How Ikea is transforming its business model

The flat pack giant hopes a "phygital" approach will help it compete with online sellers.

by Paul Simpson
Last Updated: 17 Jul 2019

In one of Ikea founder Ingvar Kamprad’s last meetings with company managers, he stressed the importance of long-term thinking, saying: "Think about where we should be in 200 years’ time." When some managers asked if that was thinking too far ahead, he replied: "Of course, but then you make the short-term plan: the next 100 years."

Torbjörn Lööf, chief executive of Inter Ikea Group, is doing his best to put the founder’s words into action, presiding over the most radical shift in the furniture retailer’s business model since Kamprad began selling replicas of his uncle’s kitchen table in 1943.

The first outward sign of that transformation was an emphasis on what Lööf calls "phygital" – the merger of the physical and digital worlds of shopping – with the development of Ikea Place, an augmented-reality app that allows consumers to visualise how furniture will look in their homes.

The pace of change quickened this year with Ikea’s announcement that it will rent and recycle furniture – and possibly kitchens – across 30 markets. This would help the company reduce its environmental impact by 80 per cent in absolute terms by 2030. A growing number of consumers also want to react quickly to trends they see on social media platforms, such as Instagram.

"It’s interesting if you as a consumer say, ‘I can change and adapt and modernise my kitchen’, if that’s a subscription model," says Lööf. The Ikea group’s venture capital arm has made a small, yet significant, investment in Livspace, an Indian platform business that aims to take the hassle out of interior design.

The next item on Ikea’s transformational agenda is third-party selling. Details of a test scheme on Amazon or Alibaba are being finalised, yet Lööf says other solutions may emerge. "Are there opportunities between the company website and the big global platforms? There are tons of them," he told the Financial Times.

"Like Zalando, they’re a kind of platform for fashion and clothes. It’s a very interesting area to explore." One option being studied is an industry-wide online sales platform for furniture although Ikea has not yet opened talks with rivals.

The bottom line is that Ikea needed to do something. The group’s operating profits fell 26 per cent in 2017/18 to just under £2bn although sales grew by five per cent and online revenues by 50 per cent. Lööf hopes that the transformation will defend its business against online furniture sellers (such as Home 24 in Germany and Wayfair in the US) and Amazon.

The best way to beat them, his strategy suggests, is to join them.

Image credits: Photo by Alexander Isreb from Pexels



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