Challenges retail network: Apple vs. Ikea

“Not even five years have passed since the opening of the first store under the sign of Korvette's discounter pioneer in 1957, as a whole dozen of the doubles opened. Open analogue of IKEA, which is a giant in the field of retail furniture, unlike the case with Korvette's, no one succeeded. IKEA is gradually expanding its network of retail stores around the world (for almost 50 years, including 13 stores in Russia [note transl. - according to the author for 2012, today the number of IKEA stores in Russia may differ], and no one could not copy it. Why is this the case? It's not a trade secret or patent. Competitors can always go shopping IKEA, analyze products and copy at least the entire catalog. The point is not that someone simply does not need to earn money - Ingvar Kamprad , the owner of the company, is the third most wealthy person in the world. Nobody copied IKEA anyway.



We believe that other companies operating in the retail furniture industry have taken the positioning paradigm as a basis and defined their business as a set of products and certain segments of the client audience. All this can be easily copied. Levitz Furniture , for example, sells low-cost furniture to low-income audiences. Ethan Allen sells colonial-style furniture to wealthier segments of the population.

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IKEA, unlike these companies, has built its business around the solution of a specific task: "I need to furnish an apartment (or room) today." When someone in any part of the developed world has such a 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 retail furniture industry, because it is designed to solve its problem as efficiently as possible. ”



- Integration regarding tasks ( Integrating Around the Job to Be Done - Clayton Christensen - Clayton Christensen , Harvard Business School; Scott Anthony - Scott Anthony, Innosight LLC, Scott Cook - Scott Cook, Intuit; Teddy Hall - Taddy Hall, Advertising Research Council) .

IKEA is a leader in the retail of furniture and the embodiment of an amazing success story. Christensen stresses the fact that the mysteriousness of success is connected with the seeming protection that he guarantees. No one tried to create an analogue of IKEA or undermine its position in the market.



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



And this approach may seem very familiar to you.



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



At first glance, Apple and IKEA seem to be quite similar businesses in the field of strategy and "architecture", but what if we compare the actual figures? Can we confirm this similarity with facts?



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



The growth of IKEA, in contrast to the history of Apple, was much slower. The first IKEA store of 6,700 square meters was opened in 1958. A pair of first Apple stores opened in May 2001. Since then, the number of Apple stores has grown much faster (total annual growth rate - CAGR - 46%) and surpassed the number of IKEA stores in 2010.







Another difference is in the growth of sales figures. In 1954, IKEA’s income increased to about $ 1 million and gradually increased (in the chart below, the first five time periods represent decades). Apple figures, unlike the IKEA case, grew faster, and this story remains more profitable in terms of margin.







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



In the end, the Apple retail chain has gained self-sufficiency, and today it is more profitable than IKEA. The following series of charts gives a comparative overview of the performance of Apple and IKEA retail chains:





[Average store income (million dollars); The number of issued directories (million pieces); Number of visitors (million people); The average income per visitor (dollars); The number of employees in the retail network (people); Average income per employee (million dollars); Apple is the average store area (sq. Ft); IKEA - average store area (sq. Ft); Area involved in sales (sq. Ft); Average income per square meter. foot (dollars)]



While the average revenue per Apple store continues to grow, the IKEA 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 space (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. trans. - do not store everything at once 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 IKEA stores were visited by 655 million people. However, each IKEA visitor spends an average of $ 27, and a visitor to Apple stores doubles.



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



The main difference lies in the efficiency of the use of space. If we talk about the total area involved in sales, IKEA exceeds 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 opposite. What works for one company cannot be applied to another.



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



However, a unifying factor for Apple and IKEA is a clear approach to positioning their retail networks. Both networks are organized relative to the task, which has a high priority in people's lives. As noted in the opening quotation, for IKEA it can be formulated as: “I need to furnish an apartment (or a room) today”. The problem solved by the Apple retail network was formulated by Tim Cook:

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

Apple provides the ability to explore and find answers to technology-related questions without any pressure on a potential buyer. The challenge is to simplify what is difficult for a certain price.



IKEA provides an 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 task of IKEA is to introduce a certain level of complexity for convenience and lower cost.



In the end, both companies solve their problems and get a decent reward for it.