Ikea wants to get into the digital format while not diluting its focus on physical stores
When Peter Betzel left the German operations of Ikea to come and work in India in October, before taking over as the CEO in March, the last thing he imagined was that Indians were more likely to shop on their smart phones using mobile apps than Germans. It seemed counter-intuitive. But it was true.
That is why the Swedish furniture giant is ditching the model it follows in 25 countries where it has direct presence through 276 odd stores and planning to launch a mobile app exclusively for India which it will then take to other markets. The app is expected to be launched, along with its online foray, early next year when the company opens its Mumbai store.
It’s not that the company has not gradually been moving to the online world in recent years; it has. But Betzel, who has been with the company for 25 years, had no idea that the Indian market would evolve from a purely offline market to a mobile first market.
“We have a lot of experience in manufacturing and sourcing wherein we bring a lot of techniques along with us. When it comes to online, we have been starting up in some other countries. But what is unique in India is the mobile first approach or the mobile only approach,” said Betzel, who has just managed the successful launch of Ikea’s first store in Hyderabad two months ago. He added: “Everyone here is connected by the mobile, so we’re using all the opportunities that are available, being in Bengaluru which is kind of an innovation hub, to bring Ikea to the mobile phone.”
To tap the India market, which is on the verge of seeing unprecedented movement in the retail space, whether it’s online or offline, Ikea is already working on building several new innovations, including some in collaboration with local startups. While the front end of this entire technology
focus within India will manifest itself as an easy-to-use smartphone app, the company is also working on several cutting-edge technologies to get this to work.
The challenge for Ikea is that it wants to get into the digital format while not diluting its focus on physical stores. Ikea’s football field-sized stores are famous. The Hyderabad store is spread across 400,000 square feet while the Bengaluru one, for which the company just completed the ground-breaking ceremony, will be 500,000 square feet. So providing the best in-store experience is still top on the company’s agenda. “We believe that the combination of being online and offline is where we’re going to make the connect with many people,” said Patrik Antoni, Ikea India’s deputy CEO. “When we go into our offline touchpoints, the idea is to move a lot of the interactions to the phone. Ideally, you would start your browsing and learning about the brand online, and when you come to the store, you will use your phone as the main interaction media.”
For example, imagine a customer walking into an Ikea store and wanting to know the type of wood a wardrobe is made out of, whether that wood was sustainably felled and maybe needing to know what colour curtains would best go with the wardrobe. Just click a photo of the product using the app and it will throw up all the relevant information. If it’s what the customer wants, a few clicks on the phone will complete the purchase.
The development of this interactive Ikea app is going to be led out of India, with a new technology
centre that’s being set up in Mumbai. While the company already has an e-commerce app in some of its global markets, the app is used merely to discover products and their availability within Ikea stores. “The technology
developed here has the potential to be taken outside of India as well,” said Antoni.
Apart from using some smart machine vision technology to power this app, Ikea is also considering using artificial intelligence (AI) in the background to do a bunch of things, including understanding why customers end up buying or dropping a particular product. This information could help shape future products. Augmented and virtual reality, along with a virtual in-store assistant, are other features also being considered.
“It’s more important that our mobile experience is really good here. Unlike in most other markets where desktops and laptops are still a large segment, here we are already seeing some 70-80 per cent traffic coming from mobile phones and we’re pretty sure that it’s only going to increase in days to come. The other thing that we’re looking at is the in-store experience where whatever you need to do can be done on a phone,” said Antoni.
Apart from developing front-end technologies, Ikea, which generated $42.4 billion in revenues in 2017, has also started working with technology startups in Bengaluru to automate its back end tasks. As it strives to lower costs in order to be relevant in India, it is looking to use more robots not just in its warehouses and stores, but also for managing processes such as paperwork.
Currently the company is working with five startups in Bengaluru for co-developing solutions such as document automation and an AI-based solution for competitor monitoring. While this collaboration is still at the proof-of-concept stage, the company says that things are looking promising enough to turn into business deals soon.
“We are investigating cases and meeting a lot of startups. We are trying to figure out how to use entrepreneurship and the digital innovation that’s here to develop some things. I cannot say for certain today how these will pan out, but some day it could turn into a long-term investment and whether it’s only for India or for the entire Ikea world, remains to be seen,” said Betzel. Betzel agrees that following the omni-channel model is harder for the furniture business than small products such as smartphones. The infrastructure for the logistics does not exist on such a large scale yet and Betzel has no problem admitting that homegrown players such as Pepperfry and Urban Ladder have cracked the model to some extent.
In fact, for Mumbai, Ikea will be setting up smaller stores in addition to a single large one as the nodal centre. This, he says, will largely address the complexity of figuring out where an order should be shipped from.
In short, Ikea is the latest of the large global retailers to tap India’s prowess in driving technological innovations in retail.
Adding a local touch
India already houses some of the biggest development centres for global retail giants such as Walmart, Lowe’s, Target, Tesco, and even Amazon. Prior to Amazon opening its services to Indian customers, it had a large team working out of India that aided in the development and upkeep of its platform for customers in the US and Europe.
Similarly, while Walmart is now getting ready to test the Indian waters through its investment in home-grown e-commerce giant Flipkart, it was Walmart Labs, the company’s engineering centre in India that played a key role in building technology solutions globally both for its offline and online business.
Apart from having an abundance of technology talent, the unique challenges that India throws at retailers here force them to come up with innovations. Amazon, for example, created its Seller Flex and Easy Ship logistics models for India as not all independent sellers wanted to stock all their products in the company’s warehouses. Now this model, along with its complex algorithms and on-ground support, has been exported to several other geographies. Even in the acquisition of Flipkart by Walmart, while the primary driver of the deal was getting access to India’s vast retail market, the US firm has also reiterated how it wants to learn and take Flipkart’s technologies to other markets. Mobile shopping, payments and the AI-based algorithms which power everything at Flipkart are of immense value to Walmart.