Thinking Outside the Håbol

cr_janfeb08_lowres-ikea-1

How IKEA took the world by storm with low prices, smart merchandising … and one lonely, little lamp

Canadian Retailer – January/February 2008

By John Schofield

His name is Jonas Fornander. And for millions of Canadians, his laughable, lilting Swedish accent on 30-second radio spots is instantly synonymous with IKEA, the global furniture and housewares giant with the same Scandinavian heritage. The Swedish actor, who now lives in Los Angeles, first imprinted his distinctive voice and offbeat personality on the public in 2003, when he appeared in a Clio Award-winning TV ad called The Lamp, directed by Spike Jonze for the company’s “unböring” campaign. Set to sad music, the 60-second commercial focuses on an old lamp that a woman has tossed on the curb and replaced with a spiffy IKEA model. At the end, as pouring rain drenches the limping lamp, a soaked Fornander suddenly walks into the frame to tell viewers they’re crazy to mourn for the castaway item. “It has no feelings,” he deadpans. “And the new one is much better.”

Fornander’s funny ads on radio have helped encourage Canadians to buy a lot of IKEA lamps, not to mention its huge assortment of other products. Like its European parent, privately held IKEA Canada does not report current sales figures. But for the year ending Aug. 31, 2007, the Burlington, Ont.-based company’s 11 stores posted sales of $1.3 billion, says president Kerri Molinaro. That compares with sales of $350,000 from seven stores in 1996. IKEA owes its success in Canada not only to smart marketing, but its masterful combination of attractive, functional design, affordable prices, and effective merchandising. “There are very few brands that can change your life – IKEA can,” says Elen Lewis, a U.K.-based freelance writer and author of the 2005 book Great Ikea!: A Brand for All the People. “IKEA sells the seductive promise that your dowdy home can be transformed with an Issjo lamp and a carefully positioned Tajt vase. It’s persuaded us that fashion is no longer what you wear but how your home is decorated.”

Founder Ingvar Kamprad, who at 17 took his own initials and those of the family farm (Elmtaryd) and the nearest village (Agunnaryd) to form the company name, seemed to sense the success that IKEA would find in Canada. As a Swede, he may have appreciated the austere northern mentality. The company opened its first Canadian store in Richmond, B.C., in 1976, almost 10 years before it set foot in the United States. The Toronto suburb of North York followed in 1977, followed by Edmonton in 1978 and Calgary and Ottawa in 1979. Today, IKEA has another store in Vancouver, two more in Toronto, two in Montreal, and its Burlington location. “There are a lot of similarities between Canada and Sweden,” says the 46-year-old Molinaro, a Toronto native who served as president of IKEA Sweden from 2001 to 2005. “It was a natural to come here.”

Today, IKEA is rapidly becoming a truly global brand, with 231 stores in 24 countries. Stichting INGKA Foundation, which owns the IKEA Group, is based in the Netherlands. But important head office functions are still based in Sweden, including Helsingborg and a 1,000 employee design centre in Älmhult. While more than 80 per cent of its employees (called “co-workers in IKEA-speak) are still based in Europe, IKEA stores are also located in Australia, China, and Japan. Another 29 stores are owned and operated by franchisees outside the IKEA Group in countries such as Israel, Saudi Arabia and Malaysia. The retailing giant expects to open 25 stores in 2008, with the most rapid growth occurring in Russia and the United States. Worldwide sales for the year ending Aug. 31, 2007, totalled $29.3 billion.

The 80-year-old Kamprad, considered one of the world’s richest men, is now officially retired, but he remains actively involved in the company. One of the pillars of his philosophy is “democratic design,” which comprises beautiful form, practical function and affordable price. IKEA occupies a unique niche in almost every market. While it faces stiff competition in some parts of its 9,500-item product range, no store really comes close to offering the same depth and breadth of selection for the home. British design magazine Icon lauded IKEA for bringing contemporary design to the masses, and called Kamprad one of the most influential tastemakers in the world today. In a 2005 cover story on IKEA, Business Week called it a “one-stop sanctuary for coolness.” “They have a great taste level at a price,” says Toronto-based retail consultant Wendy Evans. “It’s contemporary and reasonably priced, so that takes in a very broad section of the market. They’re very well positioned.”

IKEA has developed a tried and true format over its 64-year history – and is sticking with it. Stores are located in large population areas, with easy access to major highways. They typically measure 355,000 to 376,000 square feet, with furniture upstairs and the self-serve warehouse and Marketplace accessories section on the lower level. The locations in Edmonton, Calgary and Ottawa were originally “midi” stores, measuring about 135,000 square feet. But IKEA eventually abandoned the concept and reverted to the old reliable. “It’s better to start off big,” says Molinaro. Edmonton and Calgary have been totally rebuilt and enlarged, and Ottawa may be expanded in the next year or two. The traditional IKEA format also includes a restaurant, which seats about 450 people and offers largely Swedish fare. “The thinking is customers can’t shop on an empty stomach,” jokes Molinaro. “It’s really meant as a service to our customers.”

To maximize exposure to every product, visitors are channelled along a path that covers the entire store. IKEA calls it the “long natural way,” and getting off it can be a challenge. Those who know the store can opt for the “short possible way,” taking doors at the back of each department that can cut off two-thirds of the showroom. Taking the scenic route leads patrons past 45 to 50 room settings, including completely coordinated living rooms, bedrooms and kitchens. Each store has a staff of 13 to 17 interior designers who arrange the room settings. “When you go in, you can gather all the ideas, you can see things in room settings and you can go get it,” says retail consultant Evans. “I don’t know of anyone who has executed that concept as well as they have.”

While the selection is essentially the same in every store around the world, some modifications are made to suit local tastes. The Boucherville store on Montreal’s south shore, for example, plays up the “antique pine country look” that is popular with customers there, says Molinaro. In the Toronto suburb of Etobicoke, where condos are increasingly dominating the skyline, the store emphasizes a modern, urban look. In the bedroom community of Burlington, families rule the day. IKEA’s interior design staff visit co-workers’ and customers’ homes whenever possible to get a bitter idea of how people in the area are living. “We also look at market research,” says Cass Hall, IKEA Canada’s 37-year-old marketing manager. “We don’t go overboard, but we do look at demographics.”

To keep things fresh, 30 per cent of the range is renewed every year, and products are introduced seasonally. In 2008, the company will continue its emphasis on new concepts for the bedroom, living room and kitchen, including folding and stackable kitchen and dining furniture for small spaces. IKEA also plans to unveil new beds, clothing storage ideas, mirrors and fabrics for the youth market, as well as new, completely co-ordinated textile collections with a Scandinavian flavour. “I think that’s part of the appeal of IKEA – we’re always reinventing ourselves,” says Molinaro, a veteran of Holt Renfrew, Monaco Group and Birks who joined IKEA in 1992 as manager of the North York store. “We really have done a great job in range development.”

Urged on by Kamprad, IKEA takes an almost fanatical approach to squeezing costs out of every process, passing the savings on to its customers. Molinaro sums up the attitude in three words: “We hate waste.” The all-out hunt for economies inspired IKEA’s invention of flat-pack furniture in the 1950s, instantly taking the air out of the shipping stage. That innovation alone has saved untold billions. While customers sometimes grumble about the challenges of assembling their own furniture, they’re usually appeased by the attractive price tag. In 2006, says Molinaro, IKEA Canada made $50 million in price cuts, and another $35 million in 2007. It calls them lower price “investments.” While Canadian retailers face consumer pressure to adjust prices in the wake of the strong loonie, IKEA is ahead of the game. “We’ve been taking prices down for years,” she notes proudly, “and we continue to look for opportunities to do that.”

IKEA preaches low price – but not at any price. That may be one reason why it has escaped the criticism levelled at some retail giants, who are accused of sacrificing everything in search of the lowest cost supplier. Molinaro says that 64 per cent of IKEA’s purchases still come from European suppliers. Evans commends the company for being one of the most socially responsible retailers in the industry. Suppliers are required to conform to “IWAY,” a code of conduct that bans child labour and sets out standards for working conditions, minimum wages, and pollution controls. Suppliers are subject to random audits. The company is involved with UNICEF and Save the Children to improve child welfare around the world, and is working with the World Wildlife Fund on a number of environmental issues. In Canada, says Evans, IKEA is involved with The Bay in a transportation initiative that is helping to shift traffic off the road and onto the rails.

IKEA Canada’s brand “personality’ is reflected perfectly in its marketing and advertising campaigns. To communicate key brand messages, the company favours television and magazine advertising. It turns to radio, newspapers and direct-mail brochures to announce special promotions and drive customers to the store. The website, relaunched in June, offers hundreds of pages of information and helps prepare people for their visit. Currently registering about 1.5 million hits a month, it is also the basis for a rapidly growing home-shopping business. And then there’s the ubiquitous catalogue. The company claims more copies have been printed than the Bible. For the 2008 edition, 191 million were published in 27 languages. “People talk about 360-degree branding, and I think IKEA really does have that,” says Hall, a transplanted Aussie who joined IKEA Canada in 2004. “We touch people in so many ways.”

The overall marketing strategy is made in Sweden, with a special focus currently on kitchens and bedrooms. Managers in each country have the freedom to tailor their campaigns to their own particular markets. But IKEA ads always speak a common language: humour. In one recent TV ad, titled Pool Boy, a woman enters a beautiful IKEA kitchen, and soon notices the pool cleaner staring through the window. She primps herself, thinking he’s looking at her. It soon dawns on the viewer that he’s admiring the kitchen. “There’s an expectation that the IKEA brand is surprising and unconventional,” says Hall. “We call it twinkling the eye. It’s more and more important these days. If you want to cut through and be different, you need to give people a chuckle.”

In IKEA’s case, those people are largely women. As every marketing manager knows, women influence 80 per cent of purchasing decisions, and that’s especially true for home furnishings. IKEA places ads around women’s TV shows and in home décor magazines. “It’s important you connect with women in an emotional way,” says Hall. “We’re always trying to identify a truth. It might be around a relationship, or just in the way you present a product – the way it’s styled or solves people’s needs in the home. But there’s always a warmth and humour.”

To craft those messages, IKEA Canada entrusted its advertising in 2004 to Zig, a Toronto-based agency that counts companies like Molson, Best Buy and Unilever among its major clients. Founded in 1999 by Toronto ad execs Andy Macaulay, Elspeth Lynn and Lorraine Tao, Zig was the brains behind the idea to use Jonas Fornander for IKEA Canada’s radio spots. “They understand us and they understand retail,” says Hall. “They understand that you need to be open and you need to be clear. And the whole twinkle idea they get. They also work hard and work fast, which is important in our business.”

Molinaro calls Canada a mature market for IKEA. The company will continue to grow here, but expansion will be measured. One priority in the coming months, she says, is to enhance IKEA’s customer support by making its home delivery, installation and assembly services even stronger. As the last remaining midi-store, Ottawa is a potential candidate for expansion. And new stores are likely if suitable population bases are identified. Halifax, Winnipeg and London, Ont., are among the cities that have been considered. “We’re always doing market research to see what markets could handle an IKEA store,” says Molinaro. “We’ve talked about possibilities, but nothing’s been confirmed.”

What seems certain is IKEA’s future as an international retail icon. Maybe it’s that egalitarian Swedish touch: like Stockholm-based fashion giant H&M, IKEA has clearly excelled at bringing accessible design to the masses. By all indications, the Kamprad family’s Scandinavian sensibility and retailing brilliance will continue to guide the company. Kamprad’s son Peter is tipped as a likely successor. “Ingvar Kamprad had a vision for the company: to create a better everyday life for the many people” says Cass Hall. “This is a real, living vision, and it has inspired the company since he started in 1943.” It’s proven to be an inspiration to millions of Canadians, too. And that would make Jonas very happy.

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