Summary
Following announcements that red tape and bureaucracy may delay or kill expansion plans in some countries, the world's top furniture retailer clearly sees great opportunities in China. With 21% of its purchases made in China (top sourcing country for the chain), an insignificant part of sales made there (perhaps less than 2%) and exploding consumer demand for housing and related furnishings...how can IKEA possibly miss? In a tough economic environment, IKEA continues expansion and continues sales growth (although there are no same store comparisons easily available...so perhaps growing mostly through new-store openings). Their format makes every visitor a customer on the very first visit because it is impossible not to find something to buy (even if it is only a plate of meatballs or a Coke). The company sells nearly $1.5 billion of food annually!
Analysis
At 42,000 sm (over 450,000 sf), IKEA's Beijing store is second only to the 55,000 sm (nearly 600,000 sf) Stockholm flagship. Wanting an even larger second Beijing unit means the new store might even become the chain's largest.
China is by far IKEA's largest sourcing partner (21% of purchases) and close to its smallest market (probably less than 2% of sales and only 7 retail units or less than 3% of their total stores). This means they buy the goods in China and then export them to other countries simply because they don't have the retail footprint to sell the goods to China's furnishings-starved consumers.
China's consumers should love absolutely everything about the IKEA experience. It's young, it's hip, it's big, bright, crowded and noisy, and it's "western". They can sample some Swedish meatballs (Chinese are some of the world's most adventurous eaters) and buy everything from a jar of mustard or a dish towel to a houseful of cool furniture.
The average IKEA store receives well over 6,000 visitors and makes sales of around $250,000 per day (something like $40 per shopper). Considering the size of the current Beijing unit and their plan to make the new one even larger, the sales volume potential is absolutely incredible.
IKEA's format simply works. It attracts consumers, captures them with excitement, convinces them that the products represent great design & function at a significant value (while they may actually not be extremely competitively priced) and converts shoppers into paying customers. If, by chance, the visitor doesn't buy on that first visit, the amazing catalog will be taken home and remain a constantly teasing reminder of all the great stuff waiting for them on their next IKEA visit. And, if that weren't enough, there is always the IKEA website to tantalize China's internet-crazed shoppers.
As long as they stay on-track and true to Mr. Ingvar Kamprad's (the "IK" in IKEA) founding philosophy, IKEA should continue growing no matter the economic environment. This will bode well not only for their customers (who find the products they want and need at prices they can afford), the company itself but also their 1,400 suppliers (particularly those in China who will see huge increases). Considering that not all IKEA stores need to be so huge, there should be nearly limitless growth potential for the chain in China.
Curious about some details of the amazing IKEA story? Have a look at 2008 IKEA highlights.
