Creativity key to growth

Furniture giant Ikea last week announced plans to axe 300 managerial jobs in the UK by 2008 in a bid to become more “productive, efficient and flexible”. The news follows a tough period for the homeware retailer, which has seen its position as UK market leader eroded as it slipped to third place in 2006 behind HRG (Argos and Homebase) and DFS, with a 5.5% share of the market by volume (Verdict Research).

Ikea says it is operating in “challenging” trading conditions and that market indications show this is likely to continue. “We recognise that the way in which we operate our units is not meeting the needs of our customers, nor is it always a lean, simple and quick way of working,” said the retailer in a press statement announcing the cuts.

Ikea head of media and PR Nicki Craddock says the company has huge expansion plans and will soon be launching a range of new products. The company has 15 stores across the UK and intends to open stores in Belfast and Coventry this year, and another in Southampton next year.

Craddock says the middle management restructure is part of a wider strategy implemented in 2004 to improve the retailer’s relationship with its customers and to better meet their needs. “We are repositioning management staff so there will be more people on the shopfloor, which is what our customers say they want,” she says. The move could affect up to 1,200 of its 9,500 UK workforce.

One agency insider says Ikea has “lost its way in terms of advertising and its sense of identity”, and that it has inadvertently started to behave like a traditional furniture retailer rather than the non-conformist maverick it once was. It became more focused on product and price to counter greater competition from supermarket chains such as Tesco and Asda, which have started offering homeware.

However Andrew McGuinness, partner at agency Beattie McGuinness Bungay, which won Ikea’s £12m UK advertising business last month, says it remains a strong brand, adding: “We want to recapture the maverick spirit of Ikea.”

The agency, which scooped the Ikea account from Danish agency RBLM following a three-way pitch against Wieden & Kennedy and Mother, is expected to launch its first ad campaign for Ikea in the next two months alongside a new marketing theme that will run across all the Swedish retailer’s communications. MediaCom handles media planning and buying while Agency.com was appointed to its digital business last June.

Ikea plays on its quirky Swedish roots, but Ikea International is no longer truly Swedish, being owned by Netherlands-based Ingka Holding, which is in turn owned by the world’s biggest charitable group Stichting Ingka Foundation. It is the world’s largest furniture retailer (Verdict) operating in 254 stores across 35 countries. The company designs its own furniture, which is made by 1,300 suppliers in more than 50 countries, and is embarking on its second foray into the Japanese market with plans to open 14 stores after its first attempt in the 1970s proved unsuccessful.

Ikea sprung from humble foundations when in 1943 its 17-year-old founder Ingvar Kamprad started peddling anything from pens and wallets, through to magazines and stockings, by bicycle under the acronym for his name and village, Elmtaryd, Agunnaryd. The company launched a mail order catalogue that began to sell furniture and houseware products in 1950, while Kamprad opened the flagship store – featuring a nursery, restaurant and bank – in Stockholm eight years later. Kamprad gave up ownership of Ikea to Ingka, but he retains control heading up a five-strong committee which appoints the Inkga Holding board.

The following decades saw a dramatic store expansion in countries including Australia, Canada, Germany and Singapore. In 1985, it opened its first US store and Anders Moberg was named Ikea president a year later. Although it began its push into eastern Europe in 1993, the company struggled with economic downturns in its major markets of Germany and Scandinavia.

Lately, the retailer has shifted focus to concentrate on outfitting bedrooms and kitchens, but its new strategy is expected to see it revisit kitchen items and storage.

Pragma retail analyst Mike Godliman says the restructure is a minor blip for Ikea. “It is a strong global brand and is well-established in the UK; but it is less innovative than it used to be. With increasing competition from supermarkets it needs to reinvigorate itself – as well as cut costs and improve distribution efficiencies,” he adds.

Analysts say the next five years will see a decline in Ikea’s core customer groups and that the company should consider boosting its appeal among older shoppers, who tend to use the retailer only for secondary purchases, such as furniture for spare bedrooms, rather than for primary ones such as furnishing the lounge.

Verdict senior retail analyst Nick Gladding says Ikea’s increased flexibility in new store design and location has contributed strongly to its development. He says although it took some time, Ikea has finally realised it must be more creative to maintain growth, and needs to develop stores with more than two levels in town centre locations rather than out-of-town sites.

In May, the retailer launched an online shopping service in London to be rolled out across the country by the end of the year. Some doubt this belated move to give customers another route to buy Ikea’s products will help the company manage “difficult trading conditions”, saying that it needs to return to strong advertising if it is to build the brand.

Timeline

Ikea 

1943 The Swedish furniture retailer began life as a hawking business, with founder Ingvar Kamprad selling fish, vegetable seeds and magazines by bicycle
1956 Ikea tests flat-pack furniture
1958The first store opened
1963 The first store outside Sweden opened in Norway
1980 Kamprad transferred ownership of the company to charitable foundation Stichting Ingka
2006 Ikea held 5.5% of the UK furniture market share
2007 Ikea has 254 stores in 35 countries.