Ikea avoids free fall in furniture sector

It was a mixed week for Swedish furniture chain Ikea. First the group had to deny it supported the Conservative Party after it supplied the Tory conference with eight free armchairs. Then its “Stop being so English” TV ads inspired an anti-Swedish counter-attack from The Daily Mail and London radio station, Heart.

Still, the chain may take some comfort from the appointment of UK ad agency Partners BDDH to its European roster of agencies (MW October 8), giving it the opportunity to keep its main agency St Lukes on its toes. UK head of marketing Matti Narr denies that the new appointment threatens the 6m account with St Luke’s. But it would be naive to think St Luke’s is not looking over its shoulder.

Ikea is successful because its affordable goods appeal to young homemakers. One source close to the company says: “Its an incredibly focused company. Its philosophy is style without expense, and that informs everything they do.” Advertising is key to this image. In a sector noted for producing unimaginative price-led ads, Ikea stands out.

The advertising industry says Ikea has kept an eye on ideas in the UK market by talking to other agencies throughout the year. One senior executive at a top ten agency says: “They have talked to a lot of agencies. The Partners appointment is a way of them keeping St Luke’s on their toes.”

Narr denies he is unhappy with St Luke’s and says the appointment of Partners was made by the company’s head office, Inter Ikea, based in Copenhagen Denmark.

St Luke’s claims to be relaxed about the appointment. The agency comments: “We were offered this business and declined to pitch for it. This is in-store work, and it is not really what we do.”

The industry is braced for tough times ahead. The slowdown in consumer spending has hit the furniture industry hard.

Growth in retail sales of furniture for the first two quarters of this year have slowed to eight and five per cent respectively from 12 and 13 per cent over the same period this year, according to the Office of National Statistics. In the first two quarters of this year furniture sales were worth 136m and 126m.

Merrill Lynch retail analyst Mal Patel says: “The last twelve months have been disastrous. The economy has been slowing down and in these periods consumers have less disposable income, or are more worried about spending it. So large consumer durable goods like furniture suffer.”

Retail trade body British Retail Consortium (BRC) economist Pamela Webber says that its own research shows the sector has been in decline for the last six months. She says: “Only marked-down big ticket items are selling. Nobody is willing to pay full price anymore.”

This year MFI, and Carpetright announced falls in profits. MFI issued a profits warning in March and June its pre tax profits fell to 60.4m from 70.3m last year. MFI said that it would cut 1,500 jobs from its 6,000-strong workforce.

Patel says: “Ikea has been able to succeed because they are not as dependent on manufacturing as, say, MFI. So for instance Ikea stores in Italy are not being pressured to sell certain amounts because Ikea factories in Sweden need to produce certain amounts of furniture a week to remain viable, as other retailers are.”

Courts marketing director Chris Coote says: “Business is tough and it looks like continuing that way. But we are upbeat. If we are to go into a declining market our job is to take a bigger share of it.”

However, others think that Ikea is best placed to take a larger share of a shrinking market. Verdict Research retail analyst Richard Perks says: “Ikea is a category killer. There is no one else who tries to take it on in its own terms, and sell cheap contemporary furniture. It is the place to go to furnish your first home.”

Ikea has moved Habitat, which it bought six years ago, slightly upmarket. While players like MFI and Courts and appeal to an older age group.

Two weeks ago Courts launched its latest advertising campaign, this time without Bruce Forsythe. Playing on the Crimewatch genre it was more of a branding campaign than the traditional price-led efforts that characterises the sector.

Paul Hammersley, managing director of Lowe Howard-Spink which created the new campaign, says: “Bruce’s image overpowered the message. People remembered Bruce but not what he was saying. Bruce’s iconic image also cheapens the Courts proposition. We replaced cheap with value for money which is a better proposition.”

Coote agrees with Hammersley but adds: “We will always need to give customers a reason to buy now. We will never deviate from the call to action ad at all.”

The market desperately needs to call consumers to action. If things continue as they are the traditional players like MFI, Courts, DFS, and others will fight it out for a declining market. And that will leave Ikea with a virtual monopoly in a market sector it has created.



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