Allen keys at the ready!

Super competitor: Managing director David Hood says Australia has the right metrics for IKEA to expand.

It prints 200 million glossy catalogues a year but it’s not a publisher. It sells 10 million hot dogs in its Tokyo store each year but it’s not a fast-food franchise. It entertains millions of children a year but it’s not a childcare centre.

It is IKEA, the Swedish home furnishing gargantuan retailer that globally in the 2011 financial year sold $34.53 billion worth of sofas, kitchens, cutlery, coat-hangers, bookshelves, light globes, desks, picture frames, mirrors and everything in between.

Now the retailer famous for flatpacks is expanding in Australia. Until this year, IKEA had only three outlets, all on the east coast (stores in Perth and Adelaide are run by franchisees). It has recently opened two more in quick succession, in Springvale in Melbourne’s south-east and Tempe in Sydney’s inner-west.

“From a company perspective it’s a shame we didn’t exploit and develop [this market] much earlier,” says IKEA’s managing director in Australia, David Hood. “We could have had bigger stores here 10 years ago. The country is growing, there’s a strong birth rate, high migration, lots of houses are being built. They’re all the right metrics for us.”

Hood, a Scotsman who has been with IKEA for two decades, arrived in Australia in 2008 and is keen to make up for lost time. He thinks the east coast can cater for between nine and 11 stores within the next five to 10 years. That may not sound like a lot but IKEA stores are enormous – at 37,000 square metres the Tempe store could double as a running track.

And IKEA has pulling power – its Rhodes store near the Sydney Olympic precinct attracts 2 million customers a year.

Consultancy Retail Doctor managing director Brian Walker says IKEA’s expansion poses a threat. “Because of its size and brand, IKEA can play hard, category against category,” Walker says. “It has the scale to go up against other retailers. It will be very successful in each category it’s in because it makes a good product, has the trust of consumers and is very price-driven.”

Furniture retailers will feel the impact most. “You need to look fairly and squarely at businesses like Freedom, Target, Myer and Harvey Norman,” Walker says. “In certain categories the impact will be significant.”

But not everyone sees it that way. Harvey Norman declined to comment and Myer’s general manager of merchandise, Adam Stapleton, told BRW the retailer doesn’t consider IKEA a threat. “The range of choice at Myer is far broader than a speciality offering like IKEA,” Stapleton says.

Similarly, Nick Scali, the managing director of his eponymous furniture chain, is not concerned.

“We have an expansion plan for 80 stores, so it’s a very different model,” he says. “We work on having multiple sites in one city because we’re focused on the customer having a buying experience in a convenient location.”

Scali believes the growing reluctance of shoppers to travel will play in favour of a larger network of smaller, inner-city stores. He is also confident his furniture line is sufficiently different.

“All of IKEA’s living room furniture is knock-down, so you buy it in a box and assemble it at home,” Scali says. “We can’t do that with our products. It’s built in a way that requires an experienced cabinet maker to assemble it. You can’t use an Allen key.”

It will be easy for Scali to measure the exact impact of IKEA’s second Melbourne store on his business.

“We’ve opened in front of the new Springvale store, which will be an interesting exercise,” Scali says. “The stores are right next to each other, so customers will walk into theirs and then ours and it’s a completely different concept.”

According to Hood, however, it’s not just furniture retailers that will be affected. He warns that because of IKEA’s wide range of goods, just about every other major retailer is a competitor.

“I’d say everyone from Coles, Bunnings, Woolworths, Myer, David Jones, Super A-mart and Harvey Norman is [a competitor],” Hood says. “Some of them might not think we compete but I consider them competitors in different categories.”

It’s this wide range of categories in its mega-stores that gives IKEA an edge – as well as a boost to its profits. Customers come in to buy furniture but end up taking home accessories from candles to salad bowls to screws to picture frames to light fittings.

The Tempe store is expected to sell 100,000 pallets of the company’s range of 8500 homewares each year. That will include 50,000 Malm chests of drawers, several million coat-hangers, 100,000 sets of plastic cups and 2.5 million of its meatballs will be consumed in the process.

Kitchens and appliances are two markets Hood is determined to penetrate. “There is a huge opportunity for us,” he says. “No one else does better value kitchens than IKEA.”

In Norway, every second kitchen sold is IKEA and in Germany, it’s one in every five. Hood is hopeful there is scope to make an impact here.

Walker thinks that winning market share in kitchens and appliances will be straightforward. “I see them moving into that space quite easily,” Walker says. “They have a natural invitation through who they are.”

But again, local retailers such as Coles, Woolworths and Bunnings declined to comment because they don’t consider IKEA a competitor in this sphere either.

But perhaps they should. One of the reasons IKEA is boosting its presence is because of its experience in the UK. There IKEA was surprised by how quickly the supermarket chains moved into low-cost homewares and it is taking a more aggressive stance to protect its terrain here.

Hood also thinks Australia has become a more attractive destination for overseas retailers and wants to see off any further competition.

“We have to be careful,” he tells BRW. “We are one of the very few foreign retailers here on any big scale at the moment. CostCo, Aldi and Zara have come quite recently but more [may come].”

The other point for local retailers to note is that IKEA is one of the biggest success stories in retail on a global scale. Walker says IKEA has achieved the holy grail of retail.

“IKEA has tapped into a generational psyche in so many ways,” Walker says. “As urbanisation increases and living places become smaller in those areas, around the world they are a remarkable solution.”

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