What is IKEA doing in China?

On Thursday, 6 December Swedish furniture and home retailer IKEA Group announced that it will invest more than RMB 8 billion to build a large complex in Shanghai. The complex includes a shopping mall and five office buildings. It will measure over 430,000 m2 and is IKEA’s first project of this kind worldwide.

According to Chinese media reports, the shopping centre is scheduled to open in 2022. IKEA Shanghai will operate the shopping centre. DING Hui, President of the IKEA Shopping Centre in Shanghai, expressed in an interview his believe that China might become the testing ground for new IKEA business strategies before they are exported to other parts of the world.

The five office buildings IKEA plans to build in the Shanghai project will cover an area of 60,000 m2, 3 will be used for IKEA’s 3,000 employees in China, the other two will be leased to large and medium-sized enterprises.

This is part of IKEA’s attempt to strategically transform itself. “We are currently have several strategic transformation projects ongoing in various markets around the world. We want to pay more attention to digitalisation, online and offline integration,” said Anna Ku, President of IKEA Retail China in an interview with the Chinese online magazine the entrepreneur.

Is IKEA forced to transform?

Earlier in November this year, IKEA announced “the biggest strategic transformation in the company’s history” within two years the group aims to lay off 7,500 employees while hiring 11,500 new e-commerce staff.

CAO Lei, director of the China E-Commerce Research Center, said that IKEA’s transformation is tied to e-commerce and the Internet. If IKEA wants to further sustain growth the group has no choice but to embrace the internet.

However, YANG Fan, Public Relations Manager at IKEA China, the lay-offs earlier this year were not connected to IKEA’s push to transform itself. “E-commerce is part of IKEA’s future and an important milestone in IKEA’s development. IKEA’s transformation is focused on providing a more efficient and customer-focused shopping experience.

Taking the E-Commerce Road

According to data released by IKEA, IKEA’s sales exceeded RMB 14.7 billion in August 2018, an increase of 9.3%. In China IKEA sustained a growth of 19.4%. In October this year, IKEA opened an online shopping mall in 149 cities across China, providing online shopping services and launching a WeChat App. Even though IKEA is currently focused on building their own e-commerce platform, Anna Ku does not rule out cooperation with other third-party e-commerce platforms.

“IKEA is late to the e-commerce business, especially in China,” said Anna Ku. This causes difficulties for IKEA as Chinese consumers have high standards for e-commerce experiences. IKEA has to build both the IT and distribution infrastructure to cater to Chinese standards, which is time consuming.

In addition, IKEA has also started to cooperate with other Chinese technology companies. Xiao Dian, General Manager of Xiaomi’s IoT platform, announced in November that it will work with IKEA to build integrated home furnishing. IKEA has scheduled the release of a full range of intelligent lighting products which will be connected to Xiaomi’s IoT platform, marking not only the first cooperation with a Chinese technology company but also IKEA’s first smart home furnishing.

IKEA has become a staple for affordable, modern furnishing and as the group continues its strategic transformation, not only European analysts will be closely watching but also their Chinese counterparts.