Why Ikea needs to evolve its supply chain

With the recent news that Ikea is to shut its first big UK outlet in Coventry, we can take this as a sign that the world’s largest furniture retailer needs to rethink its traditional store format, as well as its role in Ikea’s business. Is the large scale, product-dense store it is famous for dead? Have they been replaced by more convenient online shopping experiences? How Ikea responds to continually evolving consumer behaviours, and how that impacts their ability to put new products in front of said consumers, all whilst fulfilling demand is going to be crucial.

Ikea needs to transform more than just stores

The numbers are clear – the revenue per store that Ikea generates is growing year on year. So to create more revenue, it would appear that Ikea just needs more stores. But this is only part of the story. Store visits dropped massively this year, back to 2017 levels (837 million visits). Ikea can’t continue to expect their customers to spend unnecessary and inefficient amount of time walking through mazes buying napkins and tea lights – Ikea has become known as the “Church of Impending Divorce”. This is not about the death of brick & mortar. People still want to enjoy physical, tangible experiences – they need to feel the material before they invest in home furnishings. Ikea needs to build & refine store concepts to cater for a much more diverse audience – people without cars, living in dense, urban locations, who are as likely to be working at home, as living at home. But their physical and digital stores need to co-exist and present a cohesive, omnichannel experience to consumers that matches the way newer consumers think about furnishing their homes.

Ikea store formats need to evolve

Ikea has already opened a few smaller experimental stores, located in the heart of city centres like London and New York, which primarily showcase Ikea products in different contexts, to complement the online touchpoints. Very different to the Coventry store, you cannot actually buy anything from these stores. This is the path Ikea should continue to lean into and accelerate.

They need to cater for an increasingly digitally driven purchasing experience. With more than 2.5 billionn online visitors, and online sales growing 46% YOY, Ikea can safely assume that a majority of store visitors have started their journey online. The store visit needs to feel like a natural extension of the digital experience, with similar abilities for personalised information and easy ways to access the entire assortment. Endless-aisle technologies, delivery, and post-purchase services will help them unlock a new market helping to increase revenue generation of this smaller but more expensive store estate. This should contribute to the profitability issues the store in Coventry suffered from.

Assortment and fulfilment must keep up

Ikea has done a good job of bringing innovative new products to market – dog beds, Sonos-powered shelves and lamps, and colour-changing light bulbs have all recently come to a number of different markets globally. Ikea has also experimented with a deeper investment in home-office furniture and even flat-pack houses!

However, as younger generations are less likely to own property, become more nomadic, and live in smaller homes in built-up urban areas, they are looking for furniture that is designed specifically for this lifestyle. Baby boomers are now older and also need their limitations designed for as well. This will put pressure on forecasting and merchandising the right products into the right locations, and making sure that they have a more detailed understanding of the population around these new, experimental stores. There is a much higher chance of getting the format and assortment wrong initially, and having to very quickly evolve the store format until they get it right – fortunately, Ikea has learned recent lessons from this with its new stores in India and China.

Post-purchase, demand for delivery is only going to grow as consumers are also less likely to own a car. This will in turn put greater demands on larger stores to act not just as a consumer retail location, but to also support in-store picking for online orders. This will require automation and robotics to start appearing in store to make this more cost effective, which then raises questions of how consumers and robots could co-exist in the same warehouse space (if at all).

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