Although Ikea has provided a home furnishing and bedding market in China for fifteen years, the home superstore just recently developed a greater understanding of the Chinese marketplace. While Ikea is a Swedish/Dutch based company, the store is widely known all over the world for their reasonably priced home goods. Especially considering China’s obsession with popular American stores and brands, one would expect that Ikea would see impressive profits, however, this has not been the case. Ikea has preformed rather poorly in the past in China, despite the many locations. The Chinese cultural preferences for Anglicized goods has yet to benefit Ikea. Chinese consumers find that although these items are popular in America, they are far too expensive, and lack the immediate recognition as famous brand goods. While a Louis Vuitton bag is a less practical purchase than an Ikea bed frame, and moreover potentially more expensive, the Chinese appreciate the value of a trendy accessory more than necessary goods.
Ikea has learned from their initial failure in China and has adopted some new techniques and policies that will hopefully improve business. The store now is the greatest commercial landowner in China with twelve stores, and three more on the way (including a third location in Shanghai, and a second in Beijing). They have wisely decided to cut their prices in half to account for consumer preferences. Furthermore, they have taken advantage of the Chinese cultural appreciation for the shopping experience over the actual goods. They kindly tell visitors to not fall asleep in the store [while not vigorously enforcing that enjoinder, as per the photo], with the hopes that they will still buy the mattress they took a nap on.
Ikea’s experience with the Chinese market ties together the cultural preferences of the people with the nation’s economy. Clearly China has a consumer driven economy. For the nation to continue to prosper, other stores need to take note of Ikea’s adaptations to the specific market.
article source: “Ikea at Last Cracks China Market, but Success Has Meant Adapting to Local Ways.”South China Morning Post. N.p., n.d. Web. 10 Sept. 2013.
Image: Kim Wall from South China Morning Post
China exports a lot of low quality furniture to the US. I remember reading, and cannot find the article, that suggests Chinese consumers are starting to prefer higher quality than their American counterparts. Did you come across anything suggesting Ikea’s problems are somewhat related to the same trend?
Ikea is clearly making money in China or they’d not be opening stores one after the other. In that sense the article is disappointing in not asking how they are making money, what sells and what doesn’t. One piece of information not included is that condominiums in China are often (if not almost always) sold unfinished, just the bare walls with pipes / wires brought in. So purchasers need to put in cabinets, counters, tables and chairs, the whole 9 yards. And yes, prices may be steep relative to average incomes – but car sales are higher than in the US, so in absolute size the Chinese middle class is likely larger than that of the US. Average income is not the right metric.
Then again they are sinking lots of money into real estate. That leaves open the possibility that they (perhaps with local partners) are really looking at this as a real estate ploy, and not fundamentally a retailing operation. So if stores do really well, fine, and if not – interim losses then are really just a equivalent to a modest real estate tax. while Ikea’s cost of funds is really low (and negative if they used euro borrowings to finance things, as the RMB has appreciated so interest payments will have been falling!).
I’ve read that while the Chinese consumer loves to spend money on status brands (like the aforementioned Louis Vuitton bag, or even cars) that are external in that others will see it as the owner carries it down the street. On the flip side, the Chinese consumer saves their money to save for those sort of purchases, and tend to spend very little on personal home appliances. Leading home appliance makers in China are cheap and Chinese like TCL, Changhong, and Little Swan. For this reason it makes sense that Ikea wouldn’t make it big on China on brand reputation, but it does make sense for them to slash prices. If they can market themselves as the discount but quality home furniture source they do in the US, it would be a much more successful tactic in China.
On a slightly different note, Ikea also failed in Japan, the first country in Asia that it expanded into. Ikea had to go as far as totally withdraw from the Japanese market in 1986, but has reentered recently. From their failures in Japan and reentry, Ikea has realized how they need to tweak their marketing and product to fit the Japanese consumer. I think that the slash in prices may be a good first step.
http://pure.au.dk/portal/files/7566/Afhandlinger