IKEA positive on China despite economic slowdown, CEO says
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IKEA does not expect a slowdown in demand for its products in its fastest-growing market, China, despite a sluggish economy, and the world’s biggest furniture retailer is sticking to investment plans for the country, its chief executive said.
A faltering economy has prompted several international retailers to rethink their China strategies, with Britain’s Marks & Spencer saying this week that its expansion drive there could be slower than hoped.
Sweden’s IKEA Group, which owns most of the IKEA stores worldwide that are best known for their budget self-assembly furniture, is however not reappraising its growth plans for China, Chief Executive Peter Agnefjall said.
Having opened three stores in China in the fiscal year to Aug. 31, it plans another three this year, and expects to expand at at least the same pace also in the following three, he told Reuters in an interview.
“We are very, very small still in China,” he said.
“What we see is that many people in China appreciate the IKEA offer and we are making it more accessible to them through new stores. And the middle class will continue to grow, I’m pretty confident about that, so we have a positive view on China.”
IKEA entered China in 1998 and has stepped up expansion in recent years, making the country a priority growth market.
The China business, which still accounts for a small share of group turnover, saw “solid double-digit growth,” above 15 per cent, last year with its 18 stores, with very strong growth also in comparable stores, Agnefjall said.
An online store in China is however not on the immediate agenda but will open only once the group has in place new e-commerce platforms that are in the works.
“It all depends on how well we succeed with that,” Agnefjall said.
ONLINE PLANS
“31, it plans another three this year, and expects to expand at at least the same pace also in the following three, he told Reuters in an interview.”
IKEA’s website had 1.9 billion visitors in the 2014/15 year, up from 1.5 billion the year before. Online sales were however still just a fraction of group turnover, although they exceeded €1-billion for the first time, Agnefjall said.
Companies across the retail sector have rushed to step up e-commerce in the past few years to keep up with rapidly changing consumer patterns, but IKEA has been taking it slower.
IKEA certainly aims longer-term to be a full multichannel retailer, Agnefjall said, but will first finish developing the necessary IT-solutions, and work out how to manage the logistics of large-scale online furniture trade.
“You have to have a reasonable service level. I have respect for doing this with quality rather than with speed, and that’s the way we are driving it,” Agnefjall said.
IKEA sells online in 13 of its 28 markets, having added no online markets last year, Agnefjall said.
“We are investing heavily to make all IKEA markets e-commerce markets. The front end is one thing, to make a new web and e-commerce capabilities online. But the big work lies in the underlying distribution flow.”
IKEA has begun piloting a new web platform in Ireland that it hopes to roll out to all markets in coming years, and is developing an e-commerce platform to connect to it.
On the distribution side, IKEA is trying out a handful of pickup points and Agnefjall expected several more to open in the coming years.
“You have to organize the e-commerce in a thorough way in order to create the right conditions for serving your customers in a good way. We are also investing a lot of energy to convert IKEA to a multi-channel retailer.”
IKEA Group, which runs 328 stores and is controlled by the Stichting INGKA Foundation in the Netherlands, reported on Tuesday an 11 per cent rise in group sales for the fiscal year, with comparable stores accounting for 5 per cent, to a record €31.9-billion ($35.7-billion U.S.).
Sales rose in nearly all its markets, with China the fastest-growing followed by Russia. Agnefjall said the United States was now roughly neck-and-neck with Germany as IKEA’s single biggest market.
IKEA is targeting group sales of €50-billion by 2020.
Questions & Answers
Q.What is IKEA's current expansion strategy for China given the economic slowdown?
What is IKEA's current expansion strategy for China given the economic slowdown?
IKEA is sticking to its investment plans for China despite the sluggish economy. It plans to open three new stores this year and expects to maintain at least that pace for the following three years.
Q.Why is IKEA confident about its growth prospects in China?
Why is IKEA confident about its growth prospects in China?
IKEA believes it is still very small in China and many people appreciate its offer. The CEO also expressed confidence that the middle class will continue to grow there.
Q.When can customers in China expect to see an online store from IKEA?
When can customers in China expect to see an online store from IKEA?
An online store in China is not immediately planned. It will only open once the group has in place new e-commerce platforms that are currently being developed.
Q.How is IKEA approaching the development of its e-commerce capabilities globally?
How is IKEA approaching the development of its e-commerce capabilities globally?
IKEA is taking a cautious approach, prioritising quality over speed. It is developing new IT solutions and working on logistics for large-scale online furniture trade, piloting a new web platform in Ireland.
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