IKEA Opened an Order Center in Wenzhou That No One Noticed. What's Going On?

To be precise, this is IKEA's first order center (PUP) in China.

IKEA has probably worked out by now that it is still too cautious when it opens up a new market. It deliberately held back on publicity, and so on the day it formally arrived in Wenzhou, the long row of metal barriers set up outside the door to control the crowd went unused. Only twenty or thirty people were scattered outside waiting for the doors to open, and they looked in no hurry at all — more like passersby who had wandered over and stopped to rest.

Wenzhou is a reasonably prosperous city in southern China, and the people here are generally thought to be shrewd about what they invest in and what they buy. Intime Department Store and Kaitai Department Store, both downtown, are the oldest malls in town; a Wanda Plaza went up here not long ago too, but it was built out near the airport, and the site is widely judged a mistake. Seven or eight kilometers from downtown, though, a new shopping center — China Resources' Mixc — still means to supplant the downtown retail district. It hired the American architecture firm CallisonRTKL to design the building, and when it opened for trial operations a month ago, people found that it had landed Wenzhou's first Toys R Us and more than one Starbucks — the American coffee brand's shop near Intime always has a line.

Chen Lin came to Mixc from Pingyang County on the outskirts of Wenzhou, a 40-minute bus ride. She came for IKEA. Afraid of the crush on opening day (which used to happen often), and because this new store was not like the usual ones, IKEA had been unusually restrained about advertising; Chen Lin was lucky enough to hear the news on late-night radio a few days earlier. She fits IKEA's read on the Wenzhou consumer: the younger ones here used to be regulars at the Shanghai and Ningbo stores, they know the Nordic brand, and they think its prices are "not expensive at all."

On May 25, ten minutes before IKEA's 10 a.m. opening, Chen Lin waited at the door. IKEA, she thought, should have opened a big store in Wenzhou long ago. Unfortunately, it had also picked a slightly late month to arrive. In this city in southern Zhejiang, the plum-rain season was coming, and the best stretch of the year for renovating a home had already passed. That thinned the crowd too.

The showrooms set up by the ground-floor windows drew a few passersby to stop and look. But like Chen Lin, they did not seem to notice the words "Order Center" trailing "IKEA" above the glass doors.

For now, at least, nobody knows what's going on.

It Looks Like Just a Small Shop

This is IKEA's first order center in China. The full name for this new kind of store is the IKEA Pickup & Order Center, also known as a PUP (Pick Up & Order Point). Staff here open IKEA's website on a computer for you, help you pick products, and place the order on your behalf through IKEA's own back-end system. Besides choosing products, that system tallies the pickup and delivery charges and the assembly fees. The rules are complicated enough that almost no customer can keep them straight, which got in the way of Wenzhou shoppers making the fastest, shrewdest decision, the way they usually do.

Chen Lin had not expected the Wenzhou "IKEA" to be different from the others. But one glance took her all the way to the far wall — "It's so small…" — and her first feeling was disappointment.

An ordinary IKEA store runs 260,000 to 340,000 square feet, and the IKEA you have been to is probably bigger still, since eight of the ten largest IKEA stores in the world are in China. Those stores are more than 20 times the size of this one. Take away a restaurant with hundreds of seats and they are still as big as a maze. Here in Wenzhou, the second-floor display space comes to just over 900 square meters. And a patch of a few dozen square meters, in a prominent spot in the middle of the entrance, is given over to processing orders.

Clearly IKEA does not intend to reproduce its past success wholesale in this promising-looking new market. Instead it wants to use this order center to try out a new kind of retail and get ready for e-commerce. In an interview with QDaily in late April, Xu Lide, IKEA China's PR manager, said IKEA plans to launch online shopping in China in the second half of this year, and that the "order center" can be read as a warm-up for it. Once IKEA's e-commerce business is running, this whole sequence of steps is something a customer can do from home.

IKEA's caution about selling home goods online has already cost it opportunities. Internet furniture brands, made.com and Taobao-born labels among them, are going after the urban young people who matter most to IKEA. In October 2014, in an interview with CNBC, president and chief executive Peter Agnefjäll admitted: "IKEA's online business has indeed fallen behind, and we will concentrate on developing e-commerce over the next five years."

IKEA has also sped up its pace in China to three new stores a year, and it still isn't fast enough to satisfy anyone. The Swedish furniture brand has only 19 stores in the country. The Wenzhou PUP is the first time IKEA has taken a long-term lease inside someone else's mall. Until now the only mall brand it had ever moved into was Livat, owned by the same group. Another plain trend: as IKEA expands into new Chinese cities, its sites keep getting more remote, very likely because land has become hard to get.

A compact pickup center inside a mall goes some way toward solving the problem of how fast IKEA can enter a new market. And nearly every new market is waiting for this cheap, good-looking furniture brand to arrive. Weeks before the opening, customers were already asking around Mixc about an IKEA store. They asked at yvvy, the home-goods shop on the mall's fifth floor — yvvy is the slightly arty furniture line from Markor Home Furnishings, priced at roughly ten times IKEA's level.

The first impression IKEA made in this new market, though, does not seem to have been a good one.

Among the first through the doors alongside Chen Lin was an elderly foreigner who had lived in Wenzhou for 12 years. He carried a tripod and a camera and walked one loop of the store. Even though IKEA had, with its usual skill, staged a few spare and creditable model rooms in this small space, he was gone in under 10 minutes. In an ordinary IKEA store, a customer will typically stay an hour.

That is easy enough to understand. Of the more than 9,000 products in an ordinary IKEA store, only a thousand-odd turn up at this order center, and fewer than one in ten of those can be picked up and carried out. Everything else ordered here comes from another IKEA store in nearby Ningbo: within a few days of an order, the goods are pulled from the Ningbo store and arrive here. Customers can come collect them in person, or ask for home delivery when they order and pay a delivery fee that is not small.

At the PUP it is hard to feel the "democracy" IKEA stores used to have — everything in plain sight, everything within reach.

Reacting Fast

On opening day, Zhu Changlai, general manager of IKEA China, and most of the rest of the management team were nowhere in sight. In the past they would often turn up when a store opened, trading jokes with local partners and government officials in the new market.

Volker Veit was one of the few managers who did come. He transferred from IKEA's German team to China last January as deputy sales manager for the China region. What he was sent here to do now looks clearer. Veit has been to Wenzhou three times; the first two visits were to supervise construction. Thanks to the mall, the order center took only half a year to build.

On opening day, Veit and two other IKEA staff from overseas teams probably spent longer inside the order center than most customers did. They wanted to give the China team concrete guidance: which products need to be shown in a setting and which need only a line of text, where to thin out the range on display, and where the display has to look complete and easy to follow. What this team knows best, after all, is how to open stores bigger. Faced with a "corner shop" like this one, they were not quite sure.

In markets abroad, IKEA has more or less accumulated some lessons about PUPs. Last October it opened one in a city in Ontario, Canada. Stefan Sjostrand, general manager of IKEA Canada, told the Toronto Star that the plan lets IKEA find suitable sites closer to city centers, so that more people who want convenience don't have to drive a long way to shop at IKEA: "It can get more Canadians into IKEA." At the time IKEA had opened only 15 stores in Canada, one fewer than in China.

The Wenzhou PUP has close to 30 employees, and they seem to mind customers' reactions more than their counterparts elsewhere, afraid of missing something.

Store manager Feng Xin is an IKEA veteran; he was already a department manager when IKEA opened its new Shanghai store in 2008. In the first week he was at the PUP almost every day, now and then peering out toward the door, now and then reaching in to straighten the toys in the children's section. He hoped that after this week everything would look more "proper."

The Wenzhou order center is an extension of IKEA's Ningbo store, and its revenue is booked to Ningbo as well. Ningbo sent over several longtime employees who all seem seasoned enough — though when the Ningbo store opened, its manager, Erwin Glauser, compared them with the Shanghai staff and judged them still a bit raw. Now they need a wider set of skills: to be a salesperson who reads people well, and a guide with endless patience, explaining exactly what kind of shopping experience the order center gives a customer. None of that work is necessary at an ordinary IKEA store, where customers are encouraged to compare things and decide for themselves.

Local Wenzhou hires make up 90% of the PUP's staff. One local woman was recruited into IKEA early this year to work in customer service; she is 28 and was already an IKEA fan. On the first weekend after the opening she carried a stack of questionnaires around the second-floor showroom, asking customers what they thought. IKEA wanted to know how consumers felt about this new retail model. The questions included: is ordering, collecting and having goods delivered this way convenient; what else would you like to be able to buy here; will you come back?

IKEA has already reacted fast to what came back. Over that first weekend some important signs were changed: products you can pick up and carry out of the PUP got a red card with an explanation attached to the price tag, replacing the inconspicuous red dot used on opening day.

They also brought in a large batch of plush toys from the Ningbo store and put them where nobody could miss them, by the ground-floor entrance. The reason: in the first few days, children kept asking PUP staff, "Can I buy this and take it with me?" The answer at first was no, and they left disappointed.

The Shipping-Fee Problem

IKEA can keep adjusting the small range of goods it displays and sells at the PUP; that is one of its strengths. But most people think the thing IKEA most needs to reconsider — whether for the PUP or for the online shopping it will offer in some cities in the second half of this year — is the shipping customers have to pay on top.

By IKEA's account, a Wenzhou customer ordering through the PUP comes out ahead of ordering at any other IKEA store and using IKEA's delivery service. That claim was not accepted on the spot. One local customer pointed at a sheet printed with the delivery rates and said it was complicated; she would have to go home and work out whether collecting here is really cheaper, or whether it still makes more sense to go to the Ningbo or Shanghai store in person as she used to — there you can see every single item, including some limited editions, and IKEA is not the only delivery provider available; others are close at hand, and cheaper.

Steep shipping fees have in fact bothered IKEA customers for a long time; the PUP has merely exposed it. When all you want is one item that costs less than 50 yuan, it's hard to talk yourself into a 60-yuan pickup fee plus a delivery fee that starts at 59 yuan — or the fare to go get it yourself. In the United States, where online shopping is already running, this sort of complaint never lets up. One IKEA manager, in an interview with The Huffington Post, said the fee makes sense when you're furnishing a whole home at IKEA, but it may not suit buying a single item. Which means IKEA hopes to sell each customer more — big pieces above all — and lift the average order.

A staff member at the Wenzhou PUP said the same thing. It may even work: one customer bought more than 10,000 yuan of furnishings at the PUP, marveling that kitting out a whole new home cost so little while cheerfully accepting more than 500 yuan in pickup, delivery and assembly fees. That is probably not the common case, though — by the figures IKEA China supplies, the best sellers in China are still cheap small items.

Lin Lin, a Beijing resident born in the 1980s, doesn't think this is smart either. "I think what they should be after right now is capturing these people. The base is enormous, and IKEA's customer loyalty is unusually high," he said. "IKEA has surely done its own research, but from the outside, the priority right now has to be growing the number of users, not rushing to raise the average order at this particular moment."

Lin Lin spent a long time turning over a startup idea: buying IKEA goods on other people's behalf. He thought the business had a lot of room in it. Years before IKEA's order-center plan and its e-commerce launch, typing "IKEA delivery" into Google would bring up small companies doing exactly that by the second page of results.

Taobao has had an IKEA proxy-buying trade for years. Lin Lin found that two-thirds of the sales of IKEA proxy-buying on Taobao come from cities that already have an IKEA store, which means IKEA has used its stores as an enormous "physical advertisement" to build up brand awareness and shopping habits — but not all of those consumers need to walk the whole store. Nor are they all that willing to pay IKEA's official delivery fees. And Liu Tian, who runs the home-furnishing category at Taobao, told QDaily in an interview last year that free delivery and assembly is already the practice among 80% of the large-furniture merchants on Taobao.

For a PUP that has opened, the problem may be more complicated than shipping. As a shopping experience, next to buying online outright, the PUP is an odd sort of compromise. Even if you pick out everything on the web, you still have to go to the PUP in person to get that order into IKEA's back-end delivery system. The whole sequence looks a bit like Ingress, the game built on real-world locations, without being nearly as absorbing. But Feng Xin, manager of the Wenzhou order center, believes some people will still want to place orders face to face even after IKEA launches online shopping. In an interview with CBNweekly, he explained that customers don't necessarily know what to watch for when assembling something, or which products are better handed over to the assembly service. That is why IKEA still opens new PUPs even in countries and regions where online shopping is available.

For IKEA, though, nothing could suit better than a PUP as the step before online shopping. It lets the company test parts of its logistics — how complete and how reliable they are — against customers' different wishes to collect at the center or have goods delivered home. IKEA has only two logistics centers in China, in Shanghai and Tianjin, which is why in the end it decided, carefully, to roll out online shopping in only some cities.

The Taobao IKEA proxy buyers may be the people watching most closely to see how the PUP and online shopping do in China. It sounds harsh, but it's true: if IKEA can't roll online shopping out across the country quickly, or if some link in the service slips a little, IKEA will have trained users in the habit of buying online and the Taobao proxies may profit from its trouble.

Lin Lin has largely given the idea up, though. He realized that at bottom this is only a logistics business — tiring, and expensive, with the cost falling either on the consumer or on whoever delivers. IKEA's new business is, to a degree, the same. But for this Swedish furniture brand it matters. Besides launching more personalized, limited-edition products, it has to rely on more varied sales channels to capture young consumers quickly — and here is what to watch: the biggest spenders among them may be gone before IKEA ever catches them.

Cover image from Margeaux Walter