IKEA still committed to U.S., despite uncertain economy - IKEA International

Discount Store News, April 18, 1994 by Helen Pike

ALMHUT, Sweden -- Fresh from its first 50 years, IKEA International still wants to furnish the whole world in the next 50--no small ambition for a one-time catalog company whose founder propelled it from the woods here south of Stockholm into worldwide sales of $4.5 billion worth of ready-to-assemble (RTA) furniture and related decor.

From a global perspective, the next 50 years will mean that more stores will open in 1994, easier assembly for its RTA furniture, an on going design emphasis on eco-friendly decor, and squeezing greater margins from its high-volume products.

In the United States, that means scouting urban locations in Chicago, Atlanta and the Pacific Northwest. Currently, IKEA has 20 stores in North America, 12 of which are in the United States, and five of those in the Los Angeles area alone. Worldwide, the company has 119 stores located in metropolitan areas in 24 countries.

"America is the graveyard for European retailers," observed Gorun Carstedt, president of IKEA of North America from headquarters in Plymouth Meeting, Pa. "It's very hard to succeed here."

Indeed, the British retailer known as Conran's Habitat is in bankruptcy in the United States while IKEA has bought its European holdings. Because of the weak worldwide economy, IKEA has closed units in Canada and Japan, and a store in the former Yugoslavia.

But the U.S. market, which appears to be cautiously climbing out of its recession, holds a strong allure for the Scandinavian company. After Germany and Sweden, the United States is home to the highest number of IKEA retail stores, followed by Canada, then Australia and France.

In the United States, IKEA faces competition from Ethan Allen and Pier 1 Imports, but at least one retail observer remarks that it would be a mistake to characterize IKEA as in a "slugfest on the scale of Wal-Mart and Kmart."

"There's overlap at either end," pointed out Bill Flatley, a consultant with Levy Kerson Associates, New York. Older consumers or those with more disposable income are gravitating to Ethan Allen to buy what Flatley calls "investment pieces."

Meanwhile, at the low end, Pier 1 is "an accessory store," he said. "IKEA is in the middle with its wide choice, low price and streamlined furniture style," Flatley added. To make the most of its design strengths, IKEA expects to emphasize lighter stained woods and lighter weight textiles, and plans to move away from chrome plating to epoxy lacquer--all in response to what company executives believe is an evolving worldwide consumer style.

"Consumer tastes are merging globally," Carstedt said. In one example, IKEA, which has been importing the streamlined and contemporary Scandinavia style to the United States since 1985, has found at least one opportunity to export an American style to Europe.

"Europeans are picking up on the American concept of entertainment units," said Carstedt. "So, now we are developing this in the United States and are selling it in Europe."

On the issue related to furniture lacquer, "Europe doesn't want chromium because of its health hazards," said Per Hahn, bookcase product manager, "and the U.S. is slowly catching on."

IKEA is waiting to see if its newly launched 18th century furniture series, which is turning out to be a hit in the Scandinavian and German markets, will be popular with U.S. consumers.

Worldwide, IKEA's bookcase line represents the company's top-selling product family, followed by storage units, kitchens and then rugs. These same four products are the top sellers in its U.S. market.

To keep prices low, IKEA's designers and product managers deal directly with 1,800 suppliers located around the world. About 40% of IKEA's U.S. inventory comes from North American suppliers, according to Carstedt.

To keep margins high, the company is pursuing several fronts. "IKEA is putting money and effort into better assembly and instructions," Hahn said. Recently the company figured out how to shave one-third off the width of bookcase packing boxes by making the back panels a separate assembly piece.

"For the RTA market, we work with style and function, followed by price," he explained. Later this year, the company is also expected to convert from the metric system to the U.S. standard of measurements for this specific geographic market. IKEA has already switched its linens from European sizes to American, and is expected to convert its interior furnishings to standard measurements later this summer or fall, according to a U.S. company spokeswoman.