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IKEA Expansion plan - don't forget the meatballs!

IKEA Expansion plan - don't forget the meatballs!

I am sure I am not alone in describing the pain, anguish and untold stress of being dragged through one of IKEA’s large factory-sized stores, looking for that one remaining household item to complete the chic décor of the lounge. However, anyone that has had the somewhat unpleasant experience of shopping in IKEA may have realised that it is not always as straightforward as that! I’ve always thought these stores resembled more of something out of a TV game show than a shopping experience, with the only saving grace arriving once you’ve reached the checkpoint: the Swedish meatballs!

However, love them or loathe them, the success of these vast out-of-town stores cannot be underestimated. The retailer announced last week that UK revenues in the year to August rose by 5.9% to £1.96bn (bear in mind that this is just the UK!). In relation to these stores, 85% of total sales revenue was attributed to the retailer’s 21 large-format stores.

Therefore, it came as somewhat surprising news to me this week when the Swedish retailer announced its decision to being experimenting in opening smaller city centre stores in selected urban areas from 2019. These stores would, on paper, allow customers to browse through the catalogue offerings of IKEA and discuss home renovation plans with staff ahead of purchase.

Why did this news catch the attention of markets and commentators alike? Well, this was not just a classic example of a retailer committing to opening more stores, and in the process, building upon an already established and loyal customer base. This strategic decision signaled the first signs of a deviation away from the company’s successful roots.

Many will say “Why now?”, IKEA would more than likely respond with “The market is evolving!”. Like any brand, it is crucial to adapt to the competitive environment that you are in and stay connected to your customers in the process. These stores are likely to appeal to customers who may have alternative needs to the traditional IKEA customer base i.e. younger people, geographically immobile customers and casual shoppers.

You might be familiar with Greiner’s Model of Growth that shows that businesses organically reach their capacity and face a serious of challenges that need to be overcome to continue growing. Maybe this marks the anticipation of IKEA reaching one of those internal stumbling blocks somewhat further down the line – the threat of Amazon stores is looming large!

As always no change in strategic direction is without its challenges. Will this be seen as a gimmick by some customers? How will rivals respond to this store experiment? Does this model integrate with its online platform? Will these stores be able to manage and hold enough stock to meet demand? Most importantly, will there be any Swedish meatballs?!

Whichever way you look at it, this is an unexpected change in strategy from a retailer that has always relied on scale, operational efficiency and low-cost delivery. What we can say for sure, however, is that during a time of disruption and chaos for UK retailers, this is a great example of PESTLE in action on the frontline of the high street.

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Saturday, 23 March 2019
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