Swedish furniture giant Ikea expands home furnishing frontiers
The advent of Swedish furniture giant Ikea in Japan in April was likened by domestic rivals to the arrival of U.S. Commodore Matthew Perry’s “black ships” in 1853 ending the country’s 200 years of isolation, but some see it now as a chance to expand the nascent home furnishing market in this densely populated country.
Ikea opened its first directly operated outlet in Funabashi, Chiba Prefecture, just east of Tokyo, boasting a floor space of 40,000 square meters. It is the global retailer’s second attempt to crack the Japanese market after a bid with a joint venture ended in failure 20 years ago.
Weighing its impact, the government’s Japan Investment Council headed by Prime Minister Junichiro Koizumi referred to Ikea in March as a good example of foreign investment in Japan, saying it offers customers “one-stop shopping” service.
“Ikea offers an unconventional business model in Japan, with its wide-ranging items including food. The company has also brought a foreign culture and a family atmosphere,” said Hiroyuki Yoshiya, deputy director of the foreign direct investment promotion office at the Cabinet Office.
With long experience of international retailing, Ikea knows its own strength — having everything in one place. The newly opened shop sells about 10,000 items including furniture, sundry articles, textiles, kitchenware and flowers.
The company also conducted a meticulous survey on more than 100 Japanese homes prior to the Funabashi store launch to understand housing conditions in Japan, where relatively small homes that the Japanese often deride as “rabbit hutches” are common.
Ikea Group President and Chief Executive Officer Anders Dahlvig told a press conference at the outlet’s opening that he believes that the biggest rival to Ikea is “Disneyland,” which is located nearby in Chiba, because of the joy of shopping and the inspiration that the shop offers.
He said he expects that Japanese competitors such as do-it-yourself home centers, textile and kitchenware shops will all “try to copy” Ikea’s way of business. But he said, “We really try to expand the home furnishing market of Japan, not only to take a piece of the pie from our competitors.”
Major domestic rivals said they see Ikea’s foray into the Japanese market as a positive event, because the overall furniture and home furnishing industry is drawing more consumer attention, increasing the chances for growth.
Katsuyuki Otsuka, managing executive officer and general manager at the sales headquarters of Otsuka Kagu Ltd., a leading furniture retailer in Japan, said that the number of visitors to the firm’s Makuhari branch near Ikea’s Funabashi shop increased by up to 20% after the Swedish retailer’s launch.
“Many visitors came to our store to compare items’ prices. I think Ikea’s entry has widened customers’ choices and that we can expect synergetic effects,” Otsuka said.
The general manager said that Otsuka Kagu can differentiate itself from Ikea because 99% of its items are furniture pieces.
With items priced higher than Ikea’s, the Japanese firm can offer delivery and installment services free of charge, while Ikea offers cheaper goods with customers delivering and assembling them by themselves, he added.
Makoto Tanabe, manager of Nitori Co’s general affairs department, said the Sapporo-based major home furnishing chain will “humbly learn from Ikea” as it prepares itself for advancing into foreign markets.
Comparing Ikea to a “Gulliver” based on the fact that the Swedish firm’s global sales are about 2 trillion yen per year, 10 times greater than Nitori’s, Tanabe also said he expected that Ikea will stimulate and expand Japan’s home furnishing market.
“With the increase of furnished apartments, the furniture market pie has been shrinking in Japan. But items for home decoration have the potential to grow,” he said.
Nitori has a competitive edge in having smaller outlets than Ikea’s, where elderly customers can walk around without getting tired, Tanabe said. Dahlvig made it clear that core Ikea shoppers are young women and families as the worldwide average age of the global chain’s customers is 41.
Takayuki Suzuki, head of Primo Research Japan and former senior retail analyst at Merrill Lynch Japan Securities Co, said that unlike French supermarket chain Carrefour SA, which has pulled out of Japan, Ikea will have a lower chance of failure as it is believed to have studied the market well and also has experience in other Asian markets with their relatively small houses.
“Ikea offers total coordination solutions for various types of rooms and I believe its low-priced and colorful items with Northern European taste will gain popularity among younger people,” he said, comparing the Swedish items with monotone pieces of Ryohin Keikaku Co., known for its “Muji” brand.
Suzuki said that Ikea’s arrival in Japan is significant because the company could cultivate the almost untouched housing sector. “Due to bad housing conditions, people’s motivation to make their living space comfortable was low. Japanese were more inclined to spend much money for clothing,” he said.
“But with floor space per house expanding little by little in Japan, I see positive trends in the market for home furnishing. Japanese rivals may copy Ikea’s way and the quality of their products could dramatically improve,” Suzuki said.
Dahlvig said Ikea is trying not to generate a backlash from local contenders by sticking to its “down-to-earth, low-key, humble approach” wherever it does business in the world.
“We don’t want to brag about who we are. We don’t want to impose our way of being. We are spending a lot of time in investigating how customers behave, the situation of the market and trying to adapt our offers,” he said.
The Swedish retailer operates in 34 countries. In Japan, Ikea is scheduled to open its second store in Yokohama on Sept. 15 and a third one in Kobe by the summer of 2008.
In five years’ time, the furniture giant plans to operate four to six stores in each of the Tokyo and Kansai metropolitan regions, according to the company.
