RSR Research: Retail Feast and Famine
Through a special arrangement, presented here for discussion is a summary of an article from Retail Paradox, Retail Systems Research’s weekly analysis on emerging issues facing retailers.
Described as an "IKEA-pocalypse," IKEA opened to great fanfare in Denver last month. So for its second weekend open, I decided to see what all the fuss is about. While an admitted fan of self-assembled furniture, I’d never seen an opening and couldn’t believe that there was still this much pent up demand for flat-pack furniture in the Denver metro area.
We drove amid a good twenty people directing traffic and controlling crowds on foot. A queue worthy of Disneyland greeted us on our way in. Everyone was good-natured and excited to see the deals that IKEA is famous for. Once started, it took us two hours to get out of there. Not because we were shopping that long, but because that was as fast as you could go, swept along by the tide of humanity that wandered along IKEA’s showroom floor. Exhausted and hungry, my family decided to go to the mall to get something to eat.
However, while walking through the mall, we spotted the Borders store and it was supremely sad to see the "Up to 40% off!!" signs screaming from every window. What struck me the most, though, was this: the hardback featured in the window was marked down to an "incredible savings!!!" of $15.49. At IKEA, the item that stuck with me more than anything was the small frying pan for $2.99.
That contrast really struck me, just as much as the completely different energy levels of the two retailers’ stores struck me. IKEA, rolling in positive energy and customers; Borders, depressing, with shark-like shoppers picking over the remaining inventory. Yeah, two different verticals. But, also two completely different value propositions.
The lesson for retail? In my opinion, it is possible and important for retailers to differentiate based on service and experience as a way to justify a higher price. But choice is always going to be an important part of that differentiation. IKEA has chosen to compete based on choice. Yes, it appears to be price, but if you want an IKEA kitchen, and you don’t want to do it yourself, I have a strong suspicion that it will cost you just as much as a Home Depot kitchen when all the extra assembly and installation costs are added in.
IKEA has stripped all of the non-value-added things out of its products to make them affordable for consumers. It’s an explicit relationship — no assembly provided (unless you want to pay extra for that), no extra packaging, no delivery (unless you want to pay extra for that), minimal help on the sales floor (though strategically placed at the highly configurable items and in the self-serve area). And in return, frying pans for $3.
The publishing industry, on the other hand (and this applies to a lot of media, music and movies included), is trying to add more to the product to justify a higher price. ("It’s signed by the author!") They have fought Amazon hard to not make the printed page and shipping an explicit choice for consumers — and have seen a huge chunk of that distribution channel go away as a result at the same time that only the most popular books seem capable of sustaining digital prices of more than five dollars.
Retail is feast or famine right now — you can be IKEA, or you can be Borders. The flexible retailers- – the ones ready to move to meet consumers’ desired choices — are the ones that are going to win.
Discussion Questions: What’s unique about the value proposition being offered by IKEA? What lessons can IKEA offer to other retailers, particularly those focused on price?