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Posts Tagged ‘IKEA’

An IKEA store is a marvelous place.  You walk through halls, hall after hall after hall and so on, surveying with your eyes the different furniture items, accessories and other kinds of decorative. You are filled with curiosity and enthusiasm in search for that great enhancement to your home. In each hall furnitures are usually organized in a layout and structure of a complete set according to a given purpose such as a living room seating corner, a dining hall or a children room. There are many possible sets with different styles of items in a hall associated with a particular part of the house or apartment. As you look at a set and examine more closely the composing items you may start to image in your head how it may look in the target area of your own home. During the tour you may pick up some small items and put them in a bag. As for the larger items chosen you need to write down their details on a paper form to be retrieved later on at a storage hall. Everybody is busy at Ikea. The whole venue resembles somewhat an amusement park, or perhaps more like a beehive. It is a temple for celebrating consumption.

But to the likely disappointment of many residents in the central coast area of Israel this shopping and consumption attraction has been destroyed. On the Saturday morning of  5 February the Ikea store near the coastal city of Netanya burned down into ashes to the last wooden artefact.   The store served primarily Israelis living from Tel-Aviv in the south to Hedera in the north of the store location (about 30 km to each side). Israeli consumers who have become used to shop for furniture at relatively low prices and then construct themselves by instructions at home are about to be deprived of this possibility for six months to a year. It has been a strong anchor in an industrial and shopping compound of Netanya-Poleg. This calamity of the Ikea store leaves great uncertainty: how it will affect shopping behavior and spending of consumers who have been among its patrons, the employees of the store, and other retail businesses in the same compound.

An inquiry conducted by the fire brigades and police has found that rain was the likely cause of an electric failure of cables on the structure’s roof and the fire that started quickly extinguished a tar-based coveting of the roof; the suspicion of arson has been eliminated but negligence would still have to be examined. Because the fire started on the roof, internal alarm signals and all other kinds of precaution means (e.g., smoke detectors, water sprinklers, inter-hall emergency doors) were rendered useless — flames consumed the roof from the outside-in until it collapsed; the fire brigades could do little on their arrival to save the store. Notwithstanding the total damage caused, fortunately the fire happened when the store was closed. It is probably better not to think of what could have occurred if shoppers and employees were caught by inferno in the intermediate halls. The special layout of a maze that Ikea is so proud of can become a precarious, deadly trap in such circumstances for those people .

The damage is estimated  in the range of hundreds of millions of Israeli shekels (100 million NIS equals about $30m). Additionally, a loss of million shekels (~$300,000) is estimated for each day the store remains inactive. The store (23,000 square meters in two floors) was the first to open in the country in April 2001. A second store opened just last March (34,000 square meters) near the city of Rishon LeZion some 20km south of Tel-Aviv. Together the two stores received 3.5 million visitors during 2010. Sales turnover grew by 40% in 2010 with two stores from 2009 with only the Netanya store (from 500m to nearly 7o0m NIS ≈ from  $140m to $200m)(TheMarker 6/2/11). The great push that the new and larger store was planned to provide for the expansion of Ikea’s business in the country is now suspended for many months.

It is difficult to predict how consumers in the affected region who relied on the concept of Ikea for offering furniture will react, modifying or adapting their buying and home consumption behaviour. That is because Ikea offers more than a simple transaction — Ikea offers a deal with implications for the way of life of consumers. First, the deal says something like “we deduct a certain sum from the “normal” price of a whole furniture that you can save by constructing it yourself from our supplied components”. Second, Ikea gives consumers the opportunity to be involved in creating their own piece of furniture, taking the role of producers (i.e., Ikea customers become prosumers following Alvin Toffler). For people who like to build things with their own hands, there is actually additional benefit in buying the product disassembled and complete the job themselves. And there is also the feeling of achievement and satisfaction seeing the furniture one built him- or herself standing  at home. From personal experience I may add that joint work of members of the family can also help family bonding. Hence, doing-it-yourself is not just a type of cost (i.e., time and effort) for the “craftsman” consumer that has to be compensated by a price saving but can be a true source of additional value. The level of creativity is limited as people have to follow specified instructions, but thus even those who are not too capable at craftmanship can build furnitures the Ikea-way.

In reality, not all pieces of furniture can be assembled or constructed self-handedly (e.g., sofas that come complete). There also are complex sets like kitchen furnishing that have to be built at home by professional workers. In addition, not all Ikea customers truly like to do things themselves but they still prefer the products of Ikea for example for the quality of its woods and finishing of elements, and they are willing to pay a supplement to have someone come and build the furniture for them at their home.

To make a projection of how consumers may behave following the destruction of the Ikea store near Netanya, I propose to distinguish between four segments of consumers according to two dimensions: the propensity to produce things oneself and residence in the Tel-Aviv area versus north of Tel-Aviv closer to Netanya.

  • Consumers living north of Tel-Aviv who buy furniture from Ikea with intention to complete their construction themselves can be expected to defer their purchase for several months rather than turn to more standard furniture retailers. Unless the family is tied in other commitments (e.g., renovation works, entering a new home) it should not feel pressured to give up purchasing the furniture the way they like. This kind of purchase is usually not something done from one day to another and the extra time can be used comfortably to explore more options. Driving to Rishon LeZion will probably be too much trouble for them.
  • For consumers living north of Tel-Aviv who in any case prefer to get whole furnitures ready to use there is far less incentive to wait for Ikea to re-open its renewed store near Netanya. They are likely to search soon enough among the more traditional furniture retailers in their vicinity.
  • Consumers living in Tel-Aviv and its close satellite towns are likely to be quite indifferent between driving to Netanya or to Rishon Lezion. In rush hours when there are heavy traffic jams driving in either direction can take up to an hour and a half (otherwise it takes 20-30 minutes). So during the period that the Netanya’s store is incapacitated, consumers who wish to buy furniture to construct themselves, and save more money on the way, can continue to do so by simply turning southwards to Rishon LeZion. No substantial change in behaviour should be observed beyond that (if Ikea manages to handle the extra crowds properly).
  • For the remaining Tel-Aviv residents who are not keen on doing things themselves, they may return to explore and compare numerous more traditional retailers that exist in the Tel-Aviv area as people have done before the arrival of Ikea.

The situation with the 400 employees of Ikea Israel in Netanya is still unclear. This month they will remain on a paid leave. After that  it has been suggested by management that some employees might be transferred to the store in Rishon LeZion where they should be much-needed in coming months to serve larger traffic as suggested above while others could be sustained on a partial compensation until their return to work. But there probably would be a group of employees compelled to seek new employment. 

Prospects for other retail establishments (e.g., a food store, fashion stores, coffee-house) in the Netanya-Poleg compound can be quite grim in the year to come. Without Ikea many of them can expect to see  much weaker traffic. Over the years some furniture retailers situated their store structures next to roads approaching the Ikea store. But with far fewer passerby shoppers and no target to compare them against, these retailers are at risk of not having enough patronage to live on.

The revenue of Ikea International in the fiscal year ending 31 August 2010 rose 7.7% to  €23.1 billion (compared with some €145 million in 2010 for Ikea Israel). During 2010 Ikea openned worldwide 12 stores in total and its management seems to be more invigorated by its growth in China, Russia, and Portugal (Telegraph 14/1/11). The business of Ikea Israel could be just a fraction of Ikea worldwide, but there must be serious lessons for the international management to learn from the events in this small corner of the world, regarding the structures of its stores, its maze layout, and the measures the company takes anywhere to ensure the safety of its customers.  Other lessons may still to be anticipated as how to recuperate from such a crisis.

Ron Ventura, Ph.D. (Marketing)

Media sources: 

Ikea fire caused hundreds of millions in damage, destroyed store entirely , TheMarker, 6/2/11

http://english.themarker.com/ikea-fire-caused-hundreds-of-millions-in-damage-destroyed-store-entirely-1.341491

Ikea sales rise on strong demand from China,  Telegraph, 14/1/11

http://www.telegraph.co.uk/finance/china-business/8260893/Ikea-sales-rise-on-strong-demand-from-China.html

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