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You snooze, you lose

The furniture giant undertakes some home improvements

ON A Sunday afternoon, just beyond London's M25 ring road, shoppers participate in the ritual that is a trip to IKEA. Fuelled by a lunch of Swedish meatballs, they negotiate their way around the 400,000-square-foot maze of a store, past children playing hide and seek and couples arguing over the merits of a PAX over a HEMNES wardrobe. Hours later, they emerge, wearily pushing trolleys loaded with flat-pack furniture and far more tea lights than they had intended to buy. The joy of assembly still awaits them.

This experience has changed remarkably little since the late 1950s, when IKEA, which is still privately owned, set up its first store in southern Sweden and found that people would travel long distances for low-cost, self-assembled goods. IKEA has become the world's largest seller of furniture, with over 400 shops around the world and [euro]38bn ($42bn) of revenue.

But now it is acknowledging that customers might want to shop in new ways. In what TorbjAaAaAeA rn LAaAaAeA AaAaAeA f, chief executive of Inter IKEA, whic the brand, has described as its biggest change in interacting with customers since the IKEA concept was founded, it has said it will experiment with selling furniture on third-party online platforms (it already sells items on its own site). It is not yet known whether it will sell on Amazon or China's Alibaba, the biggest names in e-commerce.

The firm also recognises that DIY labour does not always make people fonder of their purchases. In September IKEA Group, which runs most of the retail outlets, announced its acquisition of TaskRabbit, an app that, among other things, connects handymen to customers with odd jobs to be done. Taken together with other changes introduced in recent years--such as a handful of click-and-collect sites in some city centres, home delivery and a new augmented-reality app for smartphones to help customers visualise furniture in their homes--it is clear that the company is keen to create alternatives to its vast suburban outlets.

Such steps seem overdue. According to a survey of 29 countries by PwC, a consulting firm, around 30% of respondents would rather buy furniture on the internet than in shops. Although footfall at individual IKEA stores has been falling since 2015, the number of visits to the group's website has increased by over a fifth (see chart). Yet in 2016 online sales accounted for only 4% of the firm's total revenue. IKEA has doubtless noticed that an American competitor, Ashley Furniture, successfully sells its goods on Amazon, and that Alibaba, too, carries several ranges of furniture.

The new strategy carries the usual risks faced by firms going online. Customers are not shifting entirely to e-commerce, notes Marc-AndrAaAa Kamel of Bain & Company, a consulting firm, but wish to mix and match channels. Mr LAaAaAeA AaAaAeA f therefore has little choice but to offer custo both physical and digital options, which could raise costs. IKEA is still planning bricks-and-mortar expansion both in established markets, such as Britain, and in new ones, such as India next year and South America and South-East Asia in the future.

Its plan to experiment with using big third-party online sellers such as Amazon is surprising, says Mr Kamel, because it would need to cede some control over its branding. Being on Amazon or Alibaba would also invite direct comparison with other furniture manufacturers on price and quality. The Swedish giant is betting that it can win new customers online who would never trek to its superstores. But if it simply substitutes offline demand for online sales it could lose out, because it would have to hand over a big chunk of its profit margin to third parties (at least there is plenty to go round; IKEA Group's gross profit margin averaged 40% between 2012 and 2016).

Another risk comes from the demands of a new type of customer. IKEA is used to people who are willing to spend time on assembly in return for low prices, but will now try to appeal to online buyers who demand cheap, quick delivery. Keeping them happy will be hard. Online reviews of IKEA's new-style click-and-collect store in London complain of long lead times and slow service. Constructing a sturdy new sales model, rather like a flat-pack cupboard, could turn out to be trickier than IKEA claim

Answer this:

• What does IKEA do?
• Which of the 4Ps is most important to IKEA's success? Why?
• What steps in the value chain are most important to IKEA's success? Why?
• What competitive challenges does IKEA face? How severe are they?
• What do you think about IKEA's future business prospects? Great? Not so great? What can they do to improve?