Growing online competition forced IKEA turn to e-commerce

Growing online competition forced IKEA turn to e-commerce

Another big retailer changed its strategy and turned online. Ikea has created a pilot programme to reach more customers on the internet.

The biggest retailer from Sweden has radically changed its sales strategy in the face of online competition. Ikea has launched a test to sell its flat-pack furniture through big e-commerce web-platforms. It happened because of a fall in visitors, Financial Times reported on Monday.

A pilot program is scheduled to start sometime next year, the Swedish furniture retailer said Tuesday. The company is “curious” about what will happen as it plans to gather new insights from the pilot, Ikea spokesperson Josefin Thorell said.

“[However], there are no decisions regarding what marketplaces we want to partner with yet, and also no decision regarding what markets,” Thorell added.

The news of Ikea possibly using the likes of Amazon, Alibaba and other third-party sites to sell its furniture and smart home products come nearly four months after Ikea knocked down reports that it had reached a deal to work directly with the e-commerce giant.

Chief executive of Inter Ikea, Torbjörn Lööf, said the decision to work more with online retailers, such as Amazon or Alibaba, is part of a broader overhaul that has also forced the company to turn to new types of stores, particularly in city centres.

“[It] is the biggest development in how consumers meet Ikea since the concept was founded,” he told the Financial Times.

Mr Lööf’s overhaul comes because of unprecedented upheaval in retailing, with some of the world’s best-known chains, pushed into bankruptcy and large malls across the US suffering drops in sales because of shoppers moving online.

Amazon has threatened to spread disruption throughout the retail sector, most recently moving into groceries with its $13.7bn acquisition of Whole Foods and starting its own clothing line.

Walmart is moving to streamline its returns process at bricks-and-mortar stores because the retailer thinks that its physical presence in thousands of markets gives it an edge over Amazon, which asks shoppers to return items through the post.

Untill now, Ikea was slow to move online. There was heavy internal resistance to interfering with its successful business model of using labyrinthine store layouts to generate impulse purchases and requiring shoppers to drive to stores and construct their own furniture.

But the world’s largest furniture retailer is looking at changes to all parts of that model. Mr Lööf said a priority would be to offer its full range of goods online in all countries. Ikea is also experimenting with new store formats including city-centre pick-up points and specialised pop-up stores as well as smaller shops that have fewer car parking spaces and less inventory.

“Traditionally the whole Ikea value chain has been designed to deliver to stores. That is changing and it is challenging a number of ways of doing business. We are fast learners and we are moving,” Mr Lööf said.

Ikea also recently agreed a deal to buy TaskRabbit, a pioneer of the gig economy that could help it offer assistance with furniture assembly to its customers. It also launched an app that allows users of Apple devices to visualise placing Ikea furniture into their own homes using augmented reality.

Ikea’s idea of giving customers more choice in terms of delivery or help with assembly doesn’t fit to its founder Ingvar Kamprad’s notion to let customers building their own furniture. But the newest trends in the retail world was the reason that Ikea decided to change their concept of business.

“We want to learn, and know what it is for a company like Ikea to be there. We want to find out how we could keep our identity on a third-party platform,” Mr Lööf said.

Inter Ikea is changing not only its delivery and purchase strategy but also product design, manufacturing and the supply chain. It just acquired the latter responsibilities from Ikea Group, which is now solely concentrated on being a retailer.

Mr Lööf’s move came as Inter Ikea said that total sales in the business year until the end of August had risen 5 per cent to € 38.3 billion. Ikea Group, which accounts for about 94 per cent of sales with the rest made up by other franchisees, reports its own numbers on Tuesday.

 

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