China’s market growth slows down IKEA accelerates expansion of e-commerce business

On October 25th, IKEA launched the E-Commerce business and started trial operation. According to IKEA’s official website, the IKEA online store in the trial operation stage has opened 149 service cities, covering 30 provinces and autonomous regions, including Ningxia, Qinghai and other northwestern provinces.

In recent years, IKEA has added a number of offline stores in China, and its growth rate is slowing down. According to previously published data, IKEA still maintains double-digit growth in China. As of August 10, 2017, its sales in the Chinese market exceeded 13.2 billion yuan, an increase of 14% over the same period last year. In addition, the number of shopping malls in the country exceeded 90 million, an increase of 11% year-on-year, but all of the above growth rates are slowing down. In 2016, IKEA’s sales in China were 11.7 billion yuan, a growth rate of 19.4%, and the growth rate of visitors was 20%. In the eyes of the industry, IKEA’s E-Commerce business is aimed at finding a way out for the lack of growth. It is difficult to fully cover the domestic consumer groups with only the physical stores in several big cities.

For the Chinese market, where E-Commerce is extremely popular, IKEA has been slow to open its business, which seems to be somewhat outdated. In fact, as early as 2013, IKEA’s E-Commerce business was launched and operated in 13 countries. However, in China, IKEA did not test the E-Commerce business in the Shanghai area until September 2016, and other regions have been pending. In August of this year, Song Ying Ai, vice president of retail at IKEA China, announced at the 2019 financial conference that it would launch E-Commerce services during the year. However, in just two months, Yishang Appliances officially went online and operated, and 149 cities including Beijing were first taken into the business map of Yishang. IKEA is clearly preparing to accelerate the expansion of E-Commerce business.

Furniture and household items are probably the most special category in all retail categories. There are many large-sized items, long decision-making cycles, and detailed requirements for product specifications, materials, and design style matching. In addition, after-sales service also greatly tests the brand channel capabilities. It can be said that the most expensive thing in the furniture E-Commerce business is the logistics cost.

According to the “Electronic Business Daily”, IKEA uses third-party logistics instead of self-built logistics, which means that consumers need to pay their own logistics costs after purchasing goods on their official website. It remains to be seen whether this model of covering large E-Commerce stores with E-Commerce users will not provide free delivery.

The Chinese market is one of the fastest growing countries in IKEA. IKEA’s fiscal year 2018 financial report shows that sales in China in the 2018 fiscal year are expected to exceed 14.7 billion yuan, and China’s shopping mall visitors exceeded 98.3 million, an increase of 9.6%. The number of members of the club is over 22 million, a year-on-year increase of 22%. And the number of fans of social media in China exceeded 15.5 million, a year-on-year increase of 72%. However, compared with the global performance of IKEA in 2017, the size of the Chinese market is still obviously insufficient. In FY2017, IKEA China’s sales exceeded 13.2 billion yuan and the number of members was 18 million. In the same period, IKEA’s global retail sales totaled 36.3 billion euros (adjusted according to currency impact), with 110 million members. This means that the Chinese region contributed about 1/6 of the membership to IKEA, but sales accounted for only 1/20 of the total global retail sales. Faced with the pressure of slowing down the growth of membership, in the consumer environment such as online shopping, IKEA has to re-examine the value of new channels such as B2C E-Commerce and social E-Commerce.

And IKEA wants to expand its E-Commerce business, open up online channels, attract more consumers and promote performance growth. The first thing to face is the logistics pressure that will double up, and may even change IKEA’s positive growth over the years. There are still many uncertainties in terms of revenue and profit performance and future development.