Global Economics

Ikea's New Plan for Japan


Its first attempt to crack the Japanese market was a bust. Now, two decades later, Swedish home-furnishings giant Ikea is giving it another go with a gleaming new mega-store just east of Tokyo. The first time out, Ikea's stores were too small, and few Japanese consumers were willing to assemble Ikea's do-it-yourself kits. Now the chain is striving to blend Swedish design concepts into a much more Japanese shopping experience. And consumers seem willing to check it out. An Apr. 24 opening ceremony, complete with a traditional Swedish log-cutting, lured an estimated 35,000 shoppers to the five-story 40,000-square-foot store.

This time, will they keep coming back? Ikea is leaving nothing to chance. The store's second floor is lined with 70 mini-showrooms built to the size of a typical Japanese room. Offering design ideas for smaller living spaces, each room is aimed at a different demographic group. There's an entertainment room, for instance, kitted out to appeal to computer-game mad teens. And a compact kitchen filled with space-saving options for families. Buying a chair for her one-year-old son, Tokyo housewife Rie Tsuda, 29, liked what she saw. "The store is easy to look around and very stylish," she says. But the real draw? "It's so affordable."

To get the word out about the opening, Ikea transformed a gingko tree-lined boulevard in Tokyo's trendy shopping district of Aoyama into an open-air museum. Fifteen box-like structures, each the size of a typical Japanese room, are fitted out with Ikea furnishings. The display is part of the company's effort to convince Japanese consumers it understands small-scale living.

TOUGH MARKET. Ikea hopes to capture a sizeable chunk of Japan's $42 billion home-furnishings market, opening more than a dozen of its iconic blue and yellow stores over the next five years. CEO Anders Dahlvig reckons Ikea will play better in Japan the second time around. "Japan is much more open, and we're a much stronger company," he says. "Today is the right time to come to Japan."

Maybe so, but foreign retailers have long struggled to break into the fast-moving Japanese market, with mixed results. French supermarket giant Carrefour, British drug store chain Boots, and French cosmetic retailer Sephora have all come and gone in recent years. Carrefour sold its eight stores in Japan last year, ending a four-year struggle. Even the world's biggest retailer, Wal-Mart (WMT), has struggled to make its presence felt. Despite gradually raising its stake in local player Seiyu, sales fell 3% in 2005 and the retailer has lost money for the last four years.

Will Ikea fare better? That's a tough call. It may be the most successful home-furnishing retailer on the planet -- its 233 stores in 34 countries pulled in $14.8 billion in sales last year -- but in Japan it will face stiff local competition against well-entrenched local brands such as Mujirushi Ryohin (known outside Japan as Muji). The home-furnishings and clothing chain, which is operated by Ryohin Keikaku, has hundreds of shops nationwide and wins points especially among younger consumers for its hip but simple designs and low prices.

CENTRAL SUPPLY. Another rival is Nitori, which has 119 stores nationwide, and sells furniture made in Japan alongside low-cost imports from factories in China, Thailand, Malaysia, Indonesia, and Vietnam. Still, Dahlvig believes Ikea's moment has arrived. For the last five years, Ikea has planned its return to Japan with meticulous care. It has been careful to make its stores especially spacious and to cater to Japanese consumers' preferences by offering an assembly service and delivery.

Managing inventories should run more smoothly than in the 1980s. Instead of shipping products from Europe, Ikea has now set up supply centers and warehouses in Asia. One-third of the 10,000 items in Ikea's range are made in Asia. Ikea ships the rest to distribution centers in Kuala Lumpur and Shanghai before sending them on to Japan, saving money on transport and avoiding stock delays.

To make sure its offerings were in synch with current Japanese tastes, Ikea visited more than 100 homes. Large sofas, beds, and tables, top-sellers in Europe and the U.S., won't be for sale because they wouldn't fit into most Japanese homes. Prices are competitive too. For less than $700, shoppers can pick up an entire living room -- including sofa, television stand, and tables.

MODERN AESTHETIC. Hoping to woo Japanese consumers, who are accustomed to lavishly high levels of customer service, Ikea offers home delivery and an assembly service for an extra charge. "The market has changed a lot since Ikea entered Japan the first time," says Ikea spokeswoman Yuki Kusama. "Japanese consumers are more interested in designing the look of their homes by themselves rather than having it done for them."

Analysts agree that recent market shifts bode well for the chain. Ikea's modern aesthetic appeals to Japanese tastes, especially as the retailer has expanded its range to include richer and darker woods. At the same time, consumers are warming to do-it-yourself shops, says David Marra, a consultant at A.T. Kearney in Tokyo.

RETURN TRIP. Moreover, more than a decade of deflation and the emergence of discount retailers has made Japanese consumers much more cost-conscious. It has obliterated the traditionally held view that high prices equal high quality. "Japanese consumers are in the process of embracing the concept of value," Marra says.

One such consumer, Haruo Okuda, 72, traveled two hours by train from Kawasaki city, west of Tokyo to check out the new store. Many of the products are "for young people and look rather cheap," he says. But Okuda admits he'll be back in a week, this time with his wife, to buy bed linens. It turns out that the bargain prices are just too tempting to pass up. And that's just the way Ikea likes it.


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