IKEA, the king of the flat-pack, is on the move. No longer will you need to travel for miles to your nearest store: ‘instead of the people coming to IKEA, now it’s IKEA coming to the people’.
What is happening?
This year IKEA is set to increase their presence in Austalia by establishing small store formats in urban areas and shopping centres. Under the new proposal store numbers will increase from 8 to 22 and each store will be approximately two thirds smaller than their mega centres. Currently the new stores are being trialled in Tasmania as well as in Spain, Germany and the UK.
In addition this, they will be opening up pick up points and creating an online platform, where you can not only get furniture, but you can also order from their restaurant. That’s right—you will soon be able to get meatballs delivered to your door!
IKEA is not the only retailer making such a move. Bunnings, Woolworths, Coles, David Jones and Myer are also branching out into smaller locations.
Why are they making this change?
IKEA currently has an exclusive distribution, meaning their goods are only available through selective channels (Iacobucci 2013). By switching to a wider distribution, they hope to expand their customer base and create greater competition for their competitors, like Bunnings and Harvey Normans, as well as local retailers.
With more stores, their products will become more accessible and customers will be able to shop more frequently. This will cater for the growing number time-poor, inner-city shoppers who are not prepared to travel long distances to larger stores.
David Hood, IKEA Australia Country Manager, predicts that under the new model sales will double within the next few years, growing from $733 million in 2014 to $1.8 billion by 2020. The average customer shops at IKEA only 4 or 5 times a year, but Hood hopes that this will soon climb to 7 or 8 times.
Why diversifying distribution channels is good business
Retailers need to keep up with the changing needs and expectations of consumers and increasing the accessibility of their products is one way of doing this. By changing their channels of distribution they will also be appealing to new segments in the market (Iacobucci 2013).
Business density is a way of encouraging ‘market penetration and projecting saturation’, and can help a company gain a greater share of the market. Location is said to have a ‘direct impact on demand’; therefore, more locations will bring increased demand from a wider array of consumers.
Smaller store formats enable retailers to ‘to tap into new demographics and locate and build sites more quickly in saturated markets’.
Also, the establishment of an online site will bring in a broader spectrum of customers and the company will no longer require the retail space which they once had.
What factors will IKEA need to consider before making this move?
The 4Ps of marketing are intricately woven together, so by making alterations to place IKEA will need to think about what impact this will have on their products, prices and promotions.
For example, they should consider:
- With limited store space, which products should be sold? How about online?
- As more customers will be targeted, should prices be adjusted to suit the needs of the new segments?
- With a wider distribution, promotion will need to be heavier, so what integrated marketing communications should be employed?
And, of course, they will also need to decide upon the best locations for their stores.
How will the change impact consumers?
No longer will you have to drive to your nearest store, walk for miles around in circles to find the item of your desire, and struggle to fit your newly bought couch into the back of your car. IKEA’s new stores and online platform will allow you to furnish your home with much greater ease.
So watch this space … IKEA will soon be coming to a town near you.
Iacobucci, D 2013, Marketing Management (MM4), South-Western, Cengage Learning, Mason.
Written by: slessels81 (211235102)