IKEA Transformation

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Who would ever think that renting furniture will become a better idea than buying?!   –

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Being one of the first to come out with eco-friendly shopping bags, IKEA continues to embrace the certainty of change with revolutions that trailblaze through the backdrops of energy and the IoT to lead the world, governments, companies and consumers alike, into the future, together. The avant garde of our time is expected to be among the first companies ever to attain 100% energy independent. When it comes to utility dynamics, not only will it produce as much as it consumes, it will also be able to generate and feed clean energy to other sectors, thus turning a massive polluting cost into a zero footprint profit center. As going green has mostly been misunderstood as simply another trendy tree-hugger movement, according to Steve Howard, IKEA Group’s Chief Sustainability Officer, going green is just sound economics 101, “renewable energy is common sense energy – it’s a great thing for the Chief Financial Officer as well as the Chief Sustainability Officer”. The very outlook has been guiding innovation at IKEA to turn legacy obstacles in all areas into contemporary opportunities. The changing frontier at the time is the new sharing-circular economy through collaborative IoT-powered platforms where consumers share and trade underutilized high value assets in the form of rent or lease. Thus, it has launched a rental service that will allow customers to temporarily use furniture that makes no sense to own or cost too much.

In Q3, or toward the end, of 2018, IKEA revealed that its business performance based on profit before tax stood at approx. Baht 77,700 million, a 36% decrease from  the same period of  the previous year, which reflected consumers’ increasing preference for shopping online.    Besides, IKEA was also faced with a rise in raw material and, in turn, production cost.  Worse still, the ongoing trade war between the United States and China has had a direct bearing on the production process as far as IKEA’s ‘Made In China’ products were concerned.   All these led to IKEA’s business innovation involving a shift from the conventional marketing model focusing on product manufacturing and sales to furniture rental business staring with office furniture rental service, to be followed eventually by kitchen furniture rentals.  The move is seen as a measure to solve problems stemming from concern over production cost as well as the environmental impact caused by old-used furniture disposal.  The new business model for furniture is designed to keep up with the circular economy approach along with millennial consumption behavior where more and more prefer leasing services over long-term ownership that comes with unsustainable responsibility, in exchange for daily convenience and flexibility.

              Last February, IKEA launched an experimental furniture rental program for organizations (B2B) in Switzerland and Sweden with a plan to further expand the project to serve general customers (B2C).  The company expects to launch the service in approx. 30 countries by 2020.  At present, rentals of beds and classroom furniture (desks and chairs) are generating an impressive revenue of approx. Baht 1,074/month on average.

              IKEA has offered 3 advantages that comes with retail-to-rental business diversification:

1. To respond to IKEA’s three business purposes, namely

  1. Accessible prices – Regardless of the change in marketing strategy, IKEA is determined to sustain its identity while adhering to the concept of reasonable price setting.
  2. Convenience – IKEA is gearing up for more online business operations with a tendency towards diversifying into round-the-clock services while planning to open more small-sized stores in urban areas as a means to access consumers without being attached to conventional brick and mortar sales models.

  1. Acknowledging the ‘circular economy’ trend to ensure sustainable business growth – All IKEA products are designed to reflect the circular economy concept focusing on repairability, reusability and reprocessability-recyclability to obtain new raw materials which can be manufactured as new products.

2. To respond to the consumer’s demand particularly in the case of the millennials who prefer leasing to buying – more young consumers today prefer rent over ownership to reduce expenses incurred in the area of maintenance and long-term responsibility.  Whenever there is a need for lifestyle-change to accommodate new living quarters, relocation or social trends, rented products can be returned to the rental companies and swapped for new models or styles that better fit adjustments at the time without having to worry about selling or disposing the old one they currently possess, let alone a large sum of money to payoff.

3. To respond to the consumer’s insight as consumers want to play a role in saving the environment and global natural resource conservation – Based on IKEA’s Consumer Insight survey, consumers are nowadays well aware of environmental problems while 90% of them are poised to adjust their behavior to play a role in environmental as well as global natural resource conservation.

Just as business competition is getting fierce, the key to success in winning over consumers while enjoying a competitive advantage in business lies in the ability to access and assess every consumer channel before needs or demands are vocalized.  Instead, businesses should take the initiative to evaluate consumption patterns in attempt to understand and respond to needs that stays a secret or discarded. All in all, this sums up the emergence of IKEA’s concept for furniture rentals.

Compiled by BLOG.SCGLogistics

Article credits: marketingoops.com, brandinside.asia, prachachat.net

Picture credits: unsplash.com, franchisor.ikea.com, dezeen.com

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