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Ikea moves beyond the ‘blue box’ warehouse

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IKEA’S most annoying feature is getting the chop.

Countless relationships have been strained to breaking point over a trolley stacked with flatpacks, but the Swedish furniture giant says the love-it-or-hate-it warehouse experience is taking a back seat as it aggressively rolls out smaller-format stores in more accessible locations.

While the iconic walkways and arrows will remain in the new stores, the “self-service” area will be replaced with home delivery from one of three new $150 million-plus distribution centres in NSW, Victoria and Queensland.

“When we launched the first big stores, many times when people came into the self-service area they went, ‘Oh wow, look at this’, but it’s not that exciting anymore,” Ikea Australia country manager Jan Gardberg said.

“It’s just a lot of brown boxes stacked 10 metres up. When we do surveys with customers, these days they don’t like the hassle of going around and around to pick up this one, aisle five, compartment six, going back and forth.

“Imagine if you take that whole thing away and keep the nice walkaround, you can make it much easier. Then we can merge fully into the kind of inspirational, emotional journey (where customers) can get tips and ideas.

“We are in the business of emotions. We want you to come into our stores and say, ‘I don’t like that but I like that one’, start a conversation with a partner. It’s about feelings and emotions, that is the most important part.”

It’s just one of a suite of major changes coming to the flatpack empire as it celebrates its 75th birthday, with online shopping, home delivery and new store formats to be complemented by cheaper products, Australian manufacturing and furniture recycling initiatives.

Despite having a brand presence in Australia for more than 40 years, Ikea has existed in “small constellations and never took a serious grip on the market”, Mr Gardberg said. But over the past five years the company has “really put the foot down”.

With 10 stores, Ikea currently has about 13.4 per cent market share of the $7.4 billion furniture retailing industry, compared with Harvey Norman on 21.6 per cent, according to IBISWorld.

Ikea Australia’s sales have almost doubled since 2014, topping $1 billion for the first time last year, but Mr Gardberg — a Finn who started with the company 34 years ago — is on a mission to double that again over the next decade. He sees scope for up to another 10 locations.

“The strategy for us going forward now is not going to be built on stores as we know it today, the ‘blue box’ store somewhere between 25,000-32,000 square metres, that’s not going to be the recipe,” he said.

“We want to be accessible and affordable for all Australians. We’re in the process right now to launch our online activities, we’ve opened up a customer distribution centre in Marsden Park, in two weeks we’re opening one up in Melbourne, and later in September or October we’ll open one in Queensland.

“We want to be where customers actually are today. In many cases we build the store and then we ask you to transport yourself to where we are. We need to be present in shopping centres where customers are already shopping.

“We call it touchpoints. A touchpoint is basically going to be an experience for you to touch and feel our range, but not this long kind of way where you have to go 1.5km through a store. It will be down to maybe 6000-12,000 square metres.

“Bulky furniture, mattresses, double beds, sofas and so on we will deliver to you through our distribution centres, but the cookware, textiles, lighting, home furnishings you will have there. With that we can do city stores, pop-up shops and so on.”

Ikea is hoping the new distribution centres will turbocharge its e-commerce business, which now makes up 7-10 of sales since launching in 2016. Last month, Ikea quietly launched $9 parcel delivery anywhere in Australia for packages up to 16kg.

Once the Queensland distribution centre is complete later this year, Ikea will “go out with a big bang announcement” to kick off “expansion phase two”.

“The people we are hoping will be really happy is all of the people living far away from a store that have said please can we come,” Mr Gardberg said.

With the boost in sales, products can then be manufactured locally.

Most of Ikea’s furniture is currently shipped in from Asia and Europe. Mr Gardberg said the company was now at a scale where it made economic sense to begin partnering with Australian suppliers.

“Made in Australia, by Australians, for Australians is a win-win situation,” he said. “I think we have the volumes that will be required in order to actually lower the prices further but keep the quality.”

He said the key area focus area for domestic production, which is expected to take two to three years to roll out, would be bulky goods.

“It’s a lot of air to ship,” he said. “Most probably the key component is foam production, that can then be used for making beds, quilt covers, upholstered furniture and so on.”

Meanwhile, sustainability will be a key focus for the company. Ikea launched a pilot recycling point at its Tempe store five weeks ago where consumers can return their unwanted furniture. “In four weeks we had 800 customers contact us, out of those 500 came back with photos of their furniture, and 250 came to our store and handed it back,” Mr Gardberg said.

“We look at the product and say, ‘OK, you get $125 for this’, then we put that price tag on it and sell it back to some other customer. The idea is to prolong the lifetime of the product. But if it’s beyond repair, we still accept it and we will see to it with our waste collection that it’s taken care of in a good way.”

Mr Gardberg said Ikea had faced attacks for most of its life for selling “cheap, throwaway furniture”.

“We are a low-price company, but it’s a myth that low price means low quality,” he said.

“When you go to Harvard Business School you learn how you can charge more for the same item — brand it, do this and that, then you put up the price. We use design in order to lower the price, we don’t use design to increase the attraction so we can charge you more.

“We are a production-oriented retailer. If you look at a Billy Bookcase produced in the ‘80s and take one today, the price was higher back then but also the quality has more than doubled — surface treatments, stability, the way it’s shipped.”

With waste “hot on the agenda” in Australia, Mr Gardberg wants to position Ikea as a “friendly rebel” in the market to take the lead. The company has already removed plastic straws from its canteen and vows to have zero internal waste sent to landfill by 2020.

“Our biggest challenge right now is that there’s not an infrastructure out there, recycling plants and so on, to help us achieve what we want to achieve,” he said. “So we’re doing what we can with the infrastructure that’s in place.”

He said there needed to be a “fundamental change”, with consumers, businesses and government all taking responsibility rather than “pointing fingers”. In Sweden, the average household sends three kilos of waste to landfill each year, compared with more than one tonne per Australian household.

He shakes his head at the current furore over plastic shopping bags.

“It’s 2018, we’re living in a modern world, why in the hell are we having this conversation about plastic bags? In the ‘80s we had no plastic bags and we were perfectly fine,” he said.

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