The Strategist

Growing urban population forces IKEA to go online

12/09/2016 - 15:36

In anticipation of growth of the world’s urban population, the largest seller of furniture and household goods, Sweden IKEA, will open smaller shops and pickup points located closer to city centers.

J. James
J. James
"Until now, our recipe for success was to build large stores on potato fields. Now, however, we expect that 70% of the world population will live in cities by 2050 - said CEO of IKEA Peter Agnefjäll. – There are no potato fields in the center of London, so we obviously need to do something for IKEA stores to remain available."

Thus, IKEA is working on a project in Copenhagen. In addition to a store, it involves construction of a hotel, residential and commercial real estate, said Agnefjäll. Such objects "will allow us to buy land, which is usually quite expensive, and still maintain low prices," he says. Now, the company has 66 shopping centers and retail parks in 15 countries. 

IKEA’s current strategy is to store goods closer to consumers, to accelerate and reduce cost of delivery. "Our future activities will be focused on stores", - says Agnefjäll. Many shops can act as pickup points. Now, IKEA receives 95% of the proceeds from traditional offline sales. 

During last the fiscal year ended in August 2016, the retailer opened 12 such stores, and 19 pickup points, says Financial Times referring to the company's reports. During the reporting period, IKEA increased net profit by 20% to EUR 4.2 billion, with an increase in revenues by 7.4% to a record 35.1 billion euros. Sales rose on 27 of its 28 markets. At the same time, Agnefjäll assures that number of products shipped directly to customers will grow 5 times in the coming years.

IKEA has already opened two automated order processing center in Germany and the UK. Both have a sole function of sending goods directly to the consumer. The company is also preparing to launch a new multi-functional distribution centers, which will buyers and stores.

The company cares not only about customers but also about employees. Previously, IKEA announced its intention to provide their employees with four months-long paid leave for child care in the US, according to The Wall Street Journal. This programme will also be extended on those employees who are paid per hour, regardless of how many hours a day they work. This is a very rare thing in America, the newspaper notes.

American divisions of IKEA employs approximately 13,000 people. The new programme takes effect on January 1. Within the programme, employees who have worked a year or more in the company, will receive their full basic salary for the first six weeks of vacation, and half of their basic salary for further six weeks. Employees who have worked at IKEA for more than three years, can count on full payment for eight weeks and half pay for the next eight weeks.

As the WSJ notes, these social benefits are still far from 68 weeks of leave, which IKEA gives to its employees in Sweden, where the government subsidizes the programme. But for the United States, the only industrialized country in the world without state policy of paid parental leave, IKEA’s programme looks remarkably generous, the publication emphasizes.