IKEA is still the same IKEA, but China has changed

Wen| Correct solution

A month ago, Shanghai Xuhui IKEA Store underwent a closed store renovation.

Less than four years ago, the store took four months to renovate.

Earlier, the signs on the exterior wall of IKEA Beijing Siyuanqiao Store were removed. Netizens were startled, and IKEA quickly came out and explained: It’s okay, it’s just doing daily Logo cleaning and maintenance, and the store is operating normally.

These two stores are the first IKEA stores to appear in the mainland of China. There is a reason behind this.

Ikea is in trouble.

A few years ago, when writer Juan Yan recalled his life delivering express delivery in Beijing, he wrote that on rest days, I often went to Ikea to kill time because Ikea had air conditioning and was only a few hundred meters away from my community. I like to sleep curled up on the Ikea sofa……”

But now, many people find that no one seems to be sleeping on the sofa at IKEA, and the stores are not as lively as before.

There are discounted yellow price tags everywhere in Ikea stores throughout 2024, making people wonder whether this is the light luxury and fresh Ikea in northern Europe, or the clearance mall in the last three days?

Change is indeed happening, and the data speaks for itself.

In fiscal 2024, IKEA’s parent company Ingka Group’s revenue fell 5.5% to 41.864 billion euros.

Net profit fell 46.5% year-on-year to 806 million euros, even less than the 2020 fiscal year, which was hit hard by the epidemic.

In the China market, the challenges are greater.

According to public data, IKEA China’s revenue in fiscal year 2024 accounted for 3.5% of Ingar Group’s global sales, down from 3.6% in the same period last year. It fell from 12.07 billion yuan in the previous fiscal year to 11.15 billion yuan. Even this year, it opened 4 new stores, bringing the total to 39.

If compared with the highest sales volume of 15.77 billion in 2019, it will drop by nearly 30%.

The explanation given by Ingkar Group is that the year-on-year decrease in total retail sales is mainly due to the reduction in commodity prices. In 2023, IKEA will start a major price war, covering 63 countries and regions, with more than 2000 products dropping prices by an average of 15%. As a result, more customers have not increased income.

IKEA China CFO Li Lei expects to invest another RMB 273 million in fiscal year 2025 to present more than 500 lower-priced products.

Although price reductions are common to us, when IKEA embarks on this path, it still makes people shout that they can’t understand:

Ikea is not the Ikea I know.

1998 The first IKEA store in the mainland of China

In 1998, the first Ikea Livable store in mainland China opened in Shanghai, and the following year opened its second store in Beijing.

Like many foreign brands entering China, IKEA’s first shot was very loud.

Ikea at Siyuanqiao in Beijing is the first store in Beijing. When it opened, Santana and Fukang cars were parked on the street far away from the stop. In less than two weeks, enthusiastic Beijingers snapped up all the products on Ikea’s shelves, and some even went six or seven times a week, which was not enough.

Foreign media reported at the time that this was the first batch of middle class people in Beijing.

As part of the global market, the China market continues its key to success in Europe and the United States. In the words of sociologist Tod Hartman in his article “How to Become Ikea in France”:

Ikea solves the confusion raised by French novelist Georges Perec: the gap between a poor family situation and a good taste in life.

At that time, there was no unified and standardized product design and door-to-door service in the furniture market in China. Buying furniture was a double test of intelligence and physical strength. IKEA’s tall and spacious stores, neatly manipulated shelves, bright and simple designs and clearly priced tags made consumers feel refreshed and quickly fell in love with it!

Although IKEA focuses on cost-effectiveness with design, because the income of Chinese people was generally low at that time, foreign brands from Northern Europe still made us look up to for many years.

After the launch of large-scale urbanization, Ikea’s positioning just made up for the needs of renters, providing a sophisticated and less expensive choice between the then Lianzhi Home (a representative of high-end furnished furniture) and Beijing Shibalidian (a representative of the cheap furniture sales department).

At that time, IKEA was at its peak in China. Retail sales increased from 6.3 billion yuan in 2013 to a peak of 15.77 billion yuan in 2019. In six years, it reached about 2.5 times, far exceeding the global average growth rate. It can be said to be the most glorious six years.

By the end of fiscal year 2024, IKEA has a total of 39 stores in China, an increase of 4 stores from fiscal year 2023.

For decades, Ikea’s secret to success has been talked about by people and has become a role model for benchmarking in the global retail industry.

The core of IKEA’s success is inseparable from the two systems created by founder Ingvar Kamprad: the IKEA design system and the global supply chain system.

Because of its successful performance in the market, the concept of Democratic Design, which is simple, beautiful, environmentally friendly and practical, has become the object of study for design majors in major universities.

Design manuscript shared by IKEA designer Sarah Fager

According to IKEA Design Director Marcus Engman, their design system is divided into four levels:

1) The design director controls the overall style;

2) In the design team at the Swedish headquarters, more than 100 designers found the final design plan for the product through internal competition;

3) Enrich product lines with external contracted cooperative designers all over the world;

4) Student designers (or design products) selected through design schools or design competitions maintain talent reserves.

It not only ensures design diversity, but also takes into account cost and efficiency.

As for IKEA suppliers, the total number fluctuates between 1,300 and 2,000, and they abide by the extremely strict but effective “IWAY Standards” regardless of each other. Survival of the fittest, cost, delivery time, quality and even social responsibility are the key points of assessment.

Among them, there are more than 450 China suppliers with long-term cooperative relationships. In fiscal year 2024, IKEA’s share of purchases from China accounted for 28.6% of the world, and the number of products accounted for 40.8% of the world.

Thanks to Kamprad’s behind-the-scenes system, IKEA has always been an object that rivals imitate but cannot surpass.

The Swedish town of lmhult is Kamprad’s hometown and Ikea’s design headquarters.

There is a 4000-square-meter product development space there, where hundreds of designers will communicate and collide with strange ideas. Manuscripts and design drawings will be 3D printed into the earliest prototypes.

In order to give full play to the advantages of the global supply chain, IKEA can have the desktops and table feet of Galant Garante drawer cabinets manufactured in factories in Poland and China respectively, and finally sold them simultaneously around the world.

1956 IKEA’s first well-known product that can be assembled, Lvet Side Table

When entering China, IKEA’s system was so mature and reliable that the more Chinese people understood it, the more they trusted it.

However, in just over two decades, China’s consumer market has undergone tremendous changes, which may be unexpected by IKEA.

From 1998 to 2023, the per capita disposable income of China residents increased from 3300 yuan to 39,200 yuan, and the number of first-line residents in Beijing and Shanghai exceeded 80,000 yuan.

As of the end of 2023, the per capita urban housing construction area in my country has exceeded 40 square meters, basically the same as Japan. According to a survey conducted by the central bank in 2019, the housing ownership rate of urban households in my country has reached 96%, and the proportion of households with a home is 58.4%.

At this time, netizens continued to say heart-breaking words on social platforms: I already bought a house, do I still want to buy IKEA furniture?

New Americans began to feel that Ikea’s products were not good enough, especially the materials. Most of Ikea’s boards were solid wood particle boards (particleboard), which were flexible in forming and low in cost, but the durability was almost insignificant.

For example, the 55-cm LACK Lac Side Table, which sells for only 49 yuan, is made of honeycomb panels and particleboard, which really saves costs to the extreme.

Lakside table (left), Slatou bedstead (center) and Szila desk lamp (right)

The SLATUM Slatu Bed Frame, which ranks first in the sales list of soft-packed bed frames, costs 799 yuan. Several thin steel pipes support the bed surface. The headboard is also made of polyester fiber (polyester) and polyurethane sponge, which makes people feel less solid.

Atmosphere products like the STR LA Sijira table lamp have a fresh Nordic design style, but the lampshade is made of paper, which is inconvenient to clean. It and the light bulb have to be purchased separately.

Those who have bought IKEA products may have the experience that quality problems often occur after two or three years. For buyers, this quality is a bit too good.

Not to mention, for China consumers who have long been spoiled by e-commerce shopping and door-to-door delivery, shopping in huge storage stores is really a test of physical energy. The threshold for free shipping at least 329 yuan is not low, and most Chinese people are not interested in DIY furniture installation.

What about renters? This is the basics of Ikea’s target group.

According to the “2023 Graduate Rental Report” released by 58 Tongcheng and Anjuke, 22.2% of graduates tend to choose long-term rental apartments, and 66% of respondents consider ordinary community housing.

But no matter what kind of housing, simple decoration, complete furniture and appliances, and luggage are the most basic rental requirements, and the vast majority of housing can now be provided.

Looking up becomes looking up, and perhaps even looking down a little, which has become an important background for IKEA’s current encounter in China.

In addition to a large number of small commodities still maintaining the basics, there seems to be not many opportunities left for IKEA’s large-scale furniture.

In May 2018, Swedish female designer Sarah Fager, who had worked for nearly ten years, came to China for the first time.

As the headquarters designer of IKEA, several of her new plastic containers are arranged to be produced in the factory in Ningbo, Zhejiang.

Bill Moggridge, head of the National Design Museum, calls Ikea aesthetics a global and functional minimalism. It is modern, but also relatively neutral, avoiding obvious local characteristics, so that product prices can be lowered through economies of scale.

Therefore, designers do not have many opportunities to come to China to experience life. Their imagination of a better life is Nordic and the style is unified.

In stores in China, the so-called products that suit local characteristics are usually chopsticks, fly swats or some decorations, but 95% of the products still maintain the same standards as the Swedish headquarters.

Of course, Ikea is not doing nothing.

In addition to its Swedish headquarters, it has set up product development centers in East Asia (Shanghai), Southeast Asia (Ho Chi Minh City), South Asia (Bangalore) and Central Europe (Warsaw), but this layout seems to better demonstrate that its design system is centered around cost centers.

GLADOM Graden tray tables, STR LA Sijira lamps, etc. are claimed to have been designed by Chinese designers, but they can smell the full Nordic flavor. The structural style is easy to imitate, and there are not many local characteristics. The same niche products may be half cheaper on Pendmore.

In the eyes of Chinese people, the uniqueness of IKEA design is weakening.

Graden tray table (left) and Szila lamp (right)

To a certain extent, Kamprad’s conservatism in his later years also caused IKEA to miss an opportunity.

Before and after retiring from the board, he designed an extremely complex upper-level control system that allowed Ikea to operate through a charitable trust in the Netherlands and a series of companies with holding and licensing relationships, all controlled by the Kamprad family, to avoid any possibility of Ikea going public or being spun off.

The Kamprad family’s control was guaranteed, but Ikea’s decision-making lost flexibility.

In 2008, after 22 years of retirement, the 82-year-old founder used a veto to oppose IKEA’s investment in online sales because he was worried that online sales would affect store traffic.

Ingvar Kamprad after retirement

However, the global trend is unstoppable, which also calls into question the decision-making power of the Kamprad family.

Especially in China, the Internet + e-commerce + express logistics has become the most important infrastructure in the past two decades.

It was not until Old Ingvar passed away in January 2018 that IKEA opened an online mall serving 35 cities in China in October.

In 2020, the IKEA Tmall flagship store was officially launched. This is the first time that IKEA has opened a third-party platform for sales.

Last year’s Tmall Double 11 furniture list, the top three were all local brands.

At the top of the list, the best-selling national large plank beds sells for only 969 yuan. They are made of imported oak from North America and are made of walnut wood for 30,000 to 4,000 yuan. In comparison, they look elegant, stable and thick, giving people a feeling of durability.

Designers of local merchants who are about 30 years old always track online and offline feedback, innovate and iterate quickly.

At the supply chain end, we can cooperate in depth with large wood mills and OEM companies around the world to compress the supply cycle to 45-60 days.

Everyone knows how many e-commerce companies are doing in China, and the result of local furniture manufacturers is that they can achieve delivery and installation in more than 2000 Main City across the country, 90-day return and 8-year warranty.

It is difficult to make consumers not tempted!

From this point of view, it is not that IKEA is no good, but that the excellent domestic choices are too strong.

In fact, in recent years, not only IKEA, but also many European and American brands have faced the process of continuous disenchantment in China.

Take the automobile industry as an example. It was originally an absolute strength of European manufacturing. However, in 2024, FAW-Volkswagen (including imported Audi) and SAIC Volkswagen’s sales in China totaled 2.8033 million units, a decrease of 13.37% from 2023. In our previous article,”Volkswagen wants to lay off 35,000 people: Made in Germany, is it ineffective?” This phenomenon has been analyzed in.

At the end of last year, Hunan Daily reported on the grand opening ceremony of a Wenjie flagship store on Heping Road in Changsha. This store was actually transformed from the largest Mercedes-Benz 4S store under Zhongsheng Group, and even the Mercedes-style exterior wall design has not been changed.

The defection came so simply.

Times have changed, and China has also changed, but Westerners and some Western businesses have not yet kept up.

Are you saying that demand in the China market has dropped? No!

In 2024, BYD will sell 4.2721 million vehicles globally. It also won the sales champion of car companies in China automobile market, the sales champion of brand brands in China automobile market, and the sales champion of global new energy vehicle market.

Too far away from China, Western elites who are accustomed to afternoon tea and summer annual leave cannot imagine or adapt to the speed of China’s evolution.

IKEA is still the same IKEA, but China has changed a lot.