18 September 2019  4 min read

Retail innovation by IKEA

Blue Box store of IKEA

IKEA opened its first shop in Älmhult, Sweden, in 1958. It took 5 years, and the small, retail company debuted its innovative idea at a 33,300sf m warehouse in Stockholm. 

Motivated by the circular design unveiled Solomon R Guggenheim Museum in New York City, which assists visitors to follow a single path through the gallery, Ingvar Kamprad (IKEA founder) made a decision he would set his customers on a trip through a labyrinth of the retailer's offerings.

As a result, the Swedish retailer soon became famous for its shopping experience innovation.

However, today, IKEA faces a panorama of changing consumer habits: people usually don't plan to get in the car and drive to an IKEA blue box, especially if they're only picking up a one or two items. Innovation is highly expected from IKEA loyal customers.

Jesper Brodin, CEO of the retailer's giant, is on a mission to bring innovations to the firm with a drive to boost growth and transform the in-store experience.

Building a digital brand requires innovation performance at the highest level.

IKEA, like every retailer now, is wrestling with an omnichannel business model that combines its experiential, physical blue-box stores with the convenience of online shopping. Its warehouse-format stores, which were a tremendous innovation, are also placed outside of downtowns to help the company keep expenses – and, as a consequence, prices – low. For these reasons, the cost of transitioning to a digital business model might influence prices - the IKEA incredible advantage over its competitors.

Unfortunately, it has all turned into slow progress in adopting a strong digital strategy and in bringing cutting-edge innovations to the Swedish business. Although IKEA only began offering products online in 2009, the company leadership team started to pick up several digital innovations and business model redesign initiatives. For instance, retailer' s expansion of smaller-format shops in city centers offered customers a chance to test products in person and then make a decision later at home. The company plans to launch more of these mid-sized stores in the future, and some target cities are New York, Paris, Berlin, Barcelona, Tokyo, and Mumbai. 

Can the retailer change the way we buy furniture and bring innovation to old-school habits?

The company tested the waters in 2017 with the launch of its first augmented reality mobile app called IKEA Place. The app wouldn't allow customers to purchase the items they were visualizing in their homes directly; the innovation was kind of weird as it asked users to go back to the website to make the purchase separately. This process harmed growth and frustrated many customers. 

IKEA promised to bring the innovation to the market soon and let users buy the furniture through the app. People will be able to shop remotely while using the AR tool released by the retailer. 

Another challenge IKEA has faced in the last years is its high delivery costs, one of the highest in the retail industry. There is some water - fire issue between AR innovation and outdated delivery business model. On one side, IKEA is bringing cutting edge technologies on the other hand, and it keeps old processes in the place, which desynchronize the retailer's business model. 

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IKEA also declared in 2018 that it would cut 7,500 jobs worldwide to improve the company performance. Probably the company faced many manual and duplicated work challenges which require automation and AI-based solutions. 

Crowded marketplace forces retailer to innovate more effectively.

As IKEA goes through its digital transformation, the firm must also fight with a more crowded marketplace than ever. In 2017, the retailer share of the home furnishings market dropped to 2 percent. It was a 0.2 % difference between 2014 and 2017. The arrival of digital DNA retailers such as Amazon or Wayfair has delivered a compelling value proposition to consumers. IKEA finds it hard to beat the trend.

However, even as the retailer market share decreased, IKEA's global retail sales volume increased from €28.7bn to €38.3bn. IKEA said it's mostly North America and China; these two countries feel like home to IKEA. In Europe, the company tries to introduce innovations to fight with companies like made.com, which is expected to accelerate its growth in the next few years. Consumers expect unique, custom goods, can IKEA change it's business model so much and implement innovations, which help to provide massive customization?

Well. I don't know, but therefore, the critical source of growth for IKEA need to be in global markets.

The retail giant has been experimenting with extensions outside traditional home categories for several years. In 2015, IKEA introduced a series of products with wireless smartphone charging capabilities. Ikea then launched a smart lighting system called Trådfri. A few months later, Ikea partnered with Sonos company for its Symfonisk set, which is a set of lamp and bookshelf speakers. 

The news follows a developing trend of innovations in the retail industry, especially in the home goods area, pushing further into cutting-edge technology. Casper, which sells mattresses, unveiled a smart nightlight designed to help consumers sleep healthy. 

Beloved customer, please reuse it, don't buy a new IKEA product.

The retailer doesn't stop in its innovation journey. IKEA started to experiment in a year ago with a subscription business model. The concept tries to encourage products reuse--as much as possible before the product is ready to be recycled. Ikea decided to test the rental model in 30 markets.

Ikea is investigating how the company can leverage global shifts in consumer behavior and deliver new, compelling value proposition which will drive growth. Especially younger consumers are willing to rent assets more instead of buying them. It's a bold move. The current business model ran the company which employees more than 208,000 people. 

Why is one of the world's biggest retailer undertake such a disruptive change and play so much with innovation? 

It's the Kodak, Commodore and Blockbuster lessons. Netflix came as the unexpected force which undertook the market dynamics and dominated the TV industry. Kodak was a leader, and it now can't pick up the trend. IKEA is driving the same highway, and it depends on how much it will experiment with innovations. 

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