IKEA: 10 stores by 2016

Jan 15

IKEA has been operating in Japan since 2006, but went on a short hiatus, opening no new stores between 2008 and 2012. Following the opening in Fukuoka in 2012, it will now add a further four stores over the next two years – the same one or two stores a year pace that it sets in many markets, with a goal of 14 stores by 2020. Now the number two home furnishings chain in Japan, the new stores should push sales to well over ¥100 billion a year.

Since the opening of its first store in Japan in Minami-Funabashi in 2006, IKEA Japan’s expansion has been somewhat cautious. After four years without a new store, IKEA opened in Fukuoka in 2012, and added a small, temporary store in Sendai. It will now add more. It has a new distribution centre in Nagoya and a new site in Tachikawa. But that’s just the beginning. In mid-December IKEA Japan confirmed it had secured sites in both Maebashi in Gunma and in Hiroshima – this last one unusual in that it’s a fairly central location. The Tachikawa store is due to open this Spring. It will be followed by a new, permanent store in Sendai in the Autumn. The Maebashi and Hiroshima stores are due to open from 2015 onwards. IKEA has also identified a site east of Nagoya.

IKEA is now second only to main domestic rival Nitori – one of Japan’s better retailers and one that has benefited from the Swedish giant’s stimulation of consumer interest in interiors, with sales hitting nearly ¥350 billion last year from 300 stores. At IKEA same store sales rose a reported 3%, hitting ¥70 billion from just six outlets. The company continues to employ imaginative marketing techniques, such as tying with major residential developers to provide IKEA designs for model apartments – given its characteristic designs, IKEA is probably the only company that could use such tactics successfully. It has also introduced store sleep-ins and uses a wide range of PR based promotions.

The company has adjusted as it learns more about Japanese tastes and shopping behaviours and performance continues to improve. But it is not for everyone. The large, warehouse-like stores are not popular among older customers simply because of the time and effort required to shop there. For younger consumers, however, the unique range of products and generally low prices mean more and more make repeat visits. The company’s Family Club membership continues to grow rapidly, breaking 5 million members in November 2013.

At the same time, the market is clearly different. Bedding, which reportedly makes up 50% of sales in the US, accounts for less than 30% in Japan. One of the reasons is the need to pay for delivery. While Nitori offers delivery at no additional cost on purchases of ¥19,000 or more, IKEA’s model requires delivery to be extra – IKEA says it makes no profit on the service and that not offering free delivery allows it to keep prices down. Still, Japanese customers struggle with this concept given that other furniture retailers build delivery costs into prices first. As one step towards making the decision easier, IKEA now provides a free recycling service on old beds and some other items if removed at the same time as delivery.

IKEA will also introduce consumer e-commerce by 2020 and plans to have 14 stores in operation by then, with the option for more. Sales are likely to break ¥100 billion with the confirmed new locations, meaning it will be some years before it becomes a genuine threat to Nitori, but with the market expanding, both companies are likely to benefit equally.

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