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
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?
Nikki said it well–price and choice (or choice and price) without the frills. IKEA knows who they are when it comes to furnishings–if you don’t like their no frills approach, go somewhere else. Their lesson is figure out who you want to be and stick to it.
IKEA is the perfect example of a retailer who struck a winning proposition and has stuck with it. That $3 frying pan is a perfect fit with their no nonsense, high-choice kitchen design. And yes, it beefs up the market basket, a little. But the intent is more to fulfill the mystique of the IKEA home–well designed, flexible, at a great value. Everything they do fits the aura of Scandinavian sensibility, even the meatballs. All retailers can learn from IKEA the importance of crafting their story–and sticking to it. Always.
An interesting juxtaposition as the basis for the articles “feast or famine.”
Borders failure isn’t so much about how that retailer chose to package, market and price its products to its customers as it is about how technology drove the traditional brick and mortar book store concept towards obsolescence.
The digital revolution and smart devices such as the Kindle, Nook and iPad have had the same devastating impact on Borders that this same technology did to Blockbuster…it’s made their brick and mortar operations irrelevant (at least to the scale of their operations).
Furthermore, Wi-Fi and online libraries of books, movies and music continue to transform the retail playing field as companies like Apple, facilitated by their hardware and software, have almost instantaneously transformed where and how books, music and movies are purchased.
At the moment most of us still live in a non-digital home filled with real objects (the Matrix hasn’t replaced our real lives yet) and as such the products which fill our lives, and which IKEA sells, are still very important. As a consequence, there are no substantial “virtual” competitors for the products that IKEA sells. IKEA does a very good job of designing, sourcing, manufacturing and packaging their products in ways and at prices that appeal to a wide range of customers and their income levels and then marketing the shopping experience in ways that makes shopping fun.
Retail’s biggest opportunity is to assess their product and services relative to the scope and scale of technological development and using the tried and true SWOT approach to begin to address the potential threats to their company present and future. Then most importantly, take action.
IKEA offers consumers value for their money, a huge selection and stylish products in a fun, tongue-in-cheek setting. I was in Denver two weeks ago and my family there told me of huge tie-ups on the freeway as consumers tried to reach the store. How many retailers can cause that kind of excitement these days?
IKEA has accomplished what other leading retailers have done. They have developed a brand experience that creates an emotional connection with their customer–it’s cool, it has utility, and it is value priced. More importantly, they stuck to the brand proposition and did everything they could to strengthen it. When the current shake-out in 4-wall is over, they’ll still be here and probably stronger than ever.
“Retail is feast or famine right now” is indeed what we’re seeing and this very point that Nikki so eloquently makes contrasting Borders with IKEA has become today’s reality for many merchants.
All you have to do is look at earnings reports and see that the grey space in the middle is dead. Price and value are driving the lower-ticket side of the spectrum while at the same time higher-end retailers like Saks are doing very well. While there are a number of threats, it’s unlike we’re seeing a replay of 2008/2009.
One of the key lessons here is that retailers have to choose to be true to their brands and be consistent in their positioning. IKEA knows exactly what it is and operates accordingly and consistent with its proven strategy. Borders got caught between Amazon and B&N and the mass merchants, stood for nothing and is now roadkill.
IKEA is the new poster child for the effect word-of-mouth can have on a business. Their reputation for quality and price has preceeded them so much that people keep asking when are they coming close to where I live.
IKEA came to the Ft. Lauderdale area a few years ago. My wife and I went long after the big openings. You could not tell the difference because the traffic and mass of people were still strong. I also went to an IKEA store in Baltimore years after they opened. You would have thought they were giving things away that day because there were so many people shopping. Some retailers get it. IKEA is one that does for sure.
It’s tough to beat a complete room of attractive furniture for less than $1,000. And IKEA isn’t packed only when new stores open; it’s a magnet for college students and young people starting a home. That business model is tough to argue with….
IKEA has soul; an admittedly non-economic term with ambiguous meaning, related to experience but yet different. Apple has soul. Wegmans has soul. Whole Foods has soul. I translate it to an intuitive sense that there is someone that actually cares, behind the experience. Not cares, like cares in what marketing data tells us what our consumers want, but cares in terms of culture; cares in terms of imagining what would make a shopper smile in the aisle, for the sake of a smile once in awhile. I disagree with the statement that “you can be an IKEA or you can be a Borders.” It isn’t something you manufacture, it is something you are. That might explain why there are so few great experiences executed in mass retail. It may also be part of the reason behind the growing success among smaller, independent retailers.
Who doesn’t like walking 400 yards just to get into a store and then getting hopelessly lost in a purpose-designed maze, and then finally finding the cash lanes, which are all five shoppers deep?