Translated material
Buffet
Irina Rosenberg
A Western furniture company intends to revolutionize the Russian market
A Western furniture company intends to revolutionize the Russian market
The excitement around the first IKEA store in Russia can only be compared with the enthusiasm for the opening of our first McDonald's in 1989. In the first days of operation, the store was visited by more than 40 thousand people. Some goods, such as upholstered furniture, were completely sold out. Even the Swedes did not expect such an influx of buyers. On weekends, managers and administration had to help cashiers pack goods. Now we will have to reconsider the supply schedule, because the company must guarantee a constant assortment. (Photo: Max Novikov )
A group of Russian journalists walks through a huge IKEA furniture store located near Stockholm. In addition to furniture, there are all sorts of household goods, the diversity of which is mind-boggling. The marketing director of the Russian branch of IKEA, Johannes Stenberg, is waiting for journalists at the exit. Meeting the gaze of every journalist leaving the cash register, he explains: “I’m conducting marketing research.” “But it will be incomplete, you can’t take furniture across the border,” I say. “Okay, maybe something else, but I need to know what will be in demand in your country.”
At the end of March, one of the largest IKEA stores located outside of Scandinavia opened in Khimki near Moscow. It occupies 28 thousand square meters, of which 17.5 thousand are given over to trading floors. Over the next 10 years, the company plans to open four more stores in Moscow and two in St. Petersburg. Negotiations have already been completed on the lease of a second plot of land (the plot in Khimki is also under long-term lease) in the southwest of Moscow at the Kommunarka state farm. As Johannes Stenberg said, the company first thought about opening a store in Russia back in the early 90s. Initially, we looked at St. Petersburg, which is closer and therefore actively trades with Scandinavia. “When in 1997 we finally came to Moscow to see how things were going on in the furniture market, we simply gasped: we wasted so much time, we should have opened five years ago, there was such demand, we would have conquered the entire market,” he admitted. “Then- Then we made the final decision to build a store in Moscow." Construction lasted more than two years; the company’s plans were not stopped by the 1998 crisis.
What is IKEA
The name of the company IKEA is an abbreviation consisting of the first letters of the name of the company's founder (his name is Ingvar Kamprad) and the first letters of the name of the farm where he was born and his parish. The owner, who is still living, grew up in a province in southern Sweden, in one of the poorest regions of the country. The soil there is rocky, which makes farming difficult. As old-timers say, hard life and the need to constantly save money subsequently influenced the formation of the ideology of the furniture company. We must strive to sell quality products at prices affordable to as many people as possible. This is roughly how Ingvar Kamprad formulated his credo.
The IKEA company was founded in 1943, but at first Ingvar Kamprad was engaged in selling various small items from a catalogue: matches, pens, lighters. In 1947, he became interested in furniture, included it in his catalog, began attending furniture exhibitions, purchasing goods and selling them. Since Kamprad firmly adhered to his chosen rule and kept his prices optimally low, he attracted more and more clients, and his competitors began a real war against him. They began to put pressure on manufacturers: either IKEA or us. Manufacturers found themselves in a difficult situation: they did not want to lose any customers. Then they suggested to IKEA: “Let us produce furniture according to your own design, then other manufacturers will have no complaints, and at least give it away for free.”
A solution to the problem has been found. Kamprad hired designers, but the path to specialized furniture exhibitions where the product could be demonstrated was closed to him. Competitors didn't let me in. And in 1953, he opened his own showroom in the village of Elmhult, in the building of an old furniture factory, which he acquired a few years earlier. People came to Elmhult from all over Sweden. In 1958-1969, IKEA stores were built in Älmhult, Stockholm, Denmark, Norway, and since 1973, IKEA has opened stores outside Scandinavia. Today they are available in almost all countries of the world; only the markets of South America and Africa have not been developed. Opening about ten new retail outlets a year, the company is expanding and developing at such a rapid pace that its managers are afraid to use exact numbers. When asked how many employees you have (names of products, suppliers, etc.), they will certainly answer: “About that many.” - "Why approximately?" - “Because yesterday there was so much, and tomorrow, perhaps, there will be more.”
IKEA stores sell all types of furniture and household goods (dishes, bed linen, lamps, kitchen and bathroom accessories, indoor plants, in short, everything that makes up a home interior). The central office, warehouses, design center, testing laboratory are still located in Älmhult. Most of the town's residents work for IKEA.
This is how the company operates. The design center develops the design of furniture and other products. Production orders are placed worldwide. Samples of products from local factories are tested in the laboratory, and if the quality meets the requirements, the factory receives from IKEA a package of technical specifications with a complete description (down to what materials to use to make a particular item) and detailed production technology. A sofa made in one country should not be different from a sofa made in another.
First of all, the cost-effectiveness of production makes it possible to keep prices as low as possible (for example, a dining table, which is subject to a lot of wear, is covered with four layers of varnish, and a shelving unit with only two), and the cheapest pine and birch are used from natural wood materials. To save money, a company is sometimes ready to order, for example, cabinet doors from one factory, and the cabinet itself from another, if it costs less there. In addition, large volumes of purchases allow IKEA to receive a discount from manufacturers. Furniture is transported, stored and sold completely disassembled, everything is packed in flat boxes. This makes it possible to save on storage and transportation. Finally, IKEA sells its furniture not through intermediaries, but through its own chain of stores. All of the company's stores, regardless of the country, are located in the suburbs, where rental costs are much cheaper. Everywhere there is complete self-service, the buyer himself takes the furniture from the warehouse, transports it himself and assembles it himself.
IKEA offers customers not only furniture, but also design ideas. The store area is divided into small rooms (kitchens, living rooms, bedrooms, children's rooms), furnished with branded furniture with all other goods that are sold here. A person who today has money to buy a sofa or table, after some time, having saved up, can choose armchairs or chairs to match them - IKEA furniture is made in the same style. Some things can be painted in other colors if desired. Let's say you buy a wooden bedside table in a natural color, but you need a blue one - please, the paint is sold right there. And this, company representatives say, is another opportunity for customers to save money - after all, the client does part of the work himself. “Our furniture is so cheap, and the difference between the cost and the final price is so small that we don’t even have holiday sales,” company representatives explain.
To be or not to be
In Russia, IKEA intends to work according to the same scheme as in other countries (although there are delivery services - the fee is 12% of the cost of the goods - and furniture assembly). The company expects that about 15 thousand customers will visit the Khimki store every day, and sales volumes will amount to 50 million dollars in the first year of operation (in other countries the company sells 3-4 times more) and 80 million in three years. In the future, company representatives believe, the Moscow store will be among the ten most visited in the world, that is, it will sell $125 million a year.
“We are entering that part of the furniture market that is practically untapped in Russia,” says Johannes Stenberg. “You have a lot of cheap, low-quality furniture, a lot of very expensive furniture, but practically no furniture for the middle class - high-quality, but affordable to many.”
Some representatives of the Russian furniture market are jealous and at the same time skeptical about IKEA's plans in Russia. Perhaps they sense a strong competitor. “IKEA furniture is too simple and primitive, in fact it is furniture for country houses, and our people are not used to this,” the head of one of the Russian furniture factories is convinced, and many furniture manufacturers and sellers agree with him. “Besides, this is a product "from the "do it yourself" category, it must be assembled from the first to the last board. And the sales scheme is unusual for us, minimum service, the goods are disassembled and packaged, but our buyer is distrustful, he must check the contents himself to see if he was deceived."
Indeed, IKEA furniture is simple, devoid of any decoration. Most of them are strictly functional items, mostly in light colors. “We conducted surveys of our potential buyers in Russia, we wanted to find out what style of furniture they like. It turned out that in the first, second and third place they prefer sophisticated Italian design,” Johannes Stenberg agrees. “But, you know, when we came to "Italy and Spain, the same tastes prevailed there. And now they willingly buy our furniture there. For example, in Italy over the past ten years we have opened seven stores."
“There really aren’t that many buyers who prefer sophisticated furniture,” reflects Dmitry Velikovsky, head of the design firm Artistic-Design. “I think IKEA will be able to attract young people under the age of 40 to its side. The Italians have achieved success in our "The market is largely due to advertising. If in the West the success of furniture is determined by its design, then in Russia people still have little experience and taste has not yet been formed. If IKEA shells out several million dollars on an advertising campaign, it may well win over buyers to its side."
For the company's plans to come true, it is necessary that our customers not only love the furniture, but, most importantly, that the prices for it are low. IKEA pursues a uniform pricing policy in all countries without exception. At the same time, as representatives of the company admitted, initially in Russia prices will be five percent higher, since we have high customs duties. According to Lennart Dahlgren, director of IKEA Russia, as a result of negotiations with the Russian government, the company managed to achieve some reduction in customs duties on finished furniture. “Duties were 70-80 percent, it is impossible to talk about cheapness at such a rate. Now on average we will pay 25 percent, but this is also a lot, in other countries duties on furniture are 2-3 percent, so we will continue negotiations. If we will be able to reduce duties to at least 20 percent, this will already be a big victory,” he said.
According to Dmitry Velikovsky, potential clients of IKEA in Russia are people with an income of 10-30 thousand dollars a year. IKEA representatives themselves gave a more democratic portrait of their potential buyer: a family with an income of 200 to 400 dollars a month (more than 2-4 thousand a year), living in an apartment with a total area of 52 square meters (IKEA models fit well into small spaces, which is very important for our country).
Time will tell who is right. But it is already obvious that prices in the Moscow IKEA store have a wide range. Very cheap, for example, cabinet furniture, some kitchen utensils, dishes, lighting fixtures, plants, toys. But some things (for example, upholstered furniture) cost the same as everywhere else.
Deep embedding method
Russia is interesting for IKEA not only and not even so much as an additional sales market. The company is constantly expanding, four years ago its orders worldwide amounted to two billion dollars. This year it is planned to spend four billion dollars on purchases, and in four years - eight billion dollars. And the biggest problem for IKEA today is to find a sufficient number of supplier factories.
IKEA has been purchasing furniture made using its technology (and not only furniture) in Russia for 12 years and selling it in its stores around the world. Until the early 90s, furniture was exported through the Exportles division of the Ministry of Foreign Trade, and now directly from manufacturers (today the company cooperates with about 30 factories). Mostly pine products are produced for IKEA: shelving, tables, chairs, shelves, beds, stools. In addition, IKEA annually purchases approximately 50 thousand cubic meters of plywood from our country, which covers a significant part of the company’s needs for this type of raw material.
IKEA representatives rate the quality of our factories' products quite highly. “During testing, it is discovered that the quality of Russian furniture is superior to Scandinavian furniture in some respects,” noted Evgeny Osipenko, responsible for purchasing in Russia at IKEA. Today, orders from Russia account for only 1% of total purchases worldwide. But the company intends to increase this share. Last year, she purchased goods worth 25 million dollars in Russia, this year she intends to purchase 40 million (90% of orders are ready-made furniture), and in a year already 80.
Having its own store in Russia simply forces IKEA to expand cooperation with local enterprises - after all, this is one of the ways to keep prices as low as possible. By the time the store opens, the share of Russian-made goods will be 20% (of the total volume), and after some time the company intends to increase it to 45-50% (Russian products go directly to the Khimki store, and not through foreign wholesale warehouses). This does not mean at all that IKEA is going to sell furniture made in Russia only within the country. Furniture will continue to be purchased for foreign stores. Another positive point: IKEA is ready to invest in the development of the most promising Russian furniture factories, many of which need new equipment. The company has already invested approximately $50 million in Russian factories, and when asked what the further investment volumes will be, the manager replied: “There is a standard investment scheme, this is 10% of the purchase volume, that is, from 40 million for this year.” The company also intends to build two of its own factories in the Leningrad region, where solid wood furniture will be produced.
It would seem that all this looks quite tempting: IKEA values our enterprises and is ready to help them. However, the main problem that IKEA may face is the reluctance of most Russian manufacturers to cooperate with it. As Andrey Shnabel admitted, 80% of enterprises flee from IKEA like fire. After all, the company demands from factories the lowest possible purchase price, which means low production costs. And our manufacturers, as Mr. Schnabel put it, “strive to charge more.”
The enterprises do not agree with this explanation. “IKEA comes and sets a condition: make us such and such a model, but we will buy it no more than such and such a price,” explains the general director of Kuzminki JSC, where there is a shortage of working capital. “We recently entered into an agreement with them for the production of mattresses , but we haven’t been able to come to an agreement on upholstered furniture yet, we won’t be able to get such a low price, what taxes!”
The head of another company has concerns of a different kind: “IKEA does not give guarantees. They will order today, but tomorrow is unknown. If they could guarantee that they would purchase one hundred sets per month, then we would agree. And the batches are small - we ordered twenty sets upholstered furniture, they would have taken at least a hundred."
However, by and large, the desire or reluctance of Russian factories to work with IKEA will depend on how successful the store’s work turns out to be. If IKEA really manages to win over the buyers of other companies, then Russian factories, whose goods are not very competitive, will have to think about cooperation. IKEA itself assesses the situation quite soberly and does not expect a quick return. “In France, Belgium and Poland (now the largest buyer), we began to make a profit after six years of operation,” say company representatives. “In Russia, perhaps, this will last for a longer period. But we are not a joint-stock company, but a private the company, everything is decided by the owner, who can afford to take risks."
Elmhult - Stockholm - Moscow
IKEA sells a lot of dishes and various little things necessary for the home. It’s almost impossible to leave there empty-handed. (Photo: Max Novikov )