IKEA bets on digital-savvy appetite in South Korea

Mike Chong, May 22, 2019, 9:16 a.m.

Swedish furniture giant IKEA will help digital-savvy South Koreans gain easier access to its products by strengthening e-commerce and opening "touch points" in major cities, with the brand's affordability being another key selling point, a company executive said Monday. IKEA Korea Ltd. opened an online store in September last year as part of efforts to catapult itself into the digital age and catch up with the e-commerce boom. It was one of IKEA's most successful e-commerce launches ever.

IKEA had around 220,000 e-commerce customers and sold around 2 million items online in Korea, one of the world's most wired countries, in the past nine months.

"The convenience is important, and that's most probably one of the trigger points that made e-commerce so successful. We are looking at how we can come closer to Korean customers in terms of accessibility and affordability," IKEA Korea Country Retail Manager Andre Schmidtgall told Yonhap News Agency in a recent interview.

To improve accessibility for city dwellers, IKEA Korea is also planning to build touch points, such as smaller format stores and places for planning and other services.

"Land is too expensive (to build a flagship store in a major city) and we will find smart ways to expand here in Korea. Touch points or customer meeting points are also possibilities that we are looking into," Schmidtgall said, stressing that improved accessibility for customers has proven to be a key success factor for IKEA Korea, which began operations in December, 2014.

The company has yet to decide on what cities will have the touch points. To meet demand from convenience-seeking customers, IKEA currently offers transport, assembly, installation services for certain purchases.

IKEA is exploring different services to satisfy every customer, while seeking ways to make the services more affordable, he said.

"We believe a happy everyday life starts at home and want to create everyday life for many Koreans. We want to be more accessible for the many and we'd like to offer the best value for money in home furnishings," the German native said.

He said affordability is also an important growth driver for IKEA, and that the Swedish firm always tries to find a balance between convenience and affordability.

"Families with children generally have bigger needs in terms of home furnishings but they have smaller wallets because of expenditures that they have when getting a child. So they are a little more price sensitive," he said.

In its broad "waterfall" expansion strategy, IKEA is also expanding its offline outlets with a plan to gradually increase the number of flagship stores in Korea. It currently has two flagship stores, located in Gwangmyeong and Goyang of Gyeonggi Province, both located one-hour drives away from the capital city of Seoul.

IKEA will build two more flagship outlets in Korea by early 2020: one in Giheung, just south of Seoul, by December, and the other in Busan, 450 kilometers south of Seoul, by the first quarter of next year, the country manager said. IKEA said a total of 1 billion euros (US$1.1 billion) is earmarked for the four flagship stores in Korea.

The investment clearly shows IKEA is "committed to stay and to develop, and that is how it is doing business. It's not that it is going in and, after a short period of time, out," Schmidtgall said.

The company is also in the process of constructing the fifth flagship store, in Gyeryong, South Chungcheong Province, IKEA Korea said without elaborating.

Korea is "absolutely on the map of the INGKA Group" due to growing demand for home furnishing and robust sales. That's the reason for the large investments here, he said.

INGKA Group is a parent company of IKEA Korea. It operates 367 outlets out of the global total 422 IKEA stores.

IKEA Korea posted growth in sales in each of the past three years. In the 2018 fiscal year, which ended in August 2018, sales jumped 29 percent to 472 billion won ($395 million) from 365 billion won a year earlier.

Looking ahead, Schmidtgall said sales will be at an "okay level" in the 2019 fiscal year as there is no planned opening of a flagship store. But sales will get a boost in 2020, helped by the addition of two new flagships.

He didn't provide any target figures of outlets in Korea.

"It's difficult to give an outlook about the number of flagships and touch points because we have to test and try in the next one and a half years to see which is working better and is more cost efficient," he said.

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