Flat Pack Furniture's Future is Being Assembled
A typical visit to IKEA has not changed in the fifty years since the Swedish flat-pack furniture first opened its doors in 1958 in Älmhult, Småland. Couples and families of all ages make their way through the massive stores, fuelled on meatballs and cranberry sauce, only to leave with large cardboard boxes filled with cupboards and beds which they can look forward to assembling at home. IKEA now has 400 shops around the world and has a total revenue of $42bn, but what is the future of the Swedish flat-pack giant.
We live in the 21st century, and we are beginning to see the death of shops with online retailing booming and this is something that IKEA is looking into. Torbjörn Lööf, the chief executive of Inter Ikea describes the challenges of the changing nature of customer interactions. The plan is to now expand online sales from its own website to e-commerce giants, however, it is not yet known if they will sell on Amazon or Alibaba. The consulting firm PwC’s survey revealed that 30% of respondents would preferably buy furniture through the internet as opposed to in shops. This is reflected in the nature of IKEA as the number of visits to their website has increased by over a fifth whilst footfall in their stores has been slowly falling. However online sales accounted for only 4% of revenue, which shows that customers still value IKEA’s displays of its products.
Some of IKEA’s competitors such as the American Ashley Furniture successful sells several lines of furniture on online platforms Amazon and Alibaba. This new strategy does not come without its risks, as customers aren’t switching exhaustively online and running both online and traditional business models comes with increased costs. Also by selling on Amazon or Alibaba, it invites direct comparison with other manufacturers on price and quality and they will lose a chunk of their revenues to the third-party sellers, yet IKEA does not have much choice as it is not in a position to close its existing stores due to their profitability and it cannot ignore changing consumer spending habits.
However, having said this IKEA is still expanding with bricks and mortar both in emerging markets and new ones such as India next year as well as in South America and South-East Asia where local carpentry is still prevalent and there is a market for flat pack furniture that awaits IKEA.
Another part of IKEA’s expansion is to do with when you get home with your new flat pack furniture. With the rise of the convenience economy, many people are no longer willing to assemble their furniture. In September, IKEA group announced its acquisition of the gig economy platform TaskRabbit that connects handymen to customers with odd jobs that need to be done, shows Ikea’s awareness of customer demands. This coupled with click and collect sites, home delivery and their AR app show the firms willingness to provide new alternatives to their traditional business model and attempts to diversify and to ensure the flat pack dynasty continues.