Interview: Making Ikea relevant for millennial shoppers

After crossing the bleak North Circular road, walking into Ikea’s bright and airy Wembley head office is a welcome relief. Like so many homes up and down the country, the space is decked out in Ikea’s futon sofas, lamps and, inevitably, many a Billy bookcase.

The space is modern and minimalistic with a dedicated recycling area that plays host to tens of bins collecting different materials. The retailer clearly has sustainability high up on its agenda, not just in the products it sells but in its head office practices – something that new boss Peter Jelkeby says “wowed him” on his return to Ikea.

And as Jelkeby bounds out of a meeting room with a broad smile, it’s obvious he’s happy to be back with his former employer.

Getting to know the new Ikea

Jelkeby makes his return to Ikea after just over a decade.

He is Ikea through and through, starting his career as a part-time store assistant at his local store in Gothenburg and working up the ranks. He held roles in Ikea Russia, Vietnam and the Philippines but left the retailer when he was deputy UK boss to join Swedish rival Clas Ohlson.

However, he is pleased to be back at the retailer and in the UK; what he terms the “most dynamic retail market” he has worked in.

Jelkeby says it was Ikea’s refreshed agenda that lured him back.

Last year the homewares retailer started its “transformational journey” to make Ikea more “affordable, sustainable and convenient” over the next three years. The strategy will see Ikea ramp up investment in its stores to become more sustainable and accessible, and fulfilment centres to offer more convenience and digital capabilities in order to cater to a growing digital market.

Jelkeby is five months into his role leading Ikea UK and Ireland on that journey after replacing Javier Quiñones, who left after eight months at the helm to run Ikea’s US business.

He admits he is in the process of “getting to know things” once again at Ikea. Visiting each of Ikea’s 22 stores, as well as its three order and collection points and two planning studios, has been his first priority as he tries to figure out “how fit for purpose [they] are” and how the older formats can be better aligned with Ikea’s new strategy.

“I still recognise how strong our foundation in the store is, from the showroom and the restaurant”

Peter Jelkeby, Ikea

“I still recognise how strong our foundation in the store is, from the showroom and the restaurant,” Jelkeby explains.

Jelkeby insists that the retailer must “stay on its toes” and improve its “digital solutions for co-workers and customers, transportation and logistics fulfilment” to stay relevant to a more digitally and ethically minded consumer.

73% of millennials are willing to spend more money with sustainable retailers, according to a report by Nielsen, and 54% of their purchases are made online, according to UPS.

Ikea’s online sales jumped 13.4% in the UK in the year to August 31, 2018, and now account for more than 15% of total sales as almost 200 million visitors browsed its website over the year.

Staying relevant

Ikea is investing heavily in its transformation.

Pre-tax profits in the year to August 31, 2018 plunged 36% to €2.1bn (£1.8bn) at Ingka – the holding company that runs most of the Ikea stores – as it was impacted by ploughing €2.8bn into 14 new warehouses, windfarms in Portugal and Finland and acquiring DIY service company TaskRabbit.

In the UK, the furniture giant plunged into the red over the same period, making a £4.1m pre-tax loss, compared with an £86.7m profit the previous year, despite a 5.6% jump in sales.

The homewares specialist is investing to stay relevant during these uncertain times and serve a consumer whose living and shopping habits are changing.

For instance, more and more people live in urban centres. 

In 2018, 55% of people lived in urban centres; however, the UN predicts this will rise to 68% by 2050. Meanwhile, car ownership is in decline, with research by the Department for Transport showing that the number of teenagers holding a driving licence has plummeted by almost 40% in two decades. This means many shoppers will struggle to get to Ikea’s big-box formats.

In response to these trends, the retailer has opened two smaller design stores in Tottenham Court Road and Bromley over the past year that offer a more personalised service dedicated to planning kitchens and bedrooms.

Jelkeby says they have had “very positive customer feedback” and they are something that Ikea is “looking to do more of”, although he wouldn’t give an exact figure for stores it will open.

Meanwhile, there have been fewer housing transactions in the first half of 2019 than at any time in the past decade as a mix of unaffordable housing, high student debt, tighter lending and a drop in married couples all attribute to the lack of first-time buyers.

This means Ikea has to cater to very different requirements for the home.

“If you come down to Ikea we need to make sure we are relevant, the range is on point, we present it well and that we recognise it’s a small space [you’re buying for because now] more people live together in the same apartment or flat.”

But Ikea could help change that as it has started building flatpack flats.

In order to help get millennials onto the property ladder, the homewares giant has paired up with construction firm Skanka to create joint venture BoKlok, which builds affordable housing.

BoKlok sets house prices so buyers have money left to live on after they have paid their housing costs.

The scheme has already had success in Europe, with 11,000 homes built across Sweden, Finland, Denmark and Norway.

The firm has signed a deal with Worthing Council to build 162 affordable flats. In return the council will get 30% of the properties to use as affordable housing for local residents.

The flats are built in a factory then constructed on site, and unsurprisingly are kitted out Scandi-style with Ikea tiles, flooring and kitchens.

“When it comes to living, we are there to make it affordable. It’s about very smart houses [being] built in a very cost-efficient way and then making it affordable for first-time buyers,” Jelkeby explains.

“We see it as a win, win [situation]. We have home furnishings and now the housing – we see that as our territory.”

The home building venture has an added bonus of boosting Ikea’s business-to-business sales to homebuilders and office fitters, an area Jelkeby is looking to grow.

Jelkeby says the business-to-business model fits well with Ikea’s current retail offer as some of its most popular products, like the Billy bookcase, Kallax shelf and Poang chair, fit just as well in an office as the home.

And sitting in the retailer’s boardroom, decked out floor to ceiling in Ikea furniture, it certainly has its appeal.

Responsible retailer

If the BoKlok partnership is successful, it could be lucrative for the retailer. However, Jelkeby insists this isn’t why Ikea is pursuing this – it’s down to its “responsibility to the customer”, he says.

Another area Jelkeby feels a responsibility to the customer is in sustainability.

He says customers are frustrated about how they can “make a difference” in terms of sustainability and Ikea is determined to help ease that frustration.

Teaching customers about reusing, recycling and how to fix furniture rather than throw it away are all “simple steps that are important” to living a sustainable life, Jelkeby says. And Ikea’s knowledge on those subjects can be easily shared with the local community.

This is evident in its Greenwich store that opened earlier this year. The 32,000 sq ft store boasts a rooftop garden, learning lab, community spaces, home delivery by bike, runs on solar power and harvests rainwater.

Customers can visit the learning lab for classes on sustainability, while the community spaces can be used for meetings and yoga classes.

“[What we] do with the learning lab is to send a message that you can renovate and repair and we can learn how to share our home furnishing knowledge with you – and also make it more interesting for you to come to Ikea,” Jelkeby says.

The Greenwich store is very much geared towards “educating and inspiring customers about circular life” and he hopes to roll out more stores of this ilk in the future, although he admits not everything will be scalable.

As well as educating its customers, Ikea has risen to the sustainability challenge. It has pledged to stop selling single-use plastic in stores by 2020 and has already exceeded its renewable energy target after investing €2.5bn in wind and solar power. The company now generates more renewable energy that it consumes across 30 countries.

Ikea’s longer-term aim is to be “climate positive by 2030” and consume 100% renewable electricity in its retail operations by 2025, and to phase out fossil-fuel-based heating and cooling by 2030.

It has also invested in electric bikes to deliver goods from store, which means shoppers do not need to drive to stores.

Ikea is keen to be known for more than meatballs and flatpack furniture and also as a responsible retailer in tune with what millennials want.