The Changing Face of Retail: Digital Transformation at IKEA- Part I

[In my previous post on The Changing Face of Retail, I had referenced IKEA among the few succesful firms who have been able to make a transition. Why not look at this as a test case to see how Retail can step up to the challenge of today. Here's an indepth four part series on the Digital Translation of IKEA.


Part –I, covers the challenges faced by IKEA, and a background analysis of IKEA’s traditional consumers and how changes new markets, and changing consumer behaviour creates an imperative for Digital Transformation. This part ends with identifying the key elements of a succesful digital transformation and how IKEA's senior leadership went about this.

Part –II, breaks down IKEA’s business into different process domains (going from external- Consumers, to Internal- Back end), and looks at the recent initiatives in each. We will take a close look at some of the initiatives rolled out/ and possibilities in Consumer Insights and Consumer Engagement.


Part- III, is devoted to Consumer Commuincation, which is extensive and deserves a separate article by itself.

Part- IV, The concluding part looks atthe remaining process areas- Innovation, Last Mile Connect, Logistics/ Leaner Business, and summarizes the overall impact with public domain data.]

We all love the familiar Blue and Yellow logo. For some its retail therapy- hours lost in the Guggenheim-ish labyrinth was original experiential shopping even before it became a trend, for some it is adult LEGO- a way to self-expression, for some the convenience of a-one-stop-shop, for some it has been about aesthetics and design. For some it is the affordability that came from versatile material use, lower rentals and flat-pack packaging (albeit, in many geographies like India/ Middle East and China- IKEA maybe at a premium to local alternatives- here the perceived brand positioning will be premium). And for a small group (like me) a lovely restaurant with awesome salmon cold cuts. And if this was not convincing reason to believe in the brand, 400+ stores, 2% global market share in a fragmented industry and USD 42 bn in revenue, should give credibility.

Over time, IKEA has stood out as a bell weather in the homeware category. The Retailer, who had everything worked out, decoding consumer tastes and conquering country after country. However, not all has been well at Camelot. A year after new CEO Jesper Brodin took over IKEA, for FY 18 (ending on 31 Aug 18), the company’s net profit dropped by 40%, though Retail Sales inched up by 4.5% to EUR 38.8 bn (Source- Thinking outside the box – Jesper Brodin takes IKEA digital ).

Though consumers in home improvement category has globally been slow to migrate online, the threat of omnichannel retail (experiential, physical, new communication platforms, new payment models) and changing consumer behavior (as urbanization increases, and traditional car ownership models change, more consumers prefer to buy online, rather than visit the outskirts where IKEA sites its shops to keep rentals low). At the same time, competition from online players like Amazon posed the same challenges to IKEA that other traditional retailers faced worldwide.

Like other iconic traditional Brick and Mortar Retailers, IKEA, has been slow to move online. It only started selling online in 2009. Was IKEA going to go the way of traditional large Retail players like Aeropostale; Bed, Bath & Beyond; Borders Group; GAP Inc; J.C. Penny; La Senza; Sears; Toys “R” Us; Victoria’s Secret and become a shadow of its former self? The Digital Transformation at IKEA, needs to be read in this context. An outsider’s perspective of what the firm is doing. The mandate the company gave itself was to transform itself into a multi-channel brand. No more business as usual, the company wanted to ‘change everything almost’ to reinvent itself as a Tech Company. April 2018, it recruited Barbara Martin Coppola, as its Chief Digital Officer. Here’s CEO Jeff Bordin speaking of the change at Davos in Jan 2020.

Before we delve into the Digital Transformation at IKEA, here’s a quick look at a simplistic model for possible IKEA customer segmentation and how the trends stack up.

While IKEA has a mono-segment, positioning, demographics and changing economics raises questions about continued growth.

• Europe, which is one of the most desirable geographies, where IKEA gets lion's share of it's revenue is doing well, but here the change in buying habits of younger consumers raises need for a rapid digital transformation if IKEA is to protect it's home turf.
• North America- IKEA, still has a lot of headroom to grow, its a younger population compared to Europe and being home to the Big Tech, growth presupposes getting in and building a strong digital presence. Given the geographic spread of N. America, the intensive retail model for Europe may be a more difficult task. N. America is an opportunity market in short term.
• S. America- Compared to Europe and N. America, in terms of population, overall economics, S. America is lower down in the totem pole. The firm has one store in Honduras, with plans for opening in Brazil, Chile,Colombia and Peru
• Asia-Australia- This is the big one. This is where the future of global brands are going to be decided. Australia has 10 stores, China 33 (+ Hong Kong 4), India 1, Indonesia 2, Korea 4, Malaysia 4, and Singapore 2. In terms of rising affluence, demographics, this is where the future of any Retailer will be determined in the next 10 years as Europe and N. America grows older. Though most countries in Asia- Australia are a relative newcomer to digitization, by sheer force of demographics and rising affluence, the region has leapfrogged into the domain. With an younger population the uptake of digital will also be higher.
• Africa- Yes, Africa is massive, has a large population, but economics in most parts are unfavorable now and most countries remain question marks. However, Nigeria, S. Africa, Kenya, Tanzania and Egypt are markets to watch.

While a high level of analysis glosses over important facets, the Digital Transformation imperative for IKEA could be summed up as

1. Avoid erosion in home market (Europe)- almost saturated and newer consumers who tend to be younger focused on digital. Europe can be the lab for IKEA's digital transformation.
2. Immediate growth opportunity from increased penetration in similar economic-geography (N. America) already high on digitalization
3. Future Growth Potential Market (Asia), already leap-frogging in digital economy. If not move ahead now, challenges from home-grown players will be significant.
4. Possible geographical expansion in S. America and Africa also will need a mature digital roadmap because by the time most countries become economically, lucrative, global trends will have made them skip ahead in shopper behavior.

Given this need for change,

The first thing about a digital transformation is that the operative word is transformation, akin to any business process reengineering initiative. Not always, but often enough firms tend to view going digital as creating a website, setting up an e-commerce platform, or starting Social Media channels. These silos created, often are unaligned with the major functions of the business. People still tend to think of digital as another thing we have added on, and jealously guard their turfs- ‘this is how we have succeeded, and digital will add value, but we should not mess with our way of doing things’. To me the keynotes of a successful digital transformation are:

A.    Clear Identification of Business Objectives (Customer Experience, Processes, People, Culture, Vendors/ Intermediaries/ et al) and Mapping how each component Creates Value;

B.    A mandate driven from the top. Not only is support of senior leadership important but also needs leadership across all levels to buy-in. Nothing is worse than leaving Digital Transformation as the baby of IT/ Marketing. Sensitizing the organization to the imperative of going digital is necessary- (Just as if the firm had to undergo a cost-cutting exercise, you would not only leave it at the hands of the Finance team, would you? You would communicate and get the whole firm to rally). End of the day it is about Change Management and Culture Change;

C.     While the direction needs to come from the top, the solutions have to come from deep within. Empowering teams, challenging them to come up with radical solutions to how they deliver value is the meat of the digital transformation. IT functions do not work in silos but are embedded as technology integrators/ solution providers to the cross functional teams reimagining the firm inside out.

For an outsider, it is not possible to discern everything that a firm does, or accurately measure its impact. However, based on what is available in public domain, and a simple model, one can try to decode the aspects that a firm is working on. The model is limited in its assessment of internal dimensions like culture change or in-depth financial impact.

For IKEA, we have already established the imperative for change earlier in Part -I. Jesper Brodin's interview to @Kyle Nel of Singular University in April 2019, throws some light on the senior leaderships commitment to change, the Mandate to Change Everything, Change Management, willingness to change the old way of doing things, on listening- believing that IKEA employees knew what to do, empowering leaders across the organization and IT being secondary to people. You can read the interview and video from the blog below.

In Part II of this series, we will look at how IKEA has gone ahead on the digital journey.

#retail #ikea #digitaltransformation #culturechange #changemanagement

Disclaimer: This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The author has no relationship with IKEA (paid and/ or unpaid) or any of its subsidiaries.