Ikea experienced a deep crisis in the first few months of 2020. A difficult health crisis recovery for a company that wanted to improve the customer experience by prioritizing the physical over the digital. In France, the 34 branches had to close their doors to meet the new hygiene regulations. This contributed significantly to the company’s sales drop of 7% within a year between 1 and 1uh September 2019 and August 31, 2020.
The furniture giant is no longer the leader. In France, its competitor But-Conforama (sale of Conforama to Mobilux on July 8th) has taken the lead and is now dominating the market. The yellow logo on a blue background is dethroned. His model is late. Certainly for the first time the brilliant idea of its founder Ingvar Kamprad from 1956 needs to be checked and corrected.
The reasons for the success
Ikea’s success is a perfect symbol of globalization: the reasons for this are the same in France as they are around the world. Furniture “kit” for self-assembly and sold in packaging that is flat enough to overcome a barrier that is anything but trivial in this market: the difficulties of transport. Finally, the ability for customers to bypass renting a van or delivery service.
In 2020 the obstacles will no longer be the same. Some disappear when others interfere with the recipe for success. Ikea is one of the main victims. The stores are no longer accessible when they were another key ingredient in their popularity. Customer trips were studied in depth, with all routes designed to move around the shelves. Ikea didn’t wait for the health crisis to put arrows in its aisles …
At the Dutch headquarters, the brand has never forgotten its origins. They are Swedes and everyone knows them. Especially thanks to the restaurant. In 2017 it was reported that its catering activities generated sales of 1.8 billion euros. However, the calculation still does not affect the economic impact on furniture sales. A leisure service that transforms shops into an excursion program – a place of life.
250 million euros
We had to wait for a crisis. But not just any. Above all, a health crisis to make Ikea a model that lags behind in customer consumption habits. The mandatory closure of stores for several months caused a wave of panic and in France alone Ikea released 250 million euros for investments.
On his balance sheet, his investments in China are far more important. Last year, 1.3 billion euros were invested in the financial year to strengthen integration in the country. But the new kitten that Ikea France unveiled in October is of an extraordinary nature, symbol of a crisis and upheaval far from being mastered.
The investment will be used over the next two years. Under the program, half of the injected amount will be used to develop and introduce new digital tools. Ikea saw online sales grow 44% and now accounted for 15.4% of its sales. But of the millions invested, the other half will be dedicated to business. Because Ikea is still declaring that it will continue to benefit from its physical store model.
Walter Kadnar, CEO of Ikea France, said he was “confident” in this area. However, the announced plans to modernize the model still appear to be dependent on the network of physical stores. The Place de la Madelaine in Paris, one of its new store formats – smaller for access to customers in the city center – will see “some adjustments”. Ikea talks about investments to “accelerate synergies between the physical and digital world”, where the company is primarily trying to save furniture.
The policy of branch expansion, which has been intensified over the past three years, will certainly be called into question in view of the acceleration in electronic commerce caused by the health crisis. Ikea is aware of this and is as happy as it is alarmed: “In three years we have quadrupled online sales” said the CEO of Ikea France. Serious and profitable growth, but for the first time taking the opposite view of corporate strategy.
Find a solution and reinvent the recipe
Some say Ikea surpassed the Bible in the number of physical copies in its catalog. It was first distributed in 1951 and is now sold in 250 million copies in about thirty languages and in about fifty markets. Even more impressive: of the ten million Swedish residents, the 2018 edition was even sent to 3 million households.
Ikea, one of the last to introduce physical sales and the original customer experience, will have a lot more to do with it. When the results were presented on October 15, the French boss gave details of digital investments. However, he is currently focused on Shop and Go payment technology, which is limited to the customer scanning items to reduce checkout time.
Tomorrow the course on the Internet has to be reconsidered. A complex step that is sure to change the brand’s image by replacing its restaurants, signposted routes and games for children. If the digital experience is to find a legacy of yesterday’s recipe, projects in augmented reality and virtual reality might be desirable. Ikea has already tackled it and should soon see technology as a palliative as it waits to find a new directional route.