we transform into a multichannel company,” CEO Brodin says.

The payoff from these initiatives isn’t yet clear. Visits to the ikea.com website have grown about 10 percent annually over the past two years, but brick-and-mortar stores still account for well over 90 percent of sales.

Some customers aren’t sold on the smaller stores. “The showroom isn’t extensive enough,” says Bora Assumani, a fitness instructor shopping at the London store. “I like to be able to touch and see everything before I buy.” Another shopper, Susan Davies, says she wanted “a bigger selection of little things to buy now.”

Still, Ikea says its efforts are attracting customers who might otherwise never have shopped there. In Madrid, for example, 70 percent of people visiting the bedroom pop-up store had never been to an Ikea big-box store, says Stefan Sjostrand, the company’s global commercial manager. What’s more, he says, e-commerce sales in Madrid have risen more than 50 percent since the shop opened. In Canada, sales at new, smaller outlets in Quebec City and London, Ont., have been so strong that Ikea now plans to open full-size suburban stores nearby.

“We are surprising the customer,” Sjostrand says. “They are getting an emotional connection to the brand.”

—With assistance by Sam Chambers and Anna Molin

(Corrects conversion of square meters in the second paragraph.)
    BOTTOM LINE - Ikea has opened two dozen small stores to experiment with various ways to reach young consumers who are less likely to drive to its mammoth suburban warehouse outlets.
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