How can VR & AR technologies affect IKEA’s supply chain?

IKEA launched its VR app in 2016 and AR app in 2017. Why does the home goods and furniture company develop VR and AR apps? How can these technologies affect IKEA's supply chain in the future?

The home goods and furniture industry in which IKEA operates so far is among the ones least disrupted by online shopping with 9% ecommerce penetration vs.  20% for apparel and 35% for consumer electronics in the US[i], partially because consumers need to see and check the samples to make sure that furniture can properly fit in their home.

However, ecommerce has already moved ahead to tackle the issue.  In 2016, Wayfair, the US ecommerce furniture platform, launched AR & VR apps for shoppers to see how furniture look in their homes on virtual reality devices[ii].  The move, if proved a success, can heavily affect the last link of IKEA’s supply chain, i.e. the offline retail outlets, which now attract customers, sell products and generate revenue.

Furthermore, with the help of AR & VR to visualize pieces of furniture, customers can become designers of their own to build out what perceived as the best fit for their home. In the future, combined with commercially feasible 3D printing, customers can push customized needs to 3D printing vendors instead of pulling mass-produced products displayed in the retail chains.

In response, IKEA launched a pilot VR app called VR Kitchen Experience in 2016, enabling users to virtually explore three different kitchen settings.[iii]  The company also launched the AR app IKEA Place on iOS in 2017[iv].  The app shows the 3D image of how the furniture fits in the place where the users would like to place the furniture, complete the texture of materials on the products.[v]  Jesper Brodin, IKEA Range & Supply Manager, says that, ”virtual reality is developing fast and in five to ten years it will be an integrated part of people’s lives.  We see that it will play a major role in the future, for instance it could be used to enable people to try out a variety of home furnishing solutions before buying them.”[vi]

In subsequent versions of the IKEA Place app, the company will also enable users to directly buy the products online.[vii]  For IKEA, the goods bought online flow from factories to warehouses and then directly to consumers order by order.  In comparison, goods are shipped from factories to warehouses and then to retail outlets in batches in the current supply chain.  Inevitably, IKEA will face the same challenges to operate two lines of supply chain, which is being experienced by the apparel & electronics retailers who have witnessed large ecommerce exposure.

Finally, in response to 3D printing, IKEA rolled out a project to 3D print a collection of accessories designed by a Belgian fashion designer as the first step in the space. [viii]

I recommend IKEA to go further with online shopping. First, the company should continuously update the AR functionality to cover all of the SKUs offered and roll out the online shopping function soon to capture the online market.  Though the online shopping experience is suboptimal at the moment, with the progress in AR/VR effectiveness and potentially lower delivery and handling costs by autonomous vehicles, the online shopping may take off rapidly in the near future.

Second, IKEA should leverage the VR technology to set up VR showrooms and add ‘order-in-the-showroom’ function.  Not only a promotion tool, the showrooms together with the ecommerce initiatives, can engage customers before they are acquired by competitors, especially online competitors, in developing markets which IKEA has not physically covered.  Also, in the areas where rentals are high and space is limited, the VR showrooms enable IKEA to have more samples on display than currently available.

Third, to complement the AR/VR and online shopping initiatives, IKEA should further develop its ecommerce, i.e. direct to customer, warehousing and shipping capabilities.  Since IKEA is already operating an offline delivery fleet, the company should make further investment in automation to reduce labor cost, to increase efficiency, to shorten the lead time of shipping orders to customers, and to meet the increasing needs from online channel.

Fourth, besides the development of 3D printing in the long term in preparation for mass customization, IKEA can take small steps to test for mass-customization via the combination of VR/AR and modulization, enabling customers to choose among different modules to design and build up a piece of furniture satisfying their specific needs.

My question:

What were the concerns & potential risks in the supply chain that made IKEA management decide to only roll out online shopping in subsequent versions of IKEA Place app? Why did not they roll out immediately?

(745 words)

[i] Wayfair company presentation for Fourth Quarter 2016 Results and Host Earnings Conference Call, February 23, 2017, accessed at http://s2.q4cdn.com/848638248/files/doc_presentations/2016NewFolder/W.Presentation_Q4-2016_vFinal.pdf, on November 14, 2017

[ii] Wayfair company press release, “Wayfair’s Augmented Reality App Now Available on the Asus Tango Enabled ZenFone AR”, January 5, 2017, accessed at http://investor.wayfair.com/investor-relations/press-releases/press-releases-details/2017/Wayfairs-Augmented-Reality-App-Now-Available-on-the-Asus-Tango-Enabled-ZenFone-AR/default.aspx, on November 14, 2017

[iii] IKEA company news, “IKEA Launches Pilot Virtual Reality (VR) Kitchen Experience for HTC Vive on Steam”, accessed at http://www.ikea.com/us/en/about_ikea/newsitem/040516_Virtual-Reality, on November 14, 2017

[iv]I. Lunden, “IKEA Place, the retailer’s first ARKit app, creates lifelike pictures of furniture in your home”, accessed at https://techcrunch.com/2017/09/12/ikea-place-the-retailers-first-arkit-app-creates-lifelike-pictures-of-furniture-in-your-home, on November 14, 2017

[v] Ibid.

[vi]T. Åkesson, “VIRTUAL REALITY – INTO THE MAGIC”, accessed at http://www.ikea.com/ms/en_US/this-is-ikea/ikea-highlights/Virtual-reality/index.html, on November 14, 2017

[vii] I. Lunden, “IKEA Place, the retailer’s first ARKit app, creates lifelike pictures of furniture in your home”, accessed at https://techcrunch.com/2017/09/12/ikea-place-the-retailers-first-arkit-app-creates-lifelike-pictures-of-furniture-in-your-home, on November 14, 2017

[viii]V. Algotsson, “STEPPING INTO THE WORLD OF 3D PRINTING”, accessed at http://www.ikea.com/ms/en_US/this-is-ikea/ikea-highlights/3D-printing/index.html, on November 14, 2017

Previous:

Tabasco Sauce: Can it take the heat of global warming?

Next:

Can Blue Apron Compete Against Digital Giant Amazon?

7 thoughts on “How can VR & AR technologies affect IKEA’s supply chain?

  1. Anton,

    Wonderful article on a very interesting topic. Extremely thought provoking.

    You hit the nail on the head that AR/VR will have a particularly powerful effect on the furniture industry, as the shopping experience today is challenged by the inability to view different furniture options in your home. In terms of IKEA’s ability to execute and lead this transformation, I have two questions marks. The first is their ability to design the right AR/VR experience, given the size of their company, and the innovation required in a new technology space like this. The second, and perhaps more pressing, is whether shoppers will want to limit themselves to just IKEA products when looking for furniture on an AR/VR platform, or would prefer a 3rd party to aggregate a variety of brands to mix and match as they design. Houzz, one such company, is similarly exploring AR/VR and it’s possibilities (1). I am excited to see how it plays out because as you wonderfully described above, change is coming.

    (1) https://www.theverge.com/2017/5/3/15526478/houzz-3d-ar-home-renovation-furniture-shopping-app-update

  2. Thank you Anton for this interesting analysis, as I did not know that Ikea was engaging in AR/VR initiatives to help the last link of its supply chain. As other companies look to go purely online and abandon their offline retail outlets, it’s pretty remarkable that Ikea is going in a different direction and investing in both online and offline. While it seems practical, convenient, and quite frankly, fun, for consumers to use these technologies, my first hesitation when learning about this is whether this is just a gimmick or will actually increase customer traffic and orders in the offline retail outlets. One survey conducted showed that 55% of consumers thought these technologies would influence their purchasing decisions and a third of consumers said they would probably shop more with e-commerce retailers that had VR technologies [1]. Although the initial reactions do seem promising, I’m still wary of whether these technologies will actually increase sales. At this point, I guess it’s too early to tell if this hefty investment will pay off.

    [1] https://www.technologyreview.com/s/601664/how-stores-will-use-augmented-reality-to-make-you-buy-more-stuff/

  3. We are in the future! It is hard to believe technology is so advanced and AR/VR and 3D printing are already making such a big impact in retail. With the combination of AR/VR, IKEA will be able to redesign their supply chain to decrease inventory, decrease retail and warehouse space, and reach new geographic markets. The use of AR/VR additionally addresses two key issues that can prevent a customer from buying products: (1) in-store shoppers cannot visualize what the product will look like in their home setting, and (2) online shoppers cannot get a good enough idea of what the product looks like in person.

    One of the main concerns I identified for why IKEA management has delayed the roll out of online AR/VR shopping is customers purchasing through the app will not need to physically go into an IKEA store. IKEA’s stores are laid out to increase the amount of time shoppers spend in the store and to entice shoppers to purchase items that they originally did not intend to buy. Once shoppers start purchasing items through the app, then they will no longer visit the store and find additional items that they want to buy, which will in-turn decrease the average number of items per purchase.

  4. Great article. While the idea seems really interesting, do you have any thoughts on the adoption curve of this technology? I see both a population that may not want this technology in general, and then one which may not buy into the visualization as an effective tool. I would also wonder if IKEA sees this as a ‘fun’ publicity stunt, or a long-term strategy. VR and AR seem like the flavors of the month, but I’m not sure it’s the most effective way to increase online sales in the long-term.

  5. Anton- such a fascinating article- thank you! There is clearly immense room for innovation in the fairly untapped furniture market in terms of digital capabilities. Building off of Emily’s point above- I think the idea of giving customers too much freedom is quite relevant here. In particular, if IKEA demonstrates to customers the simplicity of not only ordering online, but designing and 3D printing their orders, the company risks making itself obsolete. Instead, IKEA needs to find a way to give customers just enough autonomy, without assisting customers in actually subverting IKEA’s role in the supply chain. I believe the company can do this through both strong partnerships with suppliers as well as innovative design. If IKEA can continue to maintain relationships with suppliers that drive materials costs down (as compared to what these costs would be for a consumer 3D printing on his/her own), it holds on to its position of power in the market. Similarly, if the company can demonstrate to the consumer a design prowess that the average person could not attain on his/her own, it allays the risk of individual designers taking market share. Still, I would urge the company to build responses to these long-term threats into its business plan as it works to maintain relevance and expand its footprint in an increasingly digital world.

  6. Hi Anton, great read. It’s about time IKEA started with this! To answer your questions, I’m betting IKEA was moving quickly and wanted to get customer feedback before continuing building out their AR offering. They may also have been testing its accuracy — it would suck if you ordered a couch and it was much bigger IRL than in AR! It also looks like the textures aren’t really great yet. I’d love to see the version 3.0 of this app where textures and lighting are more realistic. At the moment it seems more useful as a measurement tool than something an amateur interior designer would employ. I’d also love to see them go full buzzword and implement an AI interior design assistant that can recommend furniture to fill a spot based on the colors and lines in the room. I wonder how much of a difference this technology is currently making for consumers.

  7. Interesting article, Anton. While there are several promising aspects to the VR element in the context of IKEA, I feel this is still sub-par to the real-time experience of a furniture store in particular. While you may get to visualize the furniture in your home, you still don’t get to test the product or the “trialability” aspect of the offering. Before you purchase, you can’t sit on the chair to see how it feels or move around the product to test the sturdiness! Moreover, you can not compare quality as easily amongst comparable IKEA products on VR as you can by trying it in the store. Two chairs may look similar, but one feels more comfortable and sturdy than the other, which you could only know by going to the store. This is similar to why people visit mattress stores because it is hard to tell a good mattress from a poor one without physically testing it out. This can be important as well if you have small children and want to make sure there is nothing hazardous about the product design by going and testing its feel. In all it is an interesting idea that has a lot of merit, but we shouldn’t lose sight of the customer intimacy that is lost by foregoing the physical feel aspect of buying!

Leave a comment