Sweden’s IKEA will plough RMB 10 billion ($1.41 billion) into its China operations in the upcoming 2020 fiscal year, in a bid to upgrade and expand its store network and boost its e-commerce offerings in the country.
The planned investment will be IKEA’s biggest-ever on the mainland, the multinational home furnishing firm announced at a press briefing in Beijing on Thursday. Funds will be used to upgrade all of IKEA’s existing stores in China while adding a network of smaller stores in central urban locations.
The initiative also aims to enhance IKEA’s e-commerce resources and digital innovation in the country, where the retail giant’s growth has slowed in recent years.
Striving for Ecommerce Savvy
IKEA entered the Chinese market in 1998 and now has 26 stores open for business, primarily in the country’s more developed eastern region. The nation is its fifth-largest global market, according to public data.
“China’s market for home furnishings is currently in a period of steady growth,” stated Anna Pawlak-Kuliga, president of IKEA China, citing the impact of urbanization, the burgeoning digital economy and rising per capita disposable income.
The new investment will mainly go towards enhancing the user experience and business digitization, Pawlak-Kuliga said, as the company looks to shift its emphasis away from suburban stores in favor of downtown locations and online shopping.
By the end of the year, IKEA will roll out a new app in China that allows customers to both purchase products and visualize how they will look in their homes, reducing the need for trips to the company’s sprawling network of out-of-town, self-service stores.
The firm also said it will build a digital innovation center in Shanghai to develop technology that could support the furniture retail sector. The facility will research areas including 3D design, app development, social media, big data and in-store customer experiences.
Bricks-and-Mortar Isn’t Going Away
The new investment highlights IKEA’s departure from its long-held and much-criticized localization strategy, which prized physical stores over integration with China’s vibrant e-commerce market. But IKEA isn’t giving up on bricks and mortar.
In addition to upgrading its existing stores in China, IKEA also aims to open four new stores in the next four months, including smaller-sized locations in residential communities in order “to be closer to the customers,” the company said.
All of the firm’s physical stores and online platforms will offer a whole-house design service beginning next month, allowing customers to communicate one-on-one with designers, Pawlak-Kuliga added.
The Netherlands-headquartered firm expects to recruit more than 3,000 new employees in China during the fiscal year starting September 1, with plans to further boost investment in the next two years.
Searching for New Avenues of Growth
The announcement comes as IKEA’s growth flags in the world’s largest retail market. The company achieved total sales of RMB 5.5 billion in the country in the 2018 fiscal year, up 5.6 percent year on year, but a sharp slowdown from its expansion of 19.1 percent and 14.4 percent in 2016 and 2017, respectively.
IKEA had already taken steps to boost its revenues in China, however, including breaking ground last December on a RMB 8 billion ($1.2 billion) mixed-use shopping center near Shanghai Hongqiao International Airport in the city’s Changning district, the company’s largest investment ever in a single location.
IKEA said at the time it hopes to complete construction on the 430,000 square metre (4.6 million square foot) project by 2022. The centre will include 120,000 square metres of retail space, which the company expects to host more than 300 retailers and an IKEA store, along with 60,000 square metres of office space.
In November of last year the company teamed up with Chinese smartphone maker Xiaomi to offer “smart home” technology in China. The initial collaboration will enable users of Xiaomi’s smart voice assistant XiaoAi to control selected IKEA lighting systems from their phones.