IKEA: ‘bricks and mortar’ coming to New Zealand

Swede Ingvar Kamprad founded IKEA in 1943, initially as a mail-order business selling pencils, postcards and other small items. By the mid 1950s the business was designing its own furniture and exploring the now-familiar concepts of flat-packaging and self-assembly. We examine the group’s arrival in New Zealand and consider the prospects for local manufacturers and suppliers becoming part of IKEA’s range and supply business.

Ingvar & 1958_Almhult Left: IKEA’s founder Ingvar Kamprad. Right: The first IKEA store opened in Älmhult, Sweden in 1958.

According to Will Edwards, IKEA New Zealand Market Leader, the homeware giant’s first priority here will be to set up an online shopping platform … and to establish a store in the Auckland area. “But before our first store opens, we will open a smaller pop-up store so consumers can get a taste of what’s to come.”

Edwards says the Auckland megastore could still be some time away, politely acknowledging the city’s transportation issues as IKEA searches for a location with suitable access. (In 2008 the group missed out on developing a site in Mt Wellington after the Environment Court voiced its concerns about IKEA’s possible impact on traffic flows.)

The group’s arrival could spell the end of the limited number of businesses importing IKEA product – or at least force a reappraisal of their business model. And IKEA’s not-so-imminent physical presence will give a number of retailers time to consider their response to its competitive pricing … and the range and quality of its product. Those affected will likely include Briscoes, Freedom Furniture, Kmart and the Warehouse – and even hardware stores like Placemakers and Bunnings.

Less affected will be those with a countrywide retail footprint – until IKEA makes its promised move to the South Island … and works its way back up, as Edwards puts it.

WIll Edwards & IKEA-001 Left: Will Edwards, IKEA New Zealand Market Leader: “IKEA is always on the lookout for great supply partners.” Right: IKEA Canberra: The group has 10 large format stores across five states and the ACT.

Australian model

An interesting possibility to consider is whether the group’s online shopping platform will require the establishment of a network of collection sites – thus increasing IKEA’s reach beyond one or two megastores. The Australian model could well be an indicator of things to come, albeit on a smaller scale.

Edwards says IKEA Australia has 10 large format stores across five states and the Australian Capital Territory. And there are 38 collection points located in all states and territories.

There is also a recently opened home planning studio in Warringah Mall on Sydney’s Northern Beaches – dedicated to modular kitchens and fitted wardrobes. “The ambition is to use this store as a test and, following this, to roll out similar stores in other major centres in Australia.”

IKA_8161 & IKA_8189 Left: Bedroom and en suite room set on display in showroom. Right: Kitchen products for sale in Market Hall.

Protecting the concept

IKEA’s current business model can be traced back to the early 1980s when founder Ingvar Kamprad looked to protect the IKEA Concept as the business began a period of unprecedented growth. He decided that a franchise system would be the best fit – allowing for international expansion, “while protecting the underlying concept and stimulating the entrepreneurial spirit”.

Inter IKEA Systems B.V., established in 1983, is IKEA’s worldwide franchisor and owner, and continuous developer of the IKEA Concept. It assigns other IKEA companies the responsibility for developing the home furnishing product range, managing purchasing/distribution, producing IKEA communication, and developing food and beverage products.

IKEA franchisees market and sell the IKEA product range and operate IKEA stores and other sales channels worldwide. Currently there are 11 franchisees operating over 400 stores in 52 markets.

Edwards says the franchisee rights to a new country are granted “through ‘profound’ market studies. Last December, Inter IKEA Systems B.V. awarded the INGKA Group – the largest IKEA franchisee in the world – franchise rights in New Zealand.” The group has 367 stores in some 30 countries, including Australia, Germany, the United Kingdom and the United States. It is also responsible for developing critical elements of the franchise system, such as IT operations/development and ecommerce.

IKA_8150 & Hilong_supplier Left: Children’s items for sale in an IKEA Market Hall. Right: Hilong – one of IKEA’s biggest textile suppliers.

Production efficiencies

IKEA’s furniture manufacturing is overseen by IKEA Industry, which comprises 38 production units in nine countries. The units employ around 20,000 co-workers, half of them in Poland.

IKEA Industry produces two types of furniture – solid wood and lightweight or board-based wood. The former includes bedroom furniture and storage systems, while the lightweight products include wardrobes, tables and wall shelving.

Edwards elaborates on the production process: “IKEA products are designed in Sweden and are manufactured in close partnership with suppliers across the globe. We design the price tag first and then develop the product to suit that price.

“Product developers and designers work directly with suppliers to ensure that creating the low prices starts on the factory floor. They consider maximising production equipment, using raw materials efficiently and applying technical innovations and the best possible design. It is all about making the most of our production process, keeping waste to an absolute minimum and considering flat-pack transportation and self-assembly.

“Whilst low price is important there are four other elements in what we call our democratic design process: quality, form, function and sustainability all combine with the low price element to deliver true value in every developed product. Low prices are the cornerstone of the IKEA vision, business idea and concept. The basic thinking behind all IKEA products is that low prices make well-designed, functional home furnishings available to everyone.

“We’re always striving to do things in a better way, such as more responsible sourcing, using resources smartly and sustainably, with higher quality at lower costs as the end result.”

IKA_8125 & IKA_8118 IKEA North Lakes (QLD) restaurant: There is a potential opportunity for New Zealand suppliers to be involved in IKEA’s food business when the first store opens here.

Range and Supply

Edwards says an essential element of the group’s structure is IKEA Range and Supply, which consists of two core units: IKEA of Sweden AB (range) and IKEA Supply AG (supply). They are responsible for designing, testing, producing and supplying the group’s home furniture solutions.

IKEA currently partners with over 900 home furnishing suppliers in 51 countries – with an average supply period of 11 years. Edwards adds: “We value long-term partnerships/relationships with our suppliers – based on a shared business model and values.

“Through our IKEA Range and Supply business, we already have a long association with the New Zealand timber industry. All the pine sourced locally is FSC certified … an important part of our forestry criteria.

“We are also working with the New Zealand wool industry and local farmers to establish a fully traceable wool supply chain. In this regard we have decided to work with the Responsible Wool Standard (RWS) to ensure our wool is 100% responsibly sourced by 2025. [RWS is ‘a voluntary global standard that addresses the welfare of sheep and the land they graze on’.]

“And there is a potential opportunity for local suppliers to be involved in our food business when the first store opens.”

Initial indications are that IKEA is not looking to manufacture products locally. However, if its website is anything to go by, it “is constantly looking for partners [suppliers] who have the right strategic fit for long-term growth with IKEA … partners who can supply products, components, raw materials and services.”

When pressed, Edwards acknowledges the stringent criteria involved in becoming a supply partner … notably the challenge of supplying sustainable volumes to a global player. Further, suppliers are expected to play a significant role in creating home furnishing solutions “by providing knowledge and ideas on how to improve both the product and the production”.

The cost of freighting furniture to New Zealand could yet persuade IKEA to explore some ‘localisation’ – but only if manufacturers here can reach its cost, quality and volume requirements. It’s a big ‘if’, but interested parties can began by clicking the following link: https://inter.ikea.com/en/inter-ikea-group/ikea-range-and-supply/

– Michael Smith

All images: © IKEA

fcanz

This information box about the author only appears if the author has biographical information. Otherwise there is not author box shown. Follow YOOtheme on Twitter or read the blog.