Next stop: ecommerce
The large-scale retail giants are facing a challenge that affects their very survival. This challenge is called ecommerce. Thanks to their success and their size, these giants have too long neglected or underestimated ecommerce. Now he's knocking on their door in a rather menacing way.
But it's not just about ecommerce. Above all, it is a question of the change in consumer tastes and behaviours; a change also connected to demographic and sociological phenomena. A veteran of large-scale distribution such as Leonard Riggio, the founder and boss of the Barnes and Noble bookshop chain, explained it very well. His company has already tasted the bitter taste of the menu served by the young and aggressive gazelles of e-commerce such as Amazon and Alibaba who have intercepted and even provoked a change in consumer preferences.
Difficult to compete or defend against the latter, which are new technology platforms whose foundation lies in software, big data and supply chain automation, as well as financial power that no other company in this sector can bring to bear. field, also because many have fallen out of favor with investors.
The dilemma of the old economy
The dilemma facing traditional companies is simple: should we ally ourselves with these new platforms or should we fight them on their own turf, i.e. software, big data and visionary innovation at the expense of profits? Until now it was this second option that held the house, but now there is a strong reconsideration of this strategy. A different idea is beginning to be developed not only due to the poverty of the results obtained with their going online, but above all due to the size assumed by groups such as Amazon and Alibaba.
This dimension is starting to get crazy and not even legislators and governments, albeit less and less benign towards Internet groups, have the faintest idea of how to regulate these new businesses without drawing the ire of consumers who are the same ones who go to the polls at fixed deadlines. Amazon always occupies the first places in consumer satisfaction rankings and since antitrust policies in recent decades increasingly take into account the condition of consumers, rather than those of the reference industry, it happens that there will hardly be any public policies in the short term effective containment of the expansion of these groups.
Now it happens that one of the most admired and phenomenal expressions of large-scale distribution, IKEA, has decided to rely on the large e-commerce groups to sell its incredible assortment of products, rather than trying to face the challenge of e-commerce and of changing consumer behavior with its own strength. A nice reversal of strategy, but necessary.
But let's let the Economist tell this story who dedicated a report to this courageous choice by IKEA management. We hope that this experience can teach us so as to transform the collision course between the new and old economies into a synergistic path that would benefit the economy and collective well-being. Enjoy reading, but don't be alarmed: you can always go to IKEA on a Sunday afternoon as you used to go to the cinema.
The IKEA amusement park
It's a Sunday afternoon in London. On the M25 motorway, cars line up at the exit for something ritualistic: a visit to IKEA. Greedy for Swedish meatballs and smoked salmon, visitors swarm in the corridors of the mammoth and labyrinthine megastore, kids play hide-and-seek and couples argue animatedly about the advantages and disadvantages of the wardrobe models displayed in the halls. A few hours later they approach the exit pushing trolleys full of packed furniture, many more than they intended to buy. Now the pleasure of assembling them awaits them.
This experience has changed little since in the late 400s, IKEA, still a privately held company, opened its first store in southern Sweden and discovered that people were willing to travel several kilometers to get into possession of modular furniture at a low price. IKEA has thus become the largest furniture retailer in the world with around 21 stores scattered throughout (42 in Italy) and revenues of around XNUMX billion dollars.
A model that creaks
But now there is a sense that consumers intend to shop in new ways. This is the belief of Torbjörn Lööf, CEO of Inter IKEA, owner of the brand, who described this trend as the biggest change in customer relations since IKEA was created. For this reason, the Swedish multinational will experiment with the e-commerce of its catalog of furniture and furnishing accessories through third-party platforms. It is already doing this on its site, but there is a belief that this is no longer sufficient to face the challenge of ecommerce.
It is not yet known who IKEA will choose to partner with. Whether it will be Amazon or Alibaba, the two biggest names in the e-commerce business. IKEA's management has realized that the do-it-yourself transport and assembly of furniture and furnishing components does not always make customers happy with their purchases. Here, already in September 2017, the IKEA group, which manages most of the stores, announced the acquisition of Task Rabbit, an application that, among other things, connects DIY enthusiasts and customers for chores more complicated assembly. Also considering some changes introduced over the past few years — such as the opening of collection points for goods in the city centre, home delivery and a new smartphone application that uses augmented reality to show customers possible solutions furnishings — it is clear that IKEA is looking for alternatives to its large sales centers located in suburban areas, reachable only by public transport.
Chasing a new strategy
However, these measures appear late. A survey of 29 countries conducted by PwC, a strategic consultancy firm, shows that 30% of respondents prefer to buy furniture and furnishing components on the Internet rather than in shops. In fact, the flow of customers into individual IKEA stores has stagnated since 2015, but the number of visits to its site have increased by more than 25%. The fact is that in 2016 the amount of online sales was worth just 4% of the group's total revenues. No doubt IKEA has taken notice that its American competitor, Ashley Furniture, is successfully selling its products on Amazon and that Alibaba also offers a good assortment of furniture and furnishing components.
IKEA's new strategy carries the typical risks of traditional businesses going online. Consumers aren't all migrating to ecommerce, notes Marc-André Kamel of Bain & Company (a consulting firm), but they're buying in a hybrid way: they do it in stores and also on ecommerce platforms. In Lööf, therefore, few solutions remain other than that of offering consumers the double option of going to IKEA stores or buying online.
Risks and benefits of transferring your catalog to Amazon
This solution, however, will increase costs. IKEA is still planning an expansion of its stores in both mature markets such as the UK and emerging markets such as India (in 2008), South America and Southeast Asia (in the near future).
His plan to experiment with selling online through third parties, such as Amazon, is surprising, Kamel notes, because it involves relinquishing some control over his own brand. Being on Amazon or Alibaba also means submitting to competition from other furniture and furnishing accessories manufacturers in terms of price, quality and service.
The Swedish giant is betting that its online offer through Amazon and Alibaba can reach customers who don't go to its stores. But if it happens that the online sale will replace the one carried out in the IKEA megastores, the bet will be lost, because IKEA will have to transfer a part of its margin to third parties, even if this transfer of profit can be sustainable since the IKEA margin it reached 40% in the period 2012–2016.
Another risk comes from the demand of a new type of consumer. The IKEA public is used to spending their time assembling furniture on condition that they pay little, but the demand from e-commerce buyers wants low prices and quick delivery. Satisfying this audience will be a problem. Reviews of the new IKEA London online store complain about long delivery times and slow service. Building a robust new sales model may prove more difficult than IKEA thinks, as is, for many, assembling a boxed-in wardrobe unloaded in their living room. In the end, Swedish meatballs with blueberry jam, sweet mustard and mashed potatoes may remain the main attraction of the IKEA amusement park.
