Ikea May Be Losing Sales Soon

A visit to Ikea always ends up being an all-day affair — and that’s without counting assembly time.

You know what time you are going in, but you have no idea what time you are leaving. Their maze-like stores are cleverly designed to keep you in for as long as possible.

Every store is very similar worldwide.

The showroom — a real life catalogue — is the first part you experience as you walk in.

And it quickly draws you in. It’s what an ideal, well-designed home should look like.

Ikea encourages you to try, touch and explore. And that’s what you do.

As you leisurely follow the crowds along the path, you stop to check out an ingenious storing solution or to sit on comfy sofas.

The whole experience is set up to make you feel at home. And during your visit Ikea points out everything you lack at your place.

As soon as you leave the showroom, you are smack in front of the restaurant. Sitting on all those plush sofas surely gave you an appetite.

So you stop and grab some really cheap meatballs.

And only with a full belly do you realise you have been in the store for two hours without buying anything.

So you head down to the basement. You grab one of their oversized shopping carts — those that always look half empty no matter how many items you put in them.

And as you zigzag through every corner of the store, temptation for impulse buys is everywhere. The basement is filled with small items that are everyday needs — things you had not intended to buy.

But the price is great. So you place them in your oversized trolley — just in case.

Soon you have a trolley full of things you never planned to buy.

And once you have paid at the cash register, you are not off the hook — yet.

There is the OpShop. And the supermarket — where you can pick some of those meatballs.

And who can resist a 50 cent hot dog for the road?

It’s not surprising that a trip to Ikea means spending more money than what you had originally intended. According to Professor Alan Penn from UCL Bartlett School of Architecture, around 60% of purchases made at Ikea are for things you hadn’t come for.

Their stores are designed so you go past every item they have in store — literally, you see the whole store.

And that’s why they are so successful.

It’s true that their furniture is functional, has great design and is priced right. But it is at the showroom where people visualise how things will fit in their home.

The fact is, people are more likely to buy an item if they get to try it.

The stores are central to the Ikea concept. And their whole business concept is based on people visiting the store.

So I was surprised to hear that Ikea is planning a major shake-up by expanding online.

In Australia, they are planning to open an online store, in addition to small locales where people can pick up their online purchases.

So why discourage people from visiting the stores they so carefully put together to maximise sales?

They are trying to entice potential customers who do not want to visit the store.

But by going online they are losing the customers that do visit. And with them, they are missing out on impulse sales. After all, it is much easier to remove items from the online shopping basket once you see how much it will cost you than at the check-out in the store.

Ikea currently has online stores in 13 countries — roughly half of the 28 countries it operates in.

In 2015, Ikea recorded sales of €31.9 billion. In comparison, online sales amounted to €1 billion — only 3% of total sales.

Even their worldwide food sales were more than their online sales. In 2015 they accounted for €1.6 billion.

A reason for their low online sales could be as a result of delivery costs. In the UK, the starting price is GBP49 (approximately AU$95) for a small number of nearby postal codes. And it increases the farther you go. It’s quite expensive.

A way to avoid the delivery charge is by picking up your online order at the store. But that defeats the convenience of ordering online in the first place.

If Ikea wants to expand online, they will need to make delivery prices more affordable. And they will need to find a way to replicate impulse purchases on their online store. Or they may risk losing sales.


Selva Freigedo,
For Markets and Money

PS: Selva recently joined the Port Phillip Publishing team as our macroeconomic analyst. She works closely with Markets and Money editor Vern Gowdie on his advisory service, The Gowdie Letter.

Having lived and worked in Argentina, Brazil, Spain, the US, and now Australia, Selva has firsthand experience with economic phenomena such as hyperinflation, housing bubbles, deposit freezes, and debt defaults. Alongside Vern, she uses her experience and knowledge to highlight the dangers facing Australia’s debt laden economy to help protect you from the inevitable collapse on the horizon.

To find out what you can do today to protect your wealth from the looming market meltdown, go here.

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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