Retail Challenges: Apple vs. IKEA

Original author: Horace Dediu, Dirk Schmidt
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“Five years have not passed since the opening of the first store under the guise of the pioneer of discounters Korvette’s in 1957, when a whole dozen double stores opened. Unlike the case of Korvette's, nobody succeeded in discovering an analogue of IKEA, which is a giant in the field of furniture retail. IKEA is gradually expanding its network of retail stores around the world (for almost 50 years, including 13 stores in Russia [approx. Transl. - according to the author for 2012, today the number of IKEA stores in Russia may differ]), and no one else could not copy it.Why is this the case? It's not about trade secrets or patents. Competitors can always go to IKEA stores, analyze products and copy at least the entire catalog. It’s not that someone just doesn’t need to earn money - Ingvar Kamprad , the owner of the company, is the third person in the world in welfare. Anyway, no one has copied IKEA.

We believe that other furniture retail companies have taken as a basis the positioning paradigm and defined their business as a combination of a product and certain segments of the client audience. All this can be easily copied. Levitz Furniture , for example, sells cheap furniture to low-income audiences. Ethan allensells colonial-style furniture to the more affluent.

IKEA, unlike these companies, built its business around solving a certain problem: “I need to furnish an apartment (or room) today.” When someone in any part of the developed world has this problem, IKEA comes to mind. The organization and logic that unites all the stores of this company is different from all possible analogues in the field of furniture retail, because it is designed to solve its problem as efficiently as possible. ”

- Integration Around the Job to Be Done - Clayton ChristensenHarvard Business School; Scott Anthony - Scott Anthony, Innosight LLC, Scott Cook - Scott Cook, Intuit; Taddy Hall - Taddy Hall, Advertising Research Council).

IKEA is a leader in furniture retail and the epitome of an amazing success story. Christensen emphasizes the fact that the mystery of success is associated with the apparent protection that he guarantees. No one tried to create an analogue of IKEA or undermine its market position.

Positioning itself as a relatively clear task (job-to-be-done), this company integrated both design, production and distribution (including warehouse processes), as well as “all in one huge box” style retail trade into the experience of its customers and interaction with them.

And this approach may seem very familiar to you.

The beginning of Apple’s retail business depended on setting a clear goal, design, carefully selected product line, actual customer experience and interaction with them in the trading process. Apple has become a major player in its segment, similar to IKEA, and even achieved a 17-fold superiority in sales per square foot compared to the average retail network operating in the United States.

At first glance, Apple and IKEA seem pretty similar businesses in terms of strategy and "architecture", but what if we compare the actual performance? Can we confirm this similarity with facts?

First, take a look at the geographic focus of these companies. The chart above indicates that Apple's retail chain is predominantly concentrated in North America, and 74% (of 365) of its stores are located in the United States and Canada. On the contrary, what can be justified by the place of the initial foundation of the company, 73% (of 325) of IKEA stores are located in Europe (with the exception of the acquisition of a retailer of Habitat furniture in 1992).

The growth of IKEA, unlike the story with Apple, was much slower. The first IKEA store of 6,700 square meters was opened in 1958. A couple of the first Apple stores were opened in May 2001. Since then, the number of Apple stores has grown much faster ( CAGR - CAGR- 46%) and exceeded the number of IKEA stores in 2010.

Another difference is the increase in sales. In 1954, IKEA’s revenue rose to about $ 1 million and is steadily increasing (in the graph below, the first five time periods represent decades). Apple's performance, unlike the case with IKEA, grew faster, and this story remains more profitable in terms of margin.

The difference in growth rates is partially justified by the fact that Apple was able to subsidize its entry into the market - the Apple retail chain was unprofitable for the first three years, and IKEA was forced to finance from its own funds.

In the end, Apple's retail chain has become self-sufficient, and today it is more profitable than IKEA. The following series of charts provides a comparative overview of the performance of Apple and IKEA retail chains:

[Average store revenue ($ million); The number of catalogs issued (million pieces); Number of visitors (million people); Average revenue per visitor ($); The number of employees in the retail network (people); Average income per employee (million dollars); Apple - Average Store Area (sq. Ft.); IKEA - Average Store Area (sq. Ft.); Sales Area (sq. Ft.); Average revenue per square meter ft (dollars)]

While Apple’s average revenue is still growing, IKEA’s business looks more mature and stable. This is explained by the fact that furniture prices are stable, and the number of products ( SKU ) depends on the available area (which cannot grow) per store. Apple, unlike IKEA, limits only the issue of traffic. Its products take up little space, which allows the use of remote storage facilities [approx. perev. - do not immediately store everything in the store].

Speaking of traffic, it is worth noting the fact that IKEA attracted twice as many visitors to its stores than Apple, if you look at the data for 2011, when 655 million people visited IKEA stores. However, each IKEA visitor spent an average of $ 27, and a visitor to Apple stores doubled.

A similar situation is with the productivity of retail chain employees. IKEA has three times the superiority in their number, but the average income per Apple employee is one and a half times higher.

The main difference is the efficient use of space. If we talk about the total area involved in sales, IKEA surpasses Apple by 30 times.

While these indicators form a logical connection, they do not help us understand the prerequisites for success. Both companies have completely different approaches to retail, and the values ​​of the corresponding indicators seem to be the opposite. What works for one company cannot be applied to another.

The lack of a magic formula for creating a revolutionary retail chain is a fact. For example, in terms of sales per square foot, IKEA will not even enter the top 20 US retail chains.

However, the unifying factor for Apple and IKEA is a clear approach to positioning their retail chains. Both networks are organized in relation to a task with high priority in people's lives. As noted in the introductory quote, for IKEA it can be formulated as: “I need to furnish an apartment (or room) today.” The task solved by the Apple retail chain, Tim Cook formulated:

“Our retail stores provide the best purchase experience and the best customer service. This is important not only for Macintosh buyers, to a certain extent it is much more important for buyers of iPad, iPhone or other devices of the “post-PC” era, because these devices are unfamiliar to many people. And there is a need to get to know these devices, study them before the acquisition, and explore the full range of their capabilities after the acquisition. ” - Tim Cook, March 2012 .

Apple provides an opportunity to study and find answers to questions related to technology, without any pressure on the potential buyer. The challenge is to simplify what is difficult for a certain price.

IKEA provides the opportunity to get exactly what people want, at the moment when they need it. The only negative is that “some preparation” is required. To some extent, the goal of IKEA is to bring in a certain level of complexity for convenience and cost reduction.

In the end, both companies solve their problems and receive a decent reward for this.

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