IKEA Eyes Higher Quality to Fend off New Rivals

July 8, 2016, 11:58 AM UTC
IKEA Beijing Xihongmen Store,  located in a large shopping
Photogrpah by Zhang Peng LightRocket via Getty Images

Budget furniture giant IKEA is stepping up efforts to improve the quality of its products and to streamline manufacturing to pare costs, aiming to meet changing shopper expectations and take on new competition.

IKEA Group Chief Executive Peter Agnefjall said the push was due to customers increasingly demanding more durable products.

“Customers expect us to do more (on quality). And nowadays you can’t really make products that are throwaway: when you buy a sofa table it needs to be built to last,” he told Reuters.

IKEA, one of the world’s strongest brands, risks losing market share to new online-mainly furniture stores. Online retailers Amazon (AMZN) and Alibaba Group (BABA) and fashion brands Next (NXGPY), Zara (ZTSTF) and H&M (HMRZF) are also adding home furnishing to their offerings.

IKEA Group, which owns most IKEA stores, is on track for a 2020 sales target of 50 billion euros ($56 billion). But many associate it with disposable quality and complex self-assembly.

Shedding the image could attract shoppers after they’ve grown older, wealthier and more demanding about quality and durability.

That strategy poses a dilemma, though: how to reach target groups for higher-end ranges without compromising its affordability.

To offer better products while keeping prices low, IKEA now copies the auto industry, developing platforms for five product groups for economies of scale.

Common platforms for many models, which may otherwise range from high-end to budget, have revolutionized the auto sector. At IKEA, it could mean one spring system for sofas and mattresses that is better-quality than existing ones.

One, for wardrobes and drawers, is ready and will be rolled out in large scale in 2017. Purchasing manager Henrik Elm just launched the push, which also includes new materials and easier-assembly innovations, across IKEA’s supply chain.

“We see value for money as one of the most important things to secure growth, and we know this is something which makes our customers sometimes choose not to go to IKEA,” he said.

Multi-year contracts for large volumes is often carrot enough for suppliers to invest in the new machinery required.

“The most important for us is to make our customers more pleased with their products, and then we will surely also reach new customer groups,” Agnefjall said on the quality push.

Chief designer Marcus Engman said IKEA wanted to attract new customers such as older people: “One thing we stretch ourselves to do, is to find customer groups we don’t reach today.”

Aging populations and the fact people move more frequently than before in main market Europe spell opportunities for IKEA – if it succeeds in reintroducing the brand to former customers.

“IKEA is at an interesting crossroads where they have to go back to people who have changed their lifestyle and say ‘we aren’t just the brand you experienced 10-20 years ago, we have other things that might be interesting for you’,” said Kantar Retail’s Ray Gaul.

Because IKEA cherishes its status as the go-to place for people with thin wallets, it may be difficult to market higher ranges.

“The challenge for IKEA is to make people aware of their higher-quality goods whilst at the same time maintaining that democratic appeal,” said Verdict Retail’s Patrick O’Brien, adding IKEA is unlikely to start marketing ranges as premium.