Close to home

As the UK continues to reel from the fall-out of the Northern Rock fiasco, Ikea has launched a full-scale attack on the very market that it relies on to keep sales buoyant. In an initiative that may, at first, seem counterproductive for the furniture giant, Ikea is encouraging householders to stay put and do up their homes rather than sell them.

Ikea’s biggest campaign to date, entitled Home is the Most Important Place in the World, takes a rebellious stance against estate agents and home-improvement gurus who push homeowners to depersonalise their living space to ensure maximum profits when it comes to selling.

“We could argue that Britain has moved from home is where the heart is to home is where the money is,” says Ikea UK head Peter Hogsted. “We move from house to house to make money. Our generation will live in 16 different homes in a lifetime – perhaps more – and the average 65-year-old has had only five homes during their lifetime.”

But the tongue-in cheek campaign, which encourages people to post Not For Sale signs outside their homes, has a serious message. As successive interest rate rises begin to bite and the property boom seems likely to tail off, Ikea’s determination to reignite the Englishman’s emotional attachment to his castle is timely.

Ikea UK’s most recent accounts showed a sluggish 2 per cent rise in turnover to £1.08 billion for the year to August 31, 2006. Profits fell from £75.9 million to £67.9 million. Hd says that, while the UK home furnishings market is undoubtedly tough, the results also need to be seen in the context of heavy investments by the retailer as part of a five-year, five-point strategy ending in 2008.

The retailer has ploughed £250 million into updating existing stores and a further£500 million into openings since 2003. The benefits are being seen as Ikea completes the investment programme, says Hd. Sales for the year to the end of August 2007 have since soared by more than 7 per cent.

“The campaign is a little contradictory,” he says. “The more transactions there are in houses, the better the home furnishings market has it. But we are saying: ‘Let’s challenge ourselves a little.’ As a home furnishings company, we should have a point of view about home, which is that this ridiculous trend for decorating in beige and off-white has to stop. Now we have to start living and we have to put our personal energy and individuality into our homes. If you want green stripes with blue, so be it – go for it, enjoy it.”

Ikea opened its first UK store in Warrington in autumn 1987 and, by 1999, it had opened eight more in England.

“That was a time when there was a call for renewal in UK society and New Labour was coming into power,” says Hd. “We launched our marketing campaign at that time – Chuck out the Chintz – so, in a way, we were riding on this wave of change in society and there was a huge demand for Ikea, for Scandinavian design and for redoing and changing your home with a positive outlook for the future.”

Spanner in the works

But the retailer found its expansion plans stalled by restrictive planning regulations that favoured inner-city locations and it was unable to cope with rising demand. “We were not good enough to accommodate the demand and customers at times were not finding their shopping experience at Ikea very impressive,” admits Hd. “The pressure was too much.”

Scottish openings in Glasgow and Edinburgh in 2001 and 2002 failed to alleviate the problem. So, in 2003, Ikea had to assess the UK business in a new way, resulting in the five-year plan. It invested in mezzanines in existing stores and overhauling its logistics operations; it increased the number of checkouts and updated stores; facades were reclad, parking reviewed and opening hours lengthened.

The second element of Ikea’s strategy involved creating a small footprint store format that could be located on edge-of-town sites. Ashton-under-Lyne opened a year ago and Hd describes it as a “positive” performing store. In December, a store in Coventry will open.

“I think we will learn a lot about traffic and congestion [from Coventry],” says Hogsted. “I don’t think it is sustainable that retailers should move into the town centres. I think that you should treat different concepts differently.”

Hd is highly opinionated on the subject of planning rules in the UK. He is happy that Prime Minister Gordon Brown is reassessing regulations, which he hopes will favour his ambition to have 30 or 32 stores in the UK.

He says: “We expect to see changes in the planning system, which could enable us to move faster in our expansion. We are struggling to find suitable sites in city centres.”

By the end of next year, Ikea will have 19 shops in the UK and it has created another store with the launch of its transactional site. Hd wants the latter to generate£80 million in turnover – the equivalent to a mid-sized outlet – once it becomes available to 100 per cent of households in early 2008.

“We are viewing this as a business channel, but first and foremost it is an accessibility channel or a service channel,” he says. “We do not want to subsidise our store customers. Our concept is built on we do 50 per cent, or half the job, and you as a customer do the other 50 per cent and together we save money. With the introduction of e-commerce, there is a part of what you do as a customer that we start to do for you, so we also charge you a convenience fee.

“The cheapest possible access to Ikea is still through the blue box and it should be like that. We see a lot of our competitors talking about free home delivery, but we know that there is nothing in this world that is free. They are subsidising that and store customers are paying. We want to have a more transparent business model.”

Too top-heavy

The next part of the strategy was the restructuring of Ikea’s UK business, resulting in the loss of 350 managerial positions over the summer. “Our organisation, which we hadn’t looked at for years, became a little too management-heavy and a little too bureaucratic,” Hd says.

He is quick to emphasise that the exercise was not a cost-cutting one, but designed to bolster the number of employees in customer-facing roles. “It is about becoming leaner, more simple,” he maintains.

He adds that the investments and strategic changes are in preparation for an upturn in the market, which he is confident will come, maybe as early as next year. “We should be ready with far more stores and stores in better shape with an organisation that is far leaner, far simpler and more customer-orientated,” he says.

And Hd is looking forward with relish. He regards competition as invigorating and welcomes the advance of supermarkets and other retailers, such as Tesco, Asda and Marks & Spencer, into the home furnishings market.

“I think that the more big players that go in, the easier it will be for the market to pick up again, because the more we stimulate interest in home furnishings, the better,” he says. “There are a number of big players, but there are a lot of fragmented, small players, so I think that to have some of the big companies coming into our field and starting to communicate home furnishings will benefit all of us.”

But not all big players have benefited from the UK market. Fellow four-lettered Scandinavian furniture retailer Ilva hit the buffers earlier this year before being bought by Danish entrepreneur J᫵p Jacobsen.“I have grown up with Ilva as one of the bigger Danish home furnishing companies and I was surprised that it chose the UK as its market for expanding,” says Hd.

“I think that we will see a new attempt with Ilva, but I don’t see Ikea competing with it. Jysk is pretty aggressive on low prices in textiles and we see that. On the textiles front, Zara Home is also very interesting to follow and I think it is becoming better and better in its offer. I think that, this year, a lot is happening and I find that stimulating to be part of.”

With Hd at the reins, there is a strong likelihood that Ikea will be leading the reinvigoration of the home furnishings and furniture market. Its latest campaign – the final element in its five-point plan – generated almost 1,500 hits on You Tube when it posted Not For Sale signs outside Arsenal’s old football ground, which is being redeveloped with flats at sky-high prices.

“This is very much a move away from tactical price communication; talking about how we should look at home,” says Hd. “So it is not driving traffic, but working more on a long-term positioning and branding of Ikea.

“I hope people will start to discuss in the pubs, sports clubs and with their families at home how we see houses and homes and start saying: ‘Shouldn’t we focus on living?’ If people will start to discuss that, we will have achieved a hell of a lot.” Post-Northern Rock, Ikea’s new positioning might well capture changing consumer sentiment.