Ikea arrival 'will put crunch on Warehouse, Briscoes'

Thursday, 20 December 2018

A Christmas gift for Kiwis - Ikea's got its sights set on coming to New Zealand.

Some retailers might well be quaking in their shoes now that Swedish furniture giant Ikea has confirmed it's finally coming to New Zealand.

Ikea's worldwide franchise holder Inter Ikea Systems has announced it is looking at entering the New Zealand market, although a location is yet to be announced.

The giant retailer will need a huge amount of land with good motorway access, presumably in Auckland. One of the few places that might fit the bill is Westgate, although the town centre's manager says only that it would be one of a number of logical locations.

As retailers digest the news, Greg Harford, public affairs manager of Retail NZ, says players in the homeware and furniture space will have to sharpen up their act, because the Swedish company is known for its competitive prices.

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Overseas, it also sells a limited grocery range and also a number of bathroom and bedroom products, which will take it into competition with other hardware stores.

In New Zealand, that's likely to put Ikea into the same space as the Warehouse, Nood, Freedom Furniture, Briscoes, Kmart, Bunnings, and Mitre 10, although Harford said Ikea was more of a young person's brand and more mature furniture buyers would possibly go elsewhere.

The arrival of big players like Ikea is sure to put some of the smaller retailers on notice also, Harford said.

'You're never going to be able to compete head-on with Ikea on price. What's going to mark you out is customer experience and service so you need to be looking pretty carefully at your offering and making sure local people have a real reason to shop with you.'

Chris Wilkinson, managing director of retail consultancy First Retail Group, said Ikea's announcement was exciting for consumers and for the innovation it could bring.

But it would be a challenge to some retailers. Kmart, for instance, had been finding favour with Kiwi shoppers with the way it presented its homewares, much like Ikea did.

'Kmart has had a long honeymoon recently … but this will have an impact on many different categories right through from the Warehouse to Freedom to other businesses as well.'

The Warehouse would be possibly less affected because of its sheer number of stores spread around the country, compared to the one or two stores Ikea might open.

More than 19,000 people like a Facebook page 'bring Ikea to New Zealand'.

Ikea said that it would work with a company called Ingka Group to open its New Zealand stores.

Kiwis may soon see this logo on their streets.

'We are happy to meet the wish from many people for Ikea to open in New Zealand and we aim to make Ikea fully accessible, including stores and e-commerce,' said Tolga Oncu, retail operations manager, Ingka Group.

'We see this as a long-term commitment and investment in New Zealand, building relationships with customers, suppliers and future co-workers.'

Jonathan Elms, the SIr Stephen Tindall chair in retail management at Massey University, said it would result in a series of 'quite significant' changes for New Zealanders' shopping habits. It was an exciting development, he said.

He said New Zealanders were not necessarily fond of the Ikea model of DIY assembly furniture but they would get used to that over time.

It would have marked consequences for competitors such as Freedom Furniture, The Warehouse and Briscoes, he said.

'Overall it's a big business setting up a site, jobs being created and a halo effect around where those sites are as other businesses pop up.'

He said the location would have to be selected carefully because Ikea stores tended to be destination shops, which created traffic issues.

'I remember when the first Ikea opened in the UK there was a four- or five-hour queue on the motorway to access it,' he said. 'It's a good thing for New Zealand, it's something a lot of Kiwis know about.'

Bodo Lang, head of the marketing department at the University of Auckland Business School, said he was surprised by the announcement.

'My understanding was that we lacked two key requirements for Ikea to open their typical 'mega stores': large population and population density of more than one million within one car hour of a potential mega store. Auckland can easily achieve this but there is no other region in New Zealand with a population size and density even remotely close to it,' he said.

'If Ikea was to open multiple mega stores in major locations, such as Auckland, Wellington, and Christchurch, then this would definitely have an impact in the market. Its key competitors, Freedom Furniture, Target Furniture, Hunter Furniture, Harvey Norman, would be the first to feel the arrival of one of the most well-known brands in the world.

'There is likely to be a sales dip and an increased pressure on prices for other retailers.

'However, if the Ikea stores that were launched in New Zealand were not like the mega stores that consumers have become accustomed to, then this level of customer euphoria would be greatly reduced and the impact on other retailers would be greatly diminished.

'In other words, if Ikea's launch in New Zealand falls short of expectations, then consumers may be disappointed and Ikea's venture into New Zealand may not be as much of a game changes as it has been overseas.'

His colleague, Mike Lee, said it could be the end of the handful of businesses importing Ikea goods and selling them at a mark-up to New Zealanders.

'I can say this because half my house is furnished with Ikea products; even after paying the mark-up and importation taxes the quality and cost of Ikea products were still superior compared to most of the available options we have had thus far.'

Ingka Group operates the Ikea business in 30 markets around the world. This includes e-commerce, 367 stores and other sales channels.

In the beginning of 2019 Ingka Group will start sharing more information about their future operations in New Zealand.

In 2008, the Environment Court ruled that the company could not be a tenant in the Auckland suburb of Mt Wellington's retail development, Redwoods, because of concerns its popularity would cause traffic chaos.

Hamilton then put its hand up in late 2009 to host an Ikea outlet. Its economic development agency invited Ikea scouts to visit the city, but the response was reported to be lukewarm.