Swedish furniture and homewares retailer Ikea faces some unique challenges – and opportunities – as it expands its footprint across Southeast Asia.
Copycats in Vietnam; cultural differences between Asians and Europeans; competition from other Ikea franchises are all part of the puzzle for Ikea Southeast Asia (Ikano) as it makes its mark in Asia.
Ikano is one of 10 Ikea franchises worldwide, but it is different in that it is owned by members of the retailer’s founding Kamprad family. But that family link does not mean it has any special perks.
“We had to apply for the Philippines,” says Christian Rojkjaer, MD of Ikea Southeast Asia. “We also applied for Indonesia, but it was given to Jardine.”
So Jardine, through its retail subsidiary Dairy Farm International, runs Ikea in Hong Kong, Indonesia and Taiwan. Ikano has the stores in Thailand Malaysia, Singapore and – coming soon – the Philippines.
“I think is super healthy that the founding family still has some retail interest, hopefully to show the way and show how it should be done,” says Rojkjaer. “That being said, are we better than the other guys out there? We love to beat them, but they are very, very good as well.
“We learn from each other, share our experiences … and we compete a bit to be the best, the most successful in terms of visitation and in lowest pricing reality – their study to have the best prices per category, the lowest prices. Ingrad Kamperft set this up in the 1980s in order to keep we retailers on our toes.”
Asia is one of the few places in the world where Ikea is launching in developing markets, where incomes are lower than in more established regions like Europe, the US and Australia. Rojkjaer admits it has been “quite challenging”.
“We want to be for the many in a country, but when we go into the Philippines, for a while it will be for a lot, but not for everybody. Then we will grow our presence and become more for the many, as we say. But, of course, not everybody in the Philippines can afford us today. But we will work on that and adapt our range and become better and better to become something for many more people.
“That will certainly be the same in Vietnam, Myanmar, Laos, Cambodia. It is a challenge to be something for everybody. However, our range will fit a lot of people in all those countries from day one.”
While integrating shopping malls with Ikea stores has proven successful in Europe, Ikano is the first franchise to try this in Asia-Pacific. Rojkjaer is sure it has not only been successful so far, but has actually been easier than developing malls in Europe.
“In Asia we love the day out, we love the family time when the outing in itself is less practical. In Europe, you go out to buy something specific, whereas in Asia you go out to have a good time, have a cup of coffee, some food, and maybe you buy a little at the same time, but you go more often.”
That is the philosophy behind the company’s newest, boldest mall development yet: the 1.1 million sqft Toppen centre being built in Tebrau, in the south Malaysian border city of Johor Bahru.
Bigger and brighter
After Mega Bangna in Bangkok and MyTown in Kuala Lumpur, Toppen promises to be bigger and brighter, with four floors of retail and an indoor/outdoor rooftop experience zone with cinemas, food and recreational space.
“This destination … is not just about shopping, it’s about having a great time. We have air-conditioned walks, and maybe if you even just look the first four or five times you visit, on the sixth time you buy something. So we are not so hard on selling, selling, selling. We are much more focused on what it takes to have a great visit.
“This means that maybe the tenant mix is a bit different from Europe: more food and beverage, more leisure and more education and tuition, that sort of stuff. If you visit Mega Bangna you’ll see we have come quite far on that offer. For instance, the children’s education is growing out of the shopping centre.”
An extra building is under construction, connected to Mega Bangna purely to house education offerings such as music lessons, ceramics and art classes, language centres and the like.”
Rojkjaer is targeting 6.5 million visitors to Toppen in its first full year of trading. Ikea Damansara in Kuala Lumpur achieves 6 million a year, ranking it among the 10 most-visited Ikea stores in the world. Little more than four months after opening in Johor Bahru, Ikea.
Tebrau had surpassed 2.5 million shoppers, so given the store will have been trading about two years by the time Toppen is complete late next year, the target is well within reason.
“We use Ikea to warm up the place, then we open up the centre,” one Ikea executive joked at a retailer event launching the leasing program in Johor Bahru last month.
“Toppen is unique,” says Rojkjaer. “Nobody will ever, ever have an Ikea-anchored shopping centre in Johor Bahru, I can promise you. It’s not going to happen, because we are the owners of the Ikea brand.”
And therein lies a key advantage for retailers considering taking space in the mall, Rojkjaer explained at the launch. “We are retailers just like you, which means we have more opportunities to understand you better than most, and we are doing our best to do so. And one way of doing that is that we are incredibly stubborn, not in terms of negotiations but in terms of making our destinations a success. They will be a success. They must be a success, because we don’t do that many of them.”
Ikano plans to build only five or six – “seven at the absolute maximum” – Ikea-anchored shopping centres in Malaysia. Toppen will be the third and another is possible in Penang, in East Malaysia.
Given the massive migration of shoppers from physical stores to online in most Asian markets, is building a mall on this scale a risk? Not at all, says Rojkjaer.
“We are still human beings – a day out, a destination, is what shopping is all about. For years and year to come we will still go out to the cinema. For years and years to come, we will still go out to eat something together, because it is our human nature to do so. So this destination is much more than a shopping centre, it is a destination in itself.”
And as a colleague commented during the launch event: “You can’t buy an ice cream after you’ve bought a sofa online.”
After establishing beacheads in Singapore, Malaysia and Thailand, the Philippines and Vietnam are the next markets on Ikea’s radar in Southeast Asia. Ikano already has the Philippines rights sewn up and will open its first store there next to Mall of Asia in Manila in 2020. Further stores will open in other parts of the country either attached to Ikano’s own centres or, where there are synergies, existing centres.
Vietnam is at a much earlier stage of planning, with Ikea head-office executives heading to the country this month on a further scouting exercise before recommending locations and a timeline to head office in Sweden.
“We are very cautious not to commit too much on time, but we are looking into the country,” says Rojkjaer. “How many Ikea stores can we have? Where should they be? Where could we create some great destinations for Ikea? And there must be a possibility for Ikea together with our shopping centre concept to go in there.
“I think there is enough space for us without creating crazy competition with other mall players in the market. I think we could co-exist there. We don’t have to go in alone, solo, but it is more tempting to do so in Vietnam.”
Singapore-based Rojkjaer says he “loves” Vietnam and is a frequent visitor with his family for holidays. His belief in the nation as a future market for Ikea has been fuelled by the Starbucks’ experience. “It seems like half of Ho Chi Minh City is drinking super-expensive coffee. The same with the gyms. They consume way more than their disposable income would suggest.
“Our vision is to create a better everyday life for the many, and that’s why we have to argue the investment case to the Ikea family. They are saying, ‘But we are there for the many’.
Copycats and potential customers
While Ikea may not be there for the many upon launch there, to be there ‘for a lot’ we have to be there for some years.
Many people will be potential Ikea customers, he believes. “We need to get in there and get going.”
Ikea already sources products from Vietnam, its largest manufacturing source after China, with Thailand in third.
Rojkjaer is aware of unauthorised vendors of Ikea products in Vietnam, but says they are not harming the brand for now.
“I am actually not sure where they buy the products … not from us. Maybe they buy them from China. We have chosen not to pursue them, but when we start they will not exist any more. I mean, they can’t. We will set the pricing and we will beat them on pricing. We’ll be cheaper, more available, more accessible, much better than them.”
As it expands across Asia, Ikea is working in markets with quite different levels of GDP and disposable incomes. So how does it create a pricing strategy to cover such diverse markets?
“We price to market,” says Rojkjaer.
“Of course, we know as any retailer that we must also be profitable, but we are okay to be priced to market with extremely low margins to get in. But loss-making companies middle and long term won’t work, so there is a limit to how long and how low we can go. But so far we have priced to market and been very successful.”
With the giant Ikea store trading just across the bridge from Singapore, one might expect a lot of Singaporeans to take a trip across the border and avail themselves of cheaper prices for many goods. Rojkjaer says Ikea Tebrau is not trying to attract Singaporeans and he is unconcerned about any cannibalisation effect of the Singapore store. They have checked number plates in the carpark and found fewer than 5 per cent of shoppers are driving cars registered across the water.
Prices do differ between the two cities, but not in the way one may think.
“They are market based. Some will be more expensive, some will be cheaper. Some are based on higher import duties in Malaysia. Some are based on higher labour costs in Singapore. But most important of all, it’s bargain-basement prices. We must do this always. We must offer the lowest price we can.”
Ikea Sweden executives travel to all franchised stores annually to check they have the lowest prices. And if Ikea Southeast Asia does not, “we have to show them an action plan of how to get there,” says Rojkjaer.
“So, we have the cheapest table and we also have the more expensive, high-end products. We compete relatively high up as well. But we are probably not for the millionaires.”