IKEA Canada constructs a brand for the future

As the popular retailer faces stiff competition, it's building new in-store and online experiences (no Allen key needed).

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Like putting together one of IKEA’s Billy bookcases, building a sustainable omnichannel retail business in Canada often requires more elbow grease than first thought. But as IKEA Canada continues to be a popular place to buy everything from Ektorp sofas to köttbullar (a.k.a. meatballs), it’s putting considerable energy into ensuring it stays that way going forward.

Business has been good here, with the Canadian division of the Swedish-born global home-furnishing retailer selling 347,485 Billy’s alone in fiscal 2018. Of course it sold many other items during the financial year ending August 31, 2018, with sales rising 8% to $2.39 billion. And its marketing initiatives in Canada, from its sell-back program that looks to reduce waste to its “Beautiful Possibilities” platform by AOR Rethink that also touts reusing items, have been well-received over the past year, though fiscal 2019 sales results have yet to be revealed.

Despite all the recent positive momentum, IKEA Canada has been making some significant changes  from cancelling the bulk mail-outs of its shiny print catalogue to expanding more into brand partnerships and doubling down on in-store events  as it aims to keep pace with its many rivals these days, including global online giants like Amazon as well as homegrown direct-to-consumer competitors such as Article.

While the retailer (which was one of strategy‘s 2018 Brands of the Year) has opened two more large, maze-like stores in Canada (bringing the total to 14 stores, plus five pick-up and order points and 17 collection points), the online side of the business drives a relatively small, but rapidly growing, part of its annual revenue, rising 18.8% to $241.57 million in fiscal 2018. In a nod to the increasing popularity of online buying, the retailer just launched a flat $5 click-and-collect rate at all Canadian stores, as well as parcel delivery starting at $7.99.

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New “furnishing festival” series kicks off soon

In contrast to catering to a growing audience online, IKEA is also looking to make shopping more appealing inside its stores. This year, the Canadian arm is debuting four “Home Furnishing Festivals” (HFF), the first of which is being held in stores this Friday (Aug. 16), followed by seasonal store events in October, February and April.

“Our customers still enjoy visiting our stores to experience our products in a real environment. They like to see, touch and feel the inspiring room settings, and engage with our co-workers to get home furnishing advice,” said Kathy Davey, head of communication and interior design at IKEA Canada, of the interactive events in an email to strategy. “We also know that in today’s digitally-savvy environment, shopping behaviours have changed and traditional brick-and-mortar stores are becoming more experiential and for this reason, we’re focusing on larger scale in-store events.”

While investing in in-store events may seem counter-intuitive when the online side of the business is growing, Carl Boutet, chief retail strategist at StudioRx, said that it’s a good strategy considering more than 90% of IKEA Canada’s sales take place in store. Also, the average conversion and transaction rates in brick-and-mortar stores are still “usually significantly higher than online,” added Boutet.

Sean Claessen, chief strategy officer at Bond Brand Loyalty, also calls the in-store event program “good business,” as it allows IKEA to drive store traffic at key times throughout the year. He adds that these in-person events, such as a family-friendly PJ party, also give the retailer an edge over online retailers like Amazon  whose only human interaction with customers comes when a delivery person hands you a package.

2019 brings big changes to its loyalty program and iconic catalogue

The events are also a way to connect with members of the IKEA Family loyalty program, which is currently “undergoing a rework in Canada,” with a rebrand set for this September, says Davey. Currently the program is free and offers perks such as access to in-store events, exclusive deals, a newsletter and monthly contests.

“I’m not surprised IKEA is revamping their loyalty program, I am surprised it took this long,” said Claessen. “It’s a good idea, a lot of the stuff [they’ve been doing] feels staid, not so modern by current standards.”

Specifically, Claessen said offering things like free coffee in-store is not enough to compete with global giants who often offer much more than that to loyal customers. Consumers are directly comparing IKEA’s program to the likes of Amazon’s Prime loyalty program, noted Claessen, and while the online retailer currently charges $7.99 per month to Canadians for Prime it offers more modern perks, such as free same-day delivery in some cities as well as access to its streaming service.

This year also saw the discontinuation of the IKEA catalogue, with the retailer announcing that it will no longer be delivered to Canadian homes. Instead, it will be made available online, with printed copies available only in-store.

“I suspect this is a test for IKEA to see the impact on driving traffic to store and the website, versus cost of producing/distribution,” said Boutet. “Plus it aligns with their carbon-footprint reduction objectives.”

Finding relevance (and adding convenience) through partnerships

In the past, IKEA would primarily partner with designers on products like a rug or coffee table. But in recent years, IKEA’s various global outposts have collaborated with commercial brands, from Lego to Adidas to Sonos (which it’s now working with to design furniture that has built-in WiFi speakers from the audio brand).

“I think this partnership with Sonos is very interesting,” said Claessen. “I think that kind of thing will breathe life into their brand and breathe relevance into their brand.”

And beyond partnering with relevant brands to up its cred, IKEA also teamed up with TaskRabbit in Canada last year to help solve one of the retailer’s main pain points  putting its furniture together.

Both Claessen and Boutet say certain changes (like scaling back the investment in the print catalogue in 2019) were overdue but that the retailer is headed in the right direction by proactively making moves to stay fresh and modern in an increasingly competitive retail environment.

“IKEA is constantly trying new market approaches in very smart, iterative ways,” said Boutet. “Their near perfect vertical integration (producing 99% of what they sell) while regularly on trend continues to be a strong competitive advantage… they’re simply brilliant and very hard to compete against.”