IKEA Is Finally Selling Online in China. What Kind of Online Store Will It Be?

We gathered what is known and put it into 10 questions, to make the picture clearer.

IKEA is finally going to sell online in China.

That was the news that drew the most attention at IKEA's fiscal 2017 press conference on August 16. For years IKEA had been the large retailer most stubbornly committed to selling in stores. "You can do business on a web page, but it cuts the number of customers who come to the store, and so you lose some of the extra business." That is how founder Ingvar Kamprad turned down a proposal to sell online in 2008.

In early 2014, Peter Agnefjäll, IKEA's new CEO at the time, set a target of 5 billion euros in online sales by 2020, but he was still wary of the business: "By then, most of IKEA's sales should still come from our stores."

That caution online sat oddly next to the steady opening of new stores offline. "Why doesn't IKEA sell online?" came up more and more often, and IKEA's answers varied, but they came down to this: with sales climbing anyway, an online store was something it could take or leave.

A year later, Agnefjäll gave in altogether. In an interview with The New York Times he said: "We are not the earliest adopters [of the internet], but our thinking on it is fairly mature. We understand that this is not a trend, it is a huge shift."

Ireland, the Czech Republic, Australia — more countries joined the online pilots, and the China unit began carrying out headquarters' instructions too. China is the fastest-growing market of them all, but it is still just one piece of the larger plan.

For years, whenever Zhu Changlai, president of IKEA China Retail, was asked when online shopping would open in the country, she answered with a promise — "the planning for online service is in step with IKEA globally" — and a wish: "the sooner the better."

At the press conference, her account of the pilot was brief and vague. All anyone knows is this: online shopping will be tested at the end of August, with operations and delivery confined to Shanghai; once the pilot data has been analyzed, it may spread to more Chinese cities.

You can still see how careful IKEA is being.

At the annual staff meeting held after the press conference, "transformation" came up again and again, and the online store was counted as part of it.

Taking the press conference together with what else is known, we have put together 10 questions, and tried through them to answer a larger one: what kind of online store will IKEA's be?

Why is IKEA only now selling online in China?

We have already answered the part of that question that has to do with timing. IKEA China is part of a multinational, and its business depends on unified direction from the Swedish headquarters; in preparing for e-commerce it probably moved at much the same pace as other markets, but in actually going live it had no priority at all.

And if IKEA still holds to the idea that offline sales growing fast enough make an online store unnecessary, then the Chinese market, which looks nowhere near saturated, hardly needs one to lift its numbers.

In the fiscal year that ended this August, more than 80 million customer visits to IKEA's 20 stores across China carried away over 11.7 billion yuan of goods, a 19.4% rise on the year before; the year before that, the rise was 18%.

But rising sales and foot traffic do not mean IKEA has nothing to worry about in China. Do the arithmetic and you find it is not making more money out of each customer: over the last two fiscal years, the average basket at IKEA China held at about 140 yuan.

For a company that sells furniture, homeware and all kinds of food at once, that is clearly low. Given how much Chinese customers like the IKEA restaurant, it could shrink further.

What will buying IKEA online feel like?

In an interview with QDaily, IKEA China gave a slightly fuller account:

When it starts, buying IKEA online will still mean choosing goods on the official website, and logistics and delivery will still run through the existing suppliers; what you order will come out of the warehouse of the store nearest you, at the same price as in the store. Going online will not widen the range of products on sale or speed up the arrival of new ones.

Same site, same goods, same prices, same delivery — that should satisfy the "consistency" IKEA keeps stressing about the customer experience.

Zhu Changlai has said of shopping at IKEA online: "Everyone is feeling their way toward consistency between online and offline, consistency of customer experience, including consistency between one store and another, consistency of product and service experience... Chinese consumers expect more of it than consumers in other countries do."

Has IKEA finally noticed how eager Chinese shoppers are to buy furniture online?

In a look at the Chinese furniture market that QDaily published at the end of 2015, we found an industry with no intention of standing still and waiting for IKEA.

Cheap and serviceable "basic" furniture was already selling well on Taobao and other platforms; brands that cared about design and quality were all working out how to use the internet to sell something with more value added, on top of the customer education IKEA had already done for them.

On Taobao, China's largest shopping site, home and decoration goods have been the best-selling category after clothing since 2014. The category has by now solved the two problems that matter most in furniture e-commerce, delivery and assembly, and has its own semi-independent marketplace, Jiyoujia, carrying close to 700,000 products.

But by official figures, the building and home-decoration industry is worth more than 4 trillion yuan, of which furniture accounts for over 700 billion yuan — and only 3% of it is sold online. People willing to order furniture on the internet are not necessarily out to solve for value alone; they want somewhat better goods and a better way of buying them.

That, in a way, is the measure of IKEA's hesitation. When IKEA China confirmed to QDaily this April that online shopping would arrive in the second half of the year, it said its Swedish headquarters had finally grasped "how many internet users China has, and how much customers want."

The figures, though, show that these eager internet users are still not spending on furniture first.

IKEA has plenty of stores in the Yangtze River Delta. Why pilot only in Shanghai?

Looking at where IKEA's Chinese stores are, that is a fair question.

IKEA has 8 stores in the Yangtze River Delta, 3 of them in Shanghai. IKEA China says it chose Shanghai because the market there is mature — "a big base, plenty of resources": besides the three large stores, the city holds two IKEA logistics centers, one distribution center, more than 10,000 employees, and IKEA China's head office.

But IKEA covers Wuxi, Suzhou and Ningbo around Shanghai well enough too; and this year, in Wenzhou, it opened the country's first order and collection point, hoping that a showroom plus an ordering desk could handle local shoppers' growing demand.

A conventional IKEA store means buying land and building on it. An order and collection point rents space in an existing mall, in an established shopping district downtown, which puts IKEA closer to customers and cuts both the cost and the time of opening; people can order there and pick their goods up there.

IKEA hopes the new channel will make it better at turning floor space into money — although next to a traditional furniture marketplace like Red Star Macalline, IKEA, built around stores of 30,000 to 50,000 square meters, already counts as a small-margin, high-volume business.

Seen that way, testing the online store in Shanghai first probably says more than anything about this Swedish company's usual caution.

There is real uncertainty too. IKEA China says the team running the online business is still very small, and that it may need a spell of piloting in Shanghai to work through the difficulties it underestimated at the start: how many orders the logistics team can carry, how much after-sales service it can provide, and how the website handles shopping.

What will IKEA sell online?

IKEA is known the world over for flat-pack furniture that is cheap for what it is and easy to move, and its logistics were built mainly for those big pieces.

The pilot will sell nearly all the categories already in the stores. (Explicitly excluded from online sale for now: live plants, IKEA food, and made-to-measure goods such as curtains and rugs, which have to be cut to size.)

But going by the "IKEA daigou" resellers on Taobao, once the online store opens the market may still be in small things.

At the Taobao reseller with the largest sales volume, the three best sellers this month were a 108-yuan children's high chair, a 39-yuan side table and a drinking glass at 2.9 yuan apiece.

Going through every item listed on IKEA's official website, QDaily also found that big pieces — beds, tables and chairs, cabinets, washbasins — come in fewer varieties than small things such as mirrors and hooks.

Will IKEA open a flagship store on Tmall or JD.com later on?

In an interview with QDaily, IKEA China said it is "very interested" in platforms like Tmall, "but at the moment there are no plans to work with any other third-party platform."

In none of the markets where it already sells online has IKEA ever worked with another shopping site. It simply added a shopping-cart icon to a website that already showed every product and every price, along with the other half of the job: payment, logistics and delivery.

So buying from IKEA online will feel more like buying a phone on Apple's website — except that an IKEA launch presumably will not pull the traffic a new iPhone does.

After Steve Jobs returned to Apple in 1997, he redesigned the company's website and added a store to it. By the end of 2011 that site was the second-largest online retailer in the United States after Amazon, and good for more than 10% of Apple's sales.

In China, IKEA has tried a few more local things — a WeChat official account, for one. In fiscal 2015 the account, not yet two years old, drew more than 3 million subscribers; the discounted item of the week can only be found out about through its push notifications.

Imagine: with no online store, a customer who saw the push had to go to a store to buy the thing. From now on, that will go a little more smoothly.

If I only buy small items, will IKEA ship free? Will it deliver the same day?

As we said, IKEA's online business is less like e-commerce than you might imagine. Free shipping and same-day delivery are unlikely in this pilot.

In its stores today, IKEA offers two services: collection in person and home delivery. Collection is the cheaper one, a flat 60 yuan per order; home delivery is priced by the number of items and the distance, starting at 59 yuan. Buy a lot of big things and that arithmetic can look reasonable, and IKEA can use it to sell you more. But as noted, IKEA's best sellers are still small homeware. That is where the company's plan and what shoppers want pull against each other.

On logistics, IKEA China says it will lean on its existing suppliers — the companies good at hauling large goods — and also work with third parties on the last mile. Small items may therefore arrive somewhat faster.

IKEA also seems to have forgotten its own vast membership scheme here. Amazon, which started with nothing but "users," used free shipping and quicker delivery to turn Prime into a business that makes money. IKEA has not.

Close-up photos, customer photos, a comments section — will the standard fittings of an online store be there?

Much as with the last question, IKEA's online trials in other countries suggest not: no sharper pictures, no open comments section, no customer photos of real rooms. All of that would mean a more complicated rebuild of the company website.

If anything stands in roughly for customer photos, it is still IKEA's showrooms offline and the catalogue you can page through online. The company remains attached to letting customers try things in an IKEA store first, and go online afterward.

As a business on its own, how big can this get?

Over the past year, more than 67 million visits were made in China to a website with no way to buy anything on it. How far that appetite runs once shopping opens across the Chinese market is hard to say.

One point of comparison is Germany, IKEA's largest market abroad. In fiscal 2013, IKEA Germany's online sales reached 92 million euros — just 2% of its total, but 27% more than the year before, which means it was catching more attention.

For IKEA as a whole, online selling does not yet move the numbers much. Group CEO Peter Agnefjäll said at the end of 2015 that it brought in more than 1 billion euros in fiscal 2015, only 3% of total sales. He wants that share to reach 10%, or 5 billion euros, by 2020.

With an online store, will IKEA stop opening so many stores, or stay out of smaller cities?

IKEA keeps insisting it will not slow the building of physical stores in China or anywhere else. Three more will open in China in the coming fiscal 2017.

And with the Wenzhou order and collection point open, the shapes IKEA takes in China may grow more varied. More of these smaller, more flexible outlets will appear around the places where it already has a big store.

More pressing for IKEA China than getting the online store running and rolled out, in the end, may be a plainer question: whether it can open 34 stores in China by 2020, as planned.

Charts by Lingwei Wu