IKEA’s Focus Remains on its Superstores; Visits to Website Increase by Nearly 20% but When it Comes to Furniture, Shoppers Still Want to ‘Touch the Fabric’

IKEA’s Focus Remains on its Superstores

Visits to Website Increase by Nearly 20% but When it Comes to Furniture, Shoppers Still Want to ‘Touch the Fabric’

JENS HANSEGARD and NICLAS ROLANDER

Updated Jan. 28, 2014 7:53 a.m. ET

In fiscal 2014, IKEA plans to spend €2.5 billion ($3.4 billion) on stores, factories and shopping centers. Here, a store in Malmo, Sweden. Getty Images

STOCKHOLM—IKEA expects its famous blue-and-yellow superstores to remain the lifeblood of an ambitious growth plan, even as visits to ikea.com increased nearly 20% in fiscal year 2013 while visits to physical stores modestly declined.

The company’s new chief executive, Peter Agnefjäll, said in an interview Tuesday near Stockholm he sees IKEA’s e-commerce efforts growing in coming years. But to reach a goal of €50 billion ($68.4 billion) in sales by 2020, the world’s largest furniture retailer needs to keep its focus on setting up more stores.

“I think that in 2020 the absolute majority of sales will still be in our stores,” he said.

The company reported a 3.2% revenue increase to €28.5 billion in fiscal 2013, which ended Aug. 31, boosted by strong sales in the U.S. and expansion in countries such as China and Russia.

The company needs to increase its annual growth rate in coming years to reach its 2020 target.

IKEA has been a juggernaut in recent years, racking up revenue and profit gains even as key markets—including Europe—were locked in economic malaise. The company’s store count has almost doubled over the past decade, helping the 71-year-old company expand in North America and emerging markets.

The company, however, has played down its need to compete online with the same intensity as peers such as Wal-Mart Stores Inc. As Wal-Mart and other retailers look to battle Amazon.com Inc. by ramping up online buying and delivery operations, IKEA has been content to take a slower approach even as fewer buyers appear to be interested in going to physical stores.

In the 2013 fiscal year, the strategy seemed to be working.

Mr. Agnefjäll took IKEA’s helm in September, one day after the company closed the books on a fiscal year in which the company increased market share in just about every market it participates in.

The company reported a 3.1% rise in net profit to €3.3 billion.

It reduced prices by 0.2% in fiscal 2013, despite inflation, although this still undershot its 1% price-cut target announced last year.

During that period, IKEA reported an uptick in Web traffic, with 1.3 billion visits were recorded, and the IKEA catalog app was downloaded nearly 10 million times. Visits to physical stores, meanwhile, declined by 1% in 2013 despite the addition of five new stores, including two in China.

IKEA added three countries to its e-commerce effort in 2013, meaning customers in 13 markets can now buy IKEA products online.

IKEA has retailing operations in 26 countries.

Mr. Agnefjäll, who was a store manager shortly before taking the chief executive job, said the company will add more than 10 stores in fiscal 2014, but it is unclear how many new markets—if any—will get the option to buy online.

“We see that Internet and e-commerce is growing, but at the same time, when buying a new bed a lot of people want to try it first, and if you buy a sofa you may want to touch the fabric.”

IKEA, which began as a mail-order company and continues to send hundreds of millions of catalogs every year, doesn’t report how much revenue comes from online sales vs. physical stores or catalogs. In fiscal 2014, it plans to spend €2.5 billion on stores, factories and shopping centers, up from a €1.9 billion investment in 2013.

To reach its 2020 goal, e-commerce will be an important factor, but Mr. Agnefjäll said IKEA is looking for “balanced” growth. “For us, it is not about maximizing growth in a short period of time, but about growing in a way that includes the entire value chain.”

IKEA plans to spend 105 billion rupees, or $1.65 billion, to open 25 stores across India, and is in the process of buying land in the states of Andhra Pradesh, Maharashtra, Haryana and Karnataka. The company said Tuesday the next step is to find the right location for its first Indian store.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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