Every year or two, New Zealand shoppers are galvanised by a rumour that Swedish-founded multinational furniture retailer Ikea may be considering an expansion into Aotearoa. Will their hopes be granted? And if so, when and how?
When I lived in the UK, Ikea was pretty the centre of my retail universe, and I’d challenge you to find anyone who lives in one of the 49 countries Ikea occupies who doesn’t say the same. If you’ve never experienced Ikea then you may be wondering what all the fuss is about. Isn’t it just a cut-price furniture store? Absolutely not. Ikea has steadily, over a period of 65 years, ingrained itself into the culture and psyche of the middle class happy home-maker in locations as diverse as Korea, Canada, Germany and even Russia. It offers complete home-life solutions across interiors, food, gifts, children and more that are unique, innovative and fun. Inside Ikea, life plays out in miniature.
I’ve been my most ashamed in Ikea, after accidentally insulting a hearing-impaired member of staff. My wedding was furnished by Ikea, where I found affordable knickknacks that transformed our evening venue. My children grew up in Ikea – when money was tight we would go and play in the little room set ups. Afterwards, I’d take advantage of the 40-minutes free crèche to meet a friend for a coffee, or whizz downstairs for a £1 hot dog for lunch. Ikea has always amazed me by its imagination – how did it even know I needed all those things?
If moving to New Zealand wasn’t dramatic enough, try furnishing a house on a budget in post-quake Christchurch when you are used to shopping in Ikea. I cried. And cried. And cried some more. And then discovered Trade Me. This isn’t a unique experience, and we have friends who have moved back from an extended OE who imported all their Ikea furniture at great cost, just to maintain that much loved Scandi-style.
Brand awareness is already high among Kiwis and arguably, there is a gap in the market. So, why isn’t Ikea here already?
Size and space
“I just don’t think there is enough demand for such a large store,” says Kuffy Fan of furniture retailer Urban Sales, noting a usual Ikea store is about 25,000 sqm. “Plus it’s expensive to buy the licence, rumoured to be at least $35m.”
Fan and her partner launched Urban Sales in 2012 after they struggled to find small, affordable modular furniture for their Auckland apartment. Like a few other outlets in New Zealand, they bulk-buy product direct from Ikea stores overseas and although they’re not licensed by Ikea, the company are fully aware of what they are doing.
“We have a container come in every week,” says Fan, who notes they also sell products from other international stores. “Our best-selling ranges are Malm and Billy, we have more than 2000 products from small items like hangers to large furniture pieces and we guarantee the lowest Ikea prices in New Zealand.”
Although it’s true they keep prices low there is a mark-up on the Swedish company’s famously affordable items, after all they’ve got shipping, GST, storage and other costs to worry about. As a result, New Zealanders are paying a premium for their Ikea goods which, if nothing else, demonstrates there is a demand here.
Fan notes that if Ikea entered the New Zealand market, it would have to do the same: “Ikea has local price points for its products, not a global price. Ikea Australia is one of the most expensive in the world due to the overheads.”
“People are looking for practical, affordable and stylish furniture, often for smaller spaces than in the past,” says Fan. “As we move into more modular styles of living in NZ customers want multi-functional furniture and no one else apart from Ikea are really doing that.”
Rick Davies, Trade Me Marketplace, says Ikea is hugely popular with Trade Me’s Kiwi shoppers, noting there’s currently almost 3,000 new and used Ikea items for sale on the platform. Each month, Trade Me sees around 100,000 searches for Ikea furniture.
He says that despite Ikea’s popularity, secondhand and up-cycled goods attract buyers for a number of reasons that may not transfer across to their new equivalent.
“While some are after a bargain, there are some buyers who simply love rare or vintage pieces while others are environmentally conscious,” Davies says.
He believes that if Ikea were to open a store in New Zealand, this would most likely increase the number of secondhand Ikea items on Trade Me rather than undermining it..
Paul Tanday, national director, property asset management for JLL NZ, believes that a traditional Ikea store could work in New Zealand.
“If you look at where they have stores in Australia, like Brisbane and Melbourne, they have a similar market base to Auckland so it shows it would be a big enough market for them,” he says, noting that with a store of that size, the normal retail catchment area wouldn’t apply.
“They would attract people from the North Island and the South – you’d get people coming up from Christchurch for Ikea weekend trips. The main barrier to opening a traditional store is funding – you’d need $90m to come in. It needs a big lump of dirt and infrastructure like roads. It can’t just be put in a paddock in some back block somewhere. Land values are so high, is there even a developer out there who has the ability to loss lead a development of that size?”
It seems that even if the market is there, the sheer size of the stores and upfront investment could be a barrier. It’s worth noting at this point that plans back in 2008 to open an Ikea in Mt Wellington were mothballed due to traffic concerns from local authorities.
“It could be a challenge to find a suitably large site while still in proximity to a population density high enough for the store to be a success,” says Katrina Hammon, partner at Duncan Cotterill and franchise specialist. “For a market the size of New Zealand it is likely that Ikea will seek out one franchisee partner to operate nationally - the challenge is to ensure they have the capital available at the outset of the franchise to cover both the initial costs of the lease and the cost of the stock.”
She says that Ikea is generally known to provide staff, support and know-how but not capital or real estate investment, and it may be that there simply isn’t anyone out there willing to risk that level of investment on the current Ikea model.
Let’s go online
It could be argued that the presence of successful parallel importers has already proven there is a market for Ikea products in New Zealand, but Urban Sales does something which Ikea doesn’t currently do, and that is trade online.
“About 50 percent of our business comes from outside of Auckland,” says Fan. “We can also order things in from overseas on demand. We’ve had customers use us to furnish their whole home.”
This level of personalisation and online convenience is not something Ikea currently provides. In fact, its whole business model is about getting you inside one of its massive, out of town warehouses and herding you around the showroom in a journey of discovery. It keeps costs low with minimal warehouse staff – you collect all the parts for your flat pack furniture yourself – and its delivery options are deliberately, discouragingly expensive. But like the rest of the world, Ikea is having to change to keep up with the lifestyles lead by Millennials and the new generation coming-of-age, iGen. Both these groups are more likely to ride a bike than drive a car, and both groups access a large proportion of their world online, via a hand-held device.
“I would say a new entrant of that size coming to this market would have to embrace ecommerce,” says Tanday, who thinks that Ikea might be better off launching an ecommerce operation to prove their offering in Aotearoa first.
“They’d need to set up their delivery and logistics anyway, and the investment in ecommerce is negligible. They could use that as a test case, a good way to gauge market and invest in bricks and mortar later – after all, building a store could take a long time.”
Tanday doesn’t visualise an ecommerce-only offering.
“Ikea know what they’re doing. They know how to be successful and it’s a strong brand. I think the demand [for a store] would be high. People are proud to shop in Ikea,” he says. “What they do in store which is very clever is they take you on a journey. It’s an experience, there is discovery.”
Hammon agrees with Tanday that ecommerce alone would not be a long-term solution for Ikea NZ, but she also feels strongly a single megastore solution is not viable either.
“The concept won’t work with just one store in say, Auckland,” says Hammon. “Ikea have improved the ecommerce experience and are trialing smaller concept stores [overseas]. This smaller concept would suit metro and regional locations in New Zealand.”
Millennials and iGen are less likely to be able to afford the quarter acre dream than ever, let alone the three kids, two cars, a boat and the dog their parents and grandparents enjoyed. And neither do they want it. For this group, an apartment like those in Auckland’s new compact, car-free Daisy complex isn’t just about affordability, but about lifestyle choice. They’re keen to live smaller and more central, to walk, cycle and use public transport, to lower their impact on the environment and lead simpler, less cluttered lives, and Ikea have recognised this.
Since 2015, Ikea have quietly opened-up around a dozen inner-city ‘mini’ stores worldwide, of around 900 sqm that offer an entirely different experience. With just a few of their hall-mark room set ups to browse, and no café, deli or crèche, these chic show rooms have replaced the physical nature of the traditional Ikea store with iPads that allow you to order your product for delivery or pick up at a later date. Ikea have even purchased San Fran-based start-up Task Rabbit Inc., who will send someone to come and put your flat pack up for you.
“Ikea is trying to future-proof its global dominance with these smaller outlets and with other initiatives including pop-up stores and expansion of its ecommerce footprint,” wrote Carol Matlack for Bloomberg in January.
“Foot traffic at its traditional stores has been stagnant for most of the past five years, as young people—long its core customers—move into big cities, drive less frequently, and do more of their shopping online.”
She quotes Ray Gaul, an analyst at Kantar Retail in London, saying, “The entire premise that Ikea developed was that consumers would be willing to drive their cars 50 kilometers to save some money on something that looks amazing. Young people like Ikea, but they can’t or don’t want to drive to Ikea. Ikea has no choice but to invest in better services.”
Perhaps part of the reason Ikea isn’t here yet is because it is reimagining how it might arrive?
“Anecdotally I’ve heard that in the past Ikea have said ‘Just grab a piece of land, open a box and people will come,’” says Tanday. “More recently, they’ve preferred to align themselves with a retail destination. They’re looking at their proximity to other retailers as being beneficial to them.”
“Logistics will be a key consideration for store locations,” says Hammon. “You can see potential locations will be Auckland, Waikato and Wellington to take advantage of transport infrastructure.”
Hammon also suggests that parallel businesses in the area of delivery and building flat pack furniture could also flourish.
“The challenge of putting it together will, for some Kiwis, cater to the number eight wire do it yourself type mentality, and for others be an immense cause of frustration (and challenge any strong relationship),” says Hammon. “This does make way for new business services such as Kitset Assembly Services. We used this service for a set of bunks purchased from Harvey Norman and it was worth every cent! The bunk was assembled in half the time it would’ve taken us and there was no frustration (aka arguing).”
It’s also worth noting that Ikea are moving solidly into the ‘smart home’ market, announcing a partnership with Sonos and an anticipated launch of integrated sound and music furniture in 2019. They have also embraced upcycling and furniture return projects overseas, appealing to the more environmentally minded young people of today.
The benefits of an Ikea to the New Zealand consumer are extensive, but commentators question if the balance sheet works for the company.
“While furniture is expensive in New Zealand, the lower end of the market is still catered for by the likes of Kmart and the second-hand market, and Trade Me furniture is extremely popular,” says Hammon. “The entrance of Ikea will increase competition, and diminish demand both at the lower end of the new furniture market and in the second-hand market – bringing prices down.”
Great for consumers, but perhaps not so great for Ikea, whatever model they choose. Remember, we are only four million or so people scattered across a large area.
“In New Zealand, Ikea wouldn't have the benefit of scale to stock the full range and offer that value proposition Ikea are known for,” says Hammon. “The reality is, shipping low volumes to a remote country like New Zealand is costly and such overhead will be passed onto consumers.”
Chris Wilkinson, managing director of First Retail Group, believes Ikea will come in with its full offering, or not at all.
“Smaller stores are being trialed in areas where Ikea is already established,” he says. “I don't think they would try standalone stores without customers being able to experience the scale and range a full-service store can deliver, otherwise the whole brand proposition is lost.”
Wilkinson agrees the flagship Ikea model isn’t really suited to the New Zealand market.
“Ikea would need to be able to achieve a number of stores here to make their model work successfully. This may be a challenge in reaching this scale, or achieving the geographical benefits they have in other countries of leveraging central distribution,” he says. “The other issue is that with smaller potential for store numbers they won't achieve economies of scale, which could compromise their value-priced model. This may mean products sold here are more expensive than comparative products sold in other countries - compromising goodwill and confidence.”
There are other concerns for importing into New Zealand as well.
“Companies which import food are required to register as a food importer or use an agent who is registered,” says Hammon. As a central part of Ikea’s offering overseas is its Scandinavian food market and café, presumably it would need to jump through a few hoops to get its products through MAFF.
There’s also the fact that much of their furniture is made from wood, sourced from its own subsidiary company in Europe.
“Compliance could be an issue there,” says Tanday. “Some of their wood products might not even be allowed in.”
It was reported in January that consultancy firm RCG were working with Ikea to establish the viability of the market in New Zealand. Many people believe it’s not a question of if, but when Ikea will arrive. However, it seems there are still many questions that need to be answered before the Swedish flag can be planted in Aotearoa’s ground, and the answers to some of those questions are so complex, they require a re-thinking of the entire brand. I think it’s the level of resistance to that reimagining from within Ikea itself, rather than anything New Zealand can or can’t offer, that will ultimately be the deciding factor.
Ikea’s Australia, UK and Global offices were approached for comment within this article, and had not produced a response by the time this article went to print.
This story originally appeared in NZ Retail magazine issue 757 August / September 2018