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IKEA downsizes and digitizes to retain its hold on young clientele.

What happened

  • Since 2015, IKEA has opened 24 small format stores—an average of 9,700 square feet, compared to its traditional 82,000 square foot warehouses. Customers aren’t able to bring many items home with them from the stores, but they can place orders and schedule delivery or pickup and set up a time for TaskRabbit—a startup that IKEA bought in January 2018—to assemble furniture. The storefronts also have a higher density of sales associates than at a typical IKEA warehouse, and thanks to their smaller size, can be updated more readily to adapt to changing trends.
  • Though IKEA has seen foot traffic to its site grow 10% annual for two consecutive years, in-store purchases still account for 90% of sales. The company’s changes are meant to respond to respond to a market that is increasingly moving online—ecommerce sales for furniture and appliances are expected to grow approximately 12% annually for the next three years. It also wants to expand its delivery to a 24-hour service in order to meet online shopping demands around the clock, and plans to sell on third-party sites including Amazon and Tmall.

Why it matters

  • These changes are intended to help IKEA maintain a competitive advantage vis-à-vis digitally-native furniture and appliances retailers like Wayfair and Amazon. The company has noted that its customers—many of whom are younger or early homeowners—are both shopping more online and driving less. The smaller storefronts seem to reach a compromise: They still encourage in-person shopping—what IKEA has that Amazon doesn’t—but send the items directly to the customer’s door, which she’s likely come to expect in the age of ecommerce. This offline-online hybrid might be a better manifestation for the IKEA brand, as carting cumbersome furniture to assemble at home is one of the worst aspects of shopping at the warehouses.
  • IKEA has already received flack for its smaller storefronts—many shoppers see its warehouses as a destination and a one-stop-shop with a wide breadth of SKUs for anything in the home, plus a cafeteria. However, downsizing could start to reach new audiences, especially if the company is able to localize the offering of each store and meet the interests and needs of a smaller batch of nearby customers. Or, it could be used as an incubator to test new concepts for the warehouses—whatever keeps consumers coming back instead of reverting to Amazon.

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