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.
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?
[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
[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