PostFunnel, in partnership with McMillanDoolittle, is proud to provide the first in a series of articles on global Retail Innovation and implications for retail marketers. Innovation in retail is a constant – from subtle operational improvements to entirely re-invented customer experiences and business models that can disrupt the retail sector. Most innovation has digital foundations, so data, analytics, and actionable insights have never been more critical. In the current state of the COVID-19 pandemic and aftermath, we will also examine what has irreversibly changed and what retailers should prepare for.
Today’s case study takes us to Paris and a familiar name in global retail – when we look at IKEA’s Paris Madeleine Store – and it’s enhanced services in an urban format.
A No Path IKEA
We live in a technology-driven world where customers no longer distinguish between the physical and digital worlds. That’s why omni experience encompasses everything online and offline and dominates management’s agenda in today’s modern retail landscape.
However, delivering an integrated experience for the consumer is easier said than done, and legacy retailers all over the world have to rethink their engagement rules to keep up with consumers and stay ahead of the competition.
IKEA’s new Paris Madeleine store is its latest and most impressive initiative tackling that challenge. More than an urban concept, this store is the sign of a profound shift in IKEA’s vision of its customers’ expectations with two new priorities: more support and more accessibility.
Notably, IKEA has held the title of the world’s largest furniture retailer since 2008. For years, a cornerstone of IKEA’s strategy has been its massive stores and the assumption that customers were willing to travel to get to them. Though the stores are primarily self-service, the path to purchase is choreographed. A typical location averages around 300,000 square feet (or 27,871 square meters) and takes the customer on a calculated, pre-determined path throughout the space. Naturally, stores of this size require ample space; thus, traditional IKEA locations are in the suburbs of major metropolitan areas.
Although IKEA’s products have, for a long-time, catered to an Urban customer living in more confined spaces, their stores, both in scale and location, have not. What is more, as eCommerce has become pervasive in the retail experience, consumers expect physical stores to offer them something different – a unique experience.
Advanced Testing. Advanced Services
IKEA has been testing a variety of new formats for several years, aiming to locate in city centers, where they can be accessed more easily by urban dweller segments. The high rent commonly associated with desirable city locations is offset by the fact that the customers of these stores tend to be wealthier and spend more.
The new innovative format breaks traditional IKEA rules: there is no guided route in-store, almost no self-service products, and no merchandising split between accessories and furniture. The customer journey is more assisted – in-store, with mix and match products, and beyond – with services such as appointments with experts (e.g., interior designer, kitchen salesman), DIY workshops four times per week, fast delivery and installation assistance (in collaboration with the startup Task Rabbit).
There are also green-retailing elements, including bicycle delivery and furniture recycling and renovation. The fully-assisted experience is a far cry from their traditional stores. Many customers can attest to the frustration of assembling their furniture purchase after a long trip to the suburbs. That is not the case here.
As IKEA rolls out this urban concept store in new markets (Nice and Lyon), management should encourage an analytics and testing culture as they accumulate a rich data trail from every additional customer touchpoint (e.g., self-serve and store associate digital devices), underlying the enhanced services offered.
What’s Next?
We do not expect IKEA to abandon their self-serve history, but be selective in which services they should provide as strategic differentiators, and which will be margin and profit drivers.
Given their global presence, the data gathered at these smaller, community-minded stores should also provide localized insights to meet and exceed consumer expectations in different countries. Full assistance from store associates will undergo extensive analysis through tactics such as A/B testing, to determine if cross- or up-selling, or repeat purchasing more than offsets the added expense associated with a full-service model and increased rent.
We would expect to see an increased velocity of testing, to continually improve selling and service models such as how an Associate approaches a shopper, to how they use the digital devices, content, omni-fulfillment solutions and more.
Traditional basket analysis will play a critical role in refining the assortment. Given the new format is roughly one-third the space of a traditional store, deciding which products are featured, and which will be sold via “extended aisle” (full product catalog available via in-store digital devices), can be managed according to business rules or customer experience goals. That, too, requires intelligent analysis of data coming from the stores themselves, enriching the customer’s profiles and single customer view.
All brick and mortar retailers will face unforeseen challenges as the industry recovers from COVID-19, and lockdowns worldwide are gradually lifted. Urban format stores will rethink their customer experience and re-balance business goals and safety concerns (or regulation).
Enhanced digital touchpoints throughout the customer journey should provide the customer the choice to shop as they see fit, such as contactless payments, home delivery, and installation services, and more.
As enhanced services are consumed, shoppers may manage these relationships by appointments or digital communications to improve efficiency with their valuable time.
In response, IKEA will need to improve labor scheduling and management, and fast-response testing and analytics to refine merchandising rapidly, marketing, and customer experience. If they can optimize this format, the opportunity to balance suburban and urban coverage has tremendous upside growth, and the potential to further distance them from their competitors.