The Tiny Ikea of the Future, Without Meatballs or Showroom Mazes

Whether i n San Diego, Novosibirsk, or Tokyo, the Ikea experience is nearly as standardized as its flat packs. The blue-and-yellow big box, the vast showroom maze, the Swedish meatballs i n the cafeteria-thi s formul a propelled Ikea to global No. l i n furnitur e retailing , wit h 38.3 billio n ($45.7 billion) i n sales and more than 400 stores i n 49 countries. There are no meatballs in Ikea's newest London outlet, part of a shopping mall in an urban neighborhood near the 2012 Olympics complex. One of t wo dozen small-scale stores that Ikea has opened since 2015, it measures only 900 square meters (9,688 square feet), whil e the typical suburban Ikea is almost 30 times that size. It has a few model rooms fitted out wit h furnitur e and accessories, b ut hardly anything can be purchased and taken home immediately. Instead, shoppers use touchscreen computers to place orders and arrange for delivery or pickup later. Even Ikea's trademark do-it-yourself ritual is optional: Customers can request in-home help assembling that Billy bookcase from TaskRabbit, a San Francisco-based startup Ikea recently acquired. Ikea is trying to future-proof itself wit h these initiatives, along with others including pop-up stores and an expansion of its e-commerce footprint. "We will test and tr y to develop a new worl d of Ikea," says Ikea Chief Executive Officer Jesper Brodin. "It's a revolutionary speed that we're taking on right now." Ikea can't afford to move slowly. Foot traffic at traditional Ikea stores has been stagnant for most o f the past five years, as young people-long its core customers-cluster i n bi g cities, drive less, and do more of their shopping online. "The entire premise that Ikea developed was that consumers woul d be willin g to drive thei r cars 50 kilometers to save some money on something that looks amazing," says Kantar Retail analyst Ray Gaul. "Young people like Ikea, but they can't or don't want to drive to Ikea. Ikea has no choice but to invest i n better services." Ikea also is scramblin g t o catch u p i n e-commerce. Online sales of furnitur e an dappliances worldwide are expected to grow almost 12 percent annually over the next three years, outpacing more-established web shopping categories such as consumer electronics, according to data analytics group Statista. Yet Ikea currently offers online sales in only half the markets where it operates, according to Bloomberg Intelligence. Ikea is battling aggressive competitors such as Wayfair Inc., a Boston-based home-furnishings e-tailer founded i n 2011 that now does more than $4 billio n i n sales across the U.S. and Europe. Amazon.com last fall launched its own furnitur e lines , including a mid-century-modern bran d called Rivet aimed at cost-conscious millennials. Ikea says it plans to offer online sales globally by the end of 2018 and wil l soon begin selling some goods on third-part y sites such as Amazon and Tmall, Alibaba's big Chinese e-commerce site, although details haven't been disclosed. The 24 smaller-format outlets Ikea has opened are i n Canada, China, Europe, and Japan; so far there are none i n the U.S. Each is slightly different, allowing the company to test various alternatives: downtown streets vs. shopping malls, wit h or withou t cafes, and wit h floor space ranging from about 900 to about 4,000 sq. m . At the small London store, the onl y refreshmen t on offer comes fro m a coffee machine . Instead o f a supervised kids' play area, another staple of the Ikea experience, it has a couple of tablet computers loaded wit h Candy Crush. Still, wit h as many as 20 staff members on duty at peak times , customer s can expect "mor e o f a personal shopping experience" than at a traditional Ikea, says London store manager Mirco Righetto. Employees at the store, for example, help customers plan larger projects such as kitchen renovations wit h the aid of 3D virtual-reality software. Ikea also is using pop-up stores to tr y new formats. One in central Madrid offers only bedroom furnishings ; another, i n Stockholm, specializes i n kitchens and lets shoppers cook on the premises. The company is also rolling out technologies such as an augmented-reality app launched last fall, called Ikea Place, that lets customers visualize h ow their

The Tiny Ikea of the Future, Without Meatballs or Showroom Mazes

purchases wil l look inside thei r homes. Part of the digital expansion includes an overhaul of logistics capabilities to speed the process of ordering , pickup, and delivery. "It' s a huge investment to make sure we transform int o a multichannel company," CEO Brodin says. The payoff from these initiatives isn't yet clear. Visits to the ikea.com website have grown about 10 percent annually over the past two years, but brick-and-mortar stores still account for well over 90 percent of sales. An d some customers aren't sold on the smaller stores. "The showroom isn't extensive enough," says Bora Assumani, a fitness instructor shopping at the London store. " I like to be able to touch and see everything before I buy." Another shopper, Susan Davies, says she wants "a bigger selection of little things to buy now." Still, Ikea says its efforts are attracting new customers who might otherwise never have shopped at Ikea. I n Madrid, 70 percent o f people visiting the bedroom pop-up store had never been to an Ikea big box, says Stefan Sjostrand, Ikea's global commercia l manager. What's more , he said, e-commerce sales i n Madrid have risen more than 50 .

1- Are the functional- level strategies the same for mangers of both types of IKEA store? Explain your reasoing

2- How would IKEA managers utillize scenario planning when it comes to expanding the company's e-commerce footprint? provide some examples

3- Provide a SWOT analysis for smaller IKEA stores ?