IKEA is a Swedish manufacturing and trading group of companies, one of the world's largest retailers of household goods and furniture. The company's turnover in 2016 exceeded 36 billion euros. The company has been among the “Best Global Brands” for a long time (the average position in the ranking is 26th place), and in the latest ranking of the “Most Valuable Brands in the World,” IKEA took 55th place with a brand value of $18.08 billion.
The founder of IKEA is Swedish businessman Ingvar Kamprad. He was born into a family of farmers and spent his entire childhood working in agriculture. Members of Kamprad's family tried to run a business before him, but it did not bring any special dividends. But thanks to this, since childhood, Ingvar had a good understanding of trade. In his youth, he tried to sell matches and fish.
In 1943, having invested all his savings and borrowed money from his father, seventeen-year-old Kamprad opened an IKEA store., whose name is an abbreviation made up of the initial letters of his first and last name and the names of the farm and village where he was born and raised. The choice of the store's specialization was influenced by the situation in the country. Finding good and inexpensive household items, essentials and furniture was almost impossible.
History of the IKEA logo, image: ikea.com
Ingvar Kamprad started his career by selling small household items., and the first main model of the company's work was mailing.
One of the company's first advertising campaigns was on the verge of failure. Young Kamprad decided to take out a small loan and order ballpoint pens from France, which were in short supply in Sweden at that time. To quickly sell the product, he promised everyone who came to the presentation coffee and a bun. This proposal attracted more than a thousand people, which significantly exceeded the plans of the young businessman. Having spent a lot of money and invested a lot of effort, he fulfilled his promise. The presentation was successful and the product sold quickly.
Video: the amazing story of the founder of IKEA.
Stages of company development
First steps
Until 1948, the IKEA store was focused on selling small household supplies. During this period, Kamprad began to think about expanding his business. To expand the range, he decided to choose furniture that always has a stable demand. And at that time, inexpensive furniture was considered a scarce commodity. The company's expansion began with an increase in staff. Until this period, only Kamprad himself worked in the store. In 1948 he hired his first employee. By 1950, the company's staff already numbered 4 people.
At first the company focused on cheap furniture, which was made in small industries. Later, the approach was changed: it was decided to purchase parts and assemble the furniture ourselves. Thus, we managed to significantly reduce prices and gain popularity among customers.
In 1958, the first IKEA brand store was opened in Älmhult. Here, for the first time in Sweden, it was possible to try out furniture before purchasing. This marketing ploy greatly increased the store’s popularity.
Due to difficulties with suppliers, who were prohibited by competitors from doing business with IKEA, in the late 50s, I. Kamprad was faced with a shortage of goods for sale. To solve the problem, he decided to purchase goods abroad. He found all the necessary goods at factories in Poland and organized timely deliveries to Sweden.
By the early 60s, several IKEA stores were already operating in Sweden and Ingvar Kamprad began to think about entering foreign markets. It was decided to start in Norway and in 1963 a store opened in Oslo. And by the end of the 1960s, the first IKEA store opened in Denmark.
At the same time, tableware was added to the store's product line. Also, to reduce queues, work was carried out to optimize the number and placement of cash registers.
In 1973, to optimize taxation, the company's center was moved to Denmark.
The beginning of active expansion
Photo: pixabay In the 70s, the company began active expansion in Western Europe: stores were opened in Switzerland, Germany, and France. In the late seventies, the world was presented with Ingvar Kamprad’s work “The Commandments of a Furniture Dealer,” which became a must-read book for all company employees.
In the early 1980s, the first IKEA stores opened in Saudi Arabia, China and Kuwait.
And in 1985, the brand entered the US market. The first store was opened in Philadelphia. Ingvar Kamprad had doubts about the American market, but thanks to the hippie cult popular at the time, IKEA's democratic and original stores quickly became popular.
In parallel with conquering new markets, the company expanded its product range. In the 1980s, IKEA introduced its first sofa.
In 1986, Ingvar Kamprad left his post as head of the company and became a consultant to the Stiching INGKA Foundation. Anders Muberg, who worked as Kamprad's deputy, became general director.
In the early 1990s, the expansion of countries in Eastern and Southern Europe began. The first stores were opened in Hungary and Poland, and a little later the company came to Slovakia and the Czech Republic. In 1996, brand stores opened in Spain. Also during this period, a set of rules was created regulating work in the company.
Work via the Internet
IKEA was one of the first major retailers to go online. The company's website, which talks about its philosophy, went live in 1997.
In 1999, the company's sales volume amounted to €6 billion. 20% of the volume was provided by stores in the USA and Asia. In this regard, it was decided to intensify work in these markets.
Since the early 2000s, IKEA has been actively working on the development of Asian stores and Internet commerce. The first store in Japan was opened in 2006 and the chain began to quickly develop using standard technology. The Chinese market, on which great hopes are pinned, did not conquer immediately. The first stores opened in the early 2000s brought losses. Only after changing the concept for this market did the Chinese chain of stores begin to develop. Today it has about 10 stores.
Video: see with your own eyes how production is organized at IKEA.
IKEA in Russia
IKEA's first attempts to enter the Russian market date back to the late 1980s. Ingvar Kamprad personally negotiated and planned to create an entire furniture production complex in the USSR. But a final agreement was never reached.
The company returned to the Russian direction in the late 1990s, and at the beginning of 2000, the first store was opened in Khimki. Investments in the project amounted to about $200 million. On the first day, about 30,000 people visited the hypermarket. The opening of the second store attracted more than 50,000 visitors.
By 2008, there were 11 brand stores in Russia, and in 2017 there were already 14.
In September 2016, IKEA launched Russia's largest furniture factory. The volume of investment in this project is estimated at €50 million.
Main competitors
Globally, the Swedish retailer has virtually no competitors. In certain regions and areas they compete with IKEA JYSK, Metro Group, Leroy Merlin and Hoff. Only JYSK, which operates in the same segment as IKEA, can be considered a direct competitor. Metro Group, Leroy Merlin and Hoff have a wider product range than the Swedish retailer, so they partially compete with it.
IKEA today
Today IKEA is formally a Dutch company. The country of registration was changed in 2012 to optimize taxation.
In 2016, the company's revenue amounted to 36.4 billion euros. Today the company operates 389 stores around the world, which are visited by more than 900 million visitors per year. IKEA has 183,000 employees.
The priority direction of the company's development is online sales. IKEA is developing a modern technology platform that should stimulate sales growth in this segment.
Significant hopes also rest on the Chinese market, which has not yet been fully developed and has significant potential for growth.
Competitive advantages
I believe that IKEA's most important competitive advantage in working on assortments is definitely the presence of an assortment matrix. Thanks to the fact that ten years ago four style groups were identified with a precise definition of how they should look, the company has three clear advantages.
First, as we have seen, it is quite easy for a business unit to find gaps in its own assortment and explain its wishes to the designer. In other words: “country” has many different incarnations on the market. Previously, in this segment, IKEA sold supplier signature models (products designed by the supplier itself and stocked in showrooms). Those with a good memory may remember the ABO series, which was represented by a bed, chest of drawers, bookshelf, etc. The inexpressive design and sparingly measured material to reduce the price naturally created problems. Every competitor worth its salt developed a copy of ABO, which soon had a negative impact on prices in a battle for buyers that IKEA could not win. Simply put, the concept of ABO meant that each furniture dealer consistently skimped on wood, color and upholstery to lower the price in the competition to be the cheapest. As the product became standardized, the only thing that differentiated one piece of furniture from another was the price. Pretty soon we found ourselves beyond the bounds of decency as the furniture increasingly resembled thin and skinny caricatures of the original. Not furniture, but sticks, as Ingvar somewhat disdainfully spoke about the series. (It should be noted that for over fifteen years the peasant furniture segment has been one of the largest in the entire assortment, if we talk about monetary turnover.)
To avoid the deadlock of ABO, we made a workaround and in record time launched two unique series within the “country” - LEKSVIK AND MARKER. MARKER series, developed directly at the factory Swedwood, went from an idea to a store product in just five months (that is, in about a sixth of the usual time). The reason for this, in addition to good cooperation, was the insufficient workload of the factory and the presence of a huge amount of spruce wood. At that time, spruce was much cheaper than pine, but the disadvantage was that spruce wood had many knot holes and other cosmetic defects, and therefore it was difficult to make standard furniture coated with clear varnish from this raw material. The problem was solved by cleaning, in particular, the glue seams, which made the surface look antique, and then impregnated it with a dark stain. Designers, product developers and technologists carefully examined every small detail to make maximum use of the material and thereby reduce the price for the buyer. The walls, of course, were made thin, but all the corners and the top were made of solid pieces of wood, so that the furniture gave the impression of being solid, stable and of high quality. The resulting purchase price was CZK 895, which is about a third of what a similar product would cost from competitors.
We were inspired by the Gustavian assortment for LEKSVIK, which we were winding down at that time. The bookshelves in this series featured attractive, softly rounded shapes, and designer Carina Beng retained them. At the first “washing council”, where a prototype from the model workshop was demonstrated, we all realized that this was a future sales leader. I will never forget how the purchasing strategist proudly said that we could easily handle the sales price of SEK 995. Quite spontaneously, I asked why we couldn’t produce this for 695 CZK with a small gross profit. The colleague turned red with irritation and said that this was impossible, and his reaction was quite understandable, since a lower price was not possible with the manufacturers with whom negotiations were held. After a few months, by attracting more producers in countries with low prices, and - perhaps most importantly - by doubling or even tripling the volume, we were still able to achieve a selling price of 695 CZK with gross profit of 10–20% in stores. When reaching a lower and completely unattainable price level for competitors, nothing in the quality, design or characteristics of the product has changed. It is precisely such elegant solutions that IKEA is distinguished by, when its mechanism works most harmoniously. Unheard of quality and attractive products at prices that competitors can only dream of.
Then what is the difference between ABO and products such as LEKSVIK and MARKER? ABO is a universal product, that is, very generalized in its implementation, while the design of the other two products is unique, or, in any case, almost unique. The only way to fight competitors using a product like ABO is to save on parameters and cladding. This product is simply not designed for anything else. As for LEKSVIK and MARKER, the low price was set at the stage of ordering the designer, and this low price was then embodied in the collaboration between skilled female and male professionals, factory workers from the best suppliers with the lowest prices that we could find at that time .
Even if it seems like a commonplace, you cannot borrow in the short or medium term. Over the years, IKEA itself has raised its prices so much that it has moved dangerously close to its competitors in order to achieve the profit level required by the Group of Companies. This means that the advantage once achieved is essentially zero. In 2008, a LEKSVIK bookshelf cost 995 kroons compared to 695 in 2001, that is, it became 43% more expensive. Of course, a lot can happen in seven years, but inflation has been fairly consistent at one or two percent. Naturally, market prices for wood followed oil prices and reached very high levels. Although wood prices have fallen again in recent years, IKEA has not brought its prices into line.
The same thing happened with kitchens, mattresses and wardrobes (I’m just mentioning them as an example). IKEA kitchens, whose prices are much lower than those of its partners, bring the company one of the largest gross profits with a difference of over 40%!
Secondly, thanks to the assortment matrix, it is, of course, easier for a store buyer when arranging a home to mix and choose from a coordinated assortment than from an assortment that appeared by chance. In addition, all color nuances are coordinated across all areas of the range, so that everything fits in each of the four style groups.
It is much easier for a product designer and his team to create beautiful, functional furniture if the playing field and rules of the game are clearly defined. Be that as it may, the premises were approved by IKEA's leading gurus in the field of home interiors. And the developer for the next few years does not need to either start from scratch or be one hundred percent knowledgeable in the color palette. All this is already on the desk.
Specifically this means that iOS has the ability to produce beautiful and functional home furnishings at a very competitive price. Already at the beginning of the process, the production team includes a purchasing strategist who cares about low prices. Thus, together the team makes a beautiful interior on the cheap. And this, as you know, is IKEA’s business idea.
The third competitive advantage that has definitely given IKEA the opportunity to get far ahead of its competitors is the annual cycle. iOS AB. The cycle describes, somewhat simplistically, the flow of decisions for the business year: what meetings will be held, when they will start, who should attend them, and what decisions should be made. The annual cycle governs all stages of the product development process from design to construction, production and commercial acceptance, both in the catalog and in the store. The annual cycle model captures everything.
This planning model achieves two things. All deadlines are met first. Being late or, even worse, missing a product launch deadline is a serious mistake that will undoubtedly affect the career opportunities of those who sinned. Secondly, various product development processes finish and start on time. If you sinned by promising something in the catalog, but failed to deliver it, it will come back to haunt you, and in the future you will face a serious crisis of trust on the part of management.
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The IKEA company is well recognized all over the world, including Russia and other CIS countries. Most buyers rate its products positively. However, for various reasons, many are also interested in alternative brands that compete with IKEA.
Despite the fact that the Swedish company is a stable market leader and, despite the difficult economic situation, is actively developing, many companies with a similar focus are striving to win their “piece of the pie”. This is no coincidence, since the market for home goods and interior design, including furniture and accessories, is very large and generates significant profits.
IKEA supermarkets in Russia
The first attempts to “enter” the Russian and then Soviet market were made in the 1980s, when the management planned to build a large furniture plant in the Soviet Union. For a number of well-known reasons, the plans of that time were never destined to come true. However, stores similar to IKEA were unable to take advantage of this delay, and by the end of the 1990s, this famous brand made a second attempt, this time successful. The first was a hypermarket in the Moscow region. Today there are 14 IKEA stores in Russia, and another one in (Lithuania).
In addition, the company has its own production in the CIS countries at several factories located in Russia and Belarus. All this speaks of the Dutch concern’s serious plans for the future. Yes, yes, exactly Dutch, because, although most buyers associate this trademark with Sweden, the concern itself has recently moved its place of registration to the Netherlands. According to market experts, this was done due to a more favorable tax regime in this country.
Alternative brands
Both in other countries of the world and in the CIS there are no direct analogues of IKEA. However, there are very similar brands and stores. The following are represented on the markets of post-Soviet countries:
- JYSK.
- Leroy Merlin.
- Hoff.
The most similar in assortment and even in design is JYSK (pronounced Yusk). However, the stores of this Danish company also have their own differences. Unlike the huge IKEA hypermarkets, JYSK prefers to open relatively small supermarkets. They are located mainly in residential areas of large cities. To date (2017-2018), this retail chain is not represented in Russia, although there have long been plans to open it. But it works successfully in countries such as Ukraine, Belarus, Armenia, Kazakhstan, Lithuania, Latvia, Moldova.
There are also no direct competitors to IKEA in Russia. You can name the companies Hoff, Leroy Merlin, Your House, but each of them only partially overlaps with the blue-yellow brand in terms of assortment. Their catalogs contain similar furniture, tableware, home and garden products, and so on, and they all also have regular price reductions, promotions, and discount sales. However, none of these chains is a direct alternative to IKEA, although they are all somewhat similar.
IKEA marketing is a prime example of how you can win the hearts of millions of customers around the world. When you go to this store to buy a towel, you almost always come out with a full cart and wonder how this happened :).
Coincidence or smart marketing strategy?
In this article I will talk about how IKEA marketing is structured and how they manage to work so effectively with customers.
Ingvar Kamprad
Founder of IKEA
The main thing in management is love. If you don't win over people, you can't sell them anything.
First, let's take a short excursion into history.
As you know, Ingvar Kamprad had innate trading abilities and entrepreneurial flair. After trading in matches, lingonberries, fountain pens and other accessories, the legendary Swede turned his attention to furniture.
At first glance, the decision seemed very strange.
The peculiarity of Swedish families was that for most of them furniture was considered a luxury item due to very high prices. It was then that Kamprad decided to occupy a vacant niche and produce inexpensive furniture accessible to families with low incomes.
You yourself know very well what came of it.
Let's look at what elements IKEA marketing consists of.
Mission
Numerous studies show that companies driven by a great idea are more effective, even if their ultimate goal is to make money.
IKEA was initially guided by a lofty idea contained in the slogan “ A better life for many".
Ingvar Kamprad wanted people all over the world to be able to buy beautiful furniture and home decor, and this desire turned into a mission.
British magazine Icon wrote: “If it weren’t for IKEA, modern home design would be out of reach for most people.”.
And Kamprad himself was called Icon "the person who has had the greatest influence on consumer tastes."
Thus, the founder of IKEA proves that when a company's mission is aimed at solving customer problems and improving their lives, its success is guaranteed.
Search for new niches and solutions
Ingvar Kamprad
About entering new markets
IKEA's business philosophy is defined by one golden rule: treat every problem as an opportunity.
Challenges provide amazing opportunities. When we were prohibited from buying the same furniture that was made for others, we began to come up with our own designs, and we developed our own style.
When we lost suppliers in our country, the rest of the world opened up to us.
This rule helped the company get out of a seemingly hopeless situation and became the basis of the company's strategy for future years.
IKEA is always looking for new niches, anticipating consumer needs that he himself is not yet aware of. The main thing is to promote the new accessory, and it will bring in money.
Example
IKEA has released a medium-sized metal clothespin with a rubber ring so you can hang a magazine on a towel hook.
In fact, no one knows how many customers have agonized over reading a magazine in the bathroom, and the inconspicuous clothespin quickly became a bestseller.
Two factors came into play.
- Visibility(neatly hung clothespins with magazines in the exhibition bathroom act magically, convincing you of the need for a purchase)
- Price(clothespins are so cheap that you can buy them just “just in case”).
Naturally, one cannot fail to mention how the company decided to sell disassembled furniture. After all, at that time it seemed nonsense. But this ingenious solution was preceded by serious problems - IKEA had difficulties with delivery.
Traditionally, furniture was assembled directly in factories, but while it was being transported to the buyer, it often broke: legs fell off, glass doors broke, and the surface was scratched. Naturally, the buyer refused to pay money for the damaged furniture, and this was fraught with losses for the company.
And here Ingvar Kamprad once again demonstrated the non-standard way of thinking. In order not to lose money on defects, he decided to sell furniture in disassembled form. Which, in turn, led to savings and made it possible to further reduce prices.
Thus, all the furniture was placed in a compact flat package, and the buyers themselves had to assemble it.
Kamprad has long noticed that people actually like to assemble their own cabinets and sofas. Especially if you make the assembly procedure simple with detailed instructions.
Total cost reduction
Thrift is the life credo of Kamprad himself, whose stinginess is legendary.
The company's top managers fly to business meetings in economy class and stay in inexpensive hotels. Kamprad himself drinks expensive drinks from the hotel minibar, if only later he can replace them with cheaper ones bought in the nearest supermarket.
The billionaire does not shy away from magazine coupons for free parking and often uses public transport. It is not surprising that the free models during the filming of the annual IKEA catalog are employees of the company.
Pricing
Ingvar Kamprad himself revealed the pricing policy at IKEA in an interview.
A family with an average or lower average income is taken into account. It is calculated how much she is able to spend on home improvement and on each pillow or floor lamp separately.
In this way, the optimal cost of each item is determined.
Sometimes company managers help the manufacturer master new technology.
Perhaps today such a technique no longer surprises anyone, but when IKEA started, it seemed like a revolution. According to Ingvar Kamprad, IKEA prices should take your breath away.
The company is not shy about stating that its prices are competitors' prices divided by two. There is also a “second-tier tactic”: if a competitor launches a cheaper similar product, IKEA immediately develops the next version of this product at a price that can’t be beat.
The entire approach to IKEA's pricing policy is formulated in Kamprad's famous statement:
Ingvar Kamprad
About pricing
Instead of selling 60 chairs at a high price, it is better to reduce the price and sell 600 chairs
Design
According to Kamprad, many of the features of modern designers make furniture more expensive and, therefore, inaccessible to the general consumer.
In particular, IKEA fundamentally refuses to divide things into beautiful and ugly.
The style of a home can include very different, sometimes very basic, unpretentious and unexpected objects and materials - from great-grandmother's boxes to ultra-modern lamps.
Moreover, the degree of their aesthetics depends on a whole complex of conditions that shape a specific human environment.
Therefore, the company’s products are usually demonstrated in specific interiors: the technique is almost a win-win, since an item that is completely nondescript at first glance and seems absolutely unnecessary to the buyer often attracts his attention precisely due to the surrounding environment and forces him to purchase it.
Josephine Rydberg-Dumont
About the company philosophy
It’s easy to create beautiful and expensive things, but try to create a beautiful, functional thing that will be cheap.
When developing the next product, IKEA first sets a limit above which the price should not rise, and only then the designers (there are more than 90 of them) puzzle over how to fit into these limits.
No product will go into production unless there is a way to make it affordable. The creation of products sometimes takes several years.
For example, the creation of the PS Ellan dining table with flexible but stable legs took more than a year and a half, during which time it was possible to invent an inexpensive material (a mixture of rubber and sawdust) that allows achieving the desired properties.
Navigation in stores and lounges
One Harvard Business School study claims that IKEA skillfully and unobtrusively gets customers to spend more time in stores (naturally, so that the customer leaves more money there).
This is facilitated by the layout of the trading floors - it’s easy to enter the complex, but it takes a long time to get out.
IKEA turns ordinary shopping into a pleasant pastime.
Children can be left in the play area, elegant displays inspire and stimulate the buyer, and wide aisles eliminate crowding.
You can rest and refresh yourself in cozy cafes offering various bonuses and unique Swedish meatballs. Moreover, the pricing policy of the IKEA cafe corresponds to the basic principle of the corporation - cheap and tasty.
After a well-fed customer enters the store, having paid pennies for a delicious meal, he simply cannot resist leaving with an empty cart.
Another important nuance: sales consultants never attack buyers, and this allows the latter to relax and calmly look around. If necessary, it is not difficult to find a consultant in a bright yellow and blue uniform.
Assortment and merchandising
In large country IKEA stores, along with furniture, everything that is necessary to create a complete interior is sold:
- Flowers in pots
- Photo frame
- Dishes
- Candles
- Chandeliers
- Curtains
- Bed sheets
- Kids toys
When the UK authorities recommended that IKEA open small “theme” stores in urban areas, instead in order to build giant suburban hangars, the indignant response was: "This will never happen! Everything under one roof"- our sacred concept."
That is why every IKEA furniture store is a kind of exhibition center.
Leaders of sells
Kamprad long ago realized one of the secrets of marketing: the buyer must have a strong motivating factor to come to you.
This is how IKEA came up with the idea of selling popular and high-volume products at the lowest prices.
Here is one of the stories from Ingvar himself:
Before opening a store in a new country, the company always does a little research. They ask if customers like their furniture. And they always get the same result - absolutely no one likes IKEA furniture.
This happened in Italy, and in Germany, and in Russia, and in other countries.
The company gets acquainted with these results and opens a store. As soon as it opens, the boom begins. And this once again proves that you should not always trust research.
Instructions and price tags
Near each product there is a so-called “cardboard seller” - a card on which all the properties of the product and what it is made of are described in detail. Everything is described so clearly that the need for a sales consultant practically disappears.
The instructions are written in exactly the same way: each step is described in such detail that even a first-grader can assemble the furniture. But if you suddenly need a consultant, you can find him everywhere.
Standardization and adherence to traditions
According to Ingvar Kamprad, any business should remain in touch with its roots. Therefore, every employee of the IKEA “family” of thousands scattered around the world knows by heart the saga of the birth of the company.
Its headquarters are located not in fashionable Stockholm, but in the village of Elmhult, where the first furniture pavilion was opened in 1953. There is also a museum where you can learn about the milestones of its business journey.
For IKEA, historical heritage is an integral component of the success of its corporate culture and business philosophy, on which more than one generation of managers and ordinary workers has been brought up.
All IKEA stores outside Sweden are painted yellow and blue to highlight the company's Swedish origins.
The style of the goods also speaks about nationality - the assortment is the same everywhere. Near the cash registers in all the company's stores there are departments of a non-core area for IKEA: they sell Swedish national food.
IKEA marketing and financial results
The use of these tools has helped IKEA achieve global success, achieving a turnover of €27 billion in 2012 and a net profit of €3.2 billion.
The most important thing is that we can safely take and use the principles of IKEA in absolutely any business, and this article can act as a kind of checklist for this.
After all, as they say, if you take an example, then only from the best.
Vice President and co-owner of the Hoff chain Mikhail Kuchment (Photo: hoff.ru)
The Moscow chain of furniture and household goods hypermarkets Hoff intends to occupy at least 10% of the St. Petersburg market within 2-3 years by opening several retail outlets in the city, vice-president and co-owner of the company Mikhail Kuchment told RBC St. Petersburg. In the future, the company expects to seriously undermine the position of its competitors, the main one of which is the Swedish concern IKEA. However, according to the INFOLine expert, the new player will have to fight not so much with competitors as with the established consumer culture.
Planned delay
The first Hoff hypermarket will open in St. Petersburg in March 2017 on Pulkovskoye Highway. The Moscow retailer leased the premises of the former Karusel hypermarket with an area of 14 thousand square meters for 10 years. The St. Petersburg store will become the 16th Hoff hypermarket in Russia.
Answering a question from RBC St. Petersburg why they are entering the St. Petersburg market only now, M. Kuchment said that the company had difficulties finding a high-quality launch site. “It is important for us to open a store that can potentially cover a significant part of the city, then it will be easier for us to open a second and third store,” the top manager said in an interview with RBC St. Petersburg.
Now Hoff is actively looking for new sites in St. Petersburg for both hypermarkets and mini-format stores, says the co-owner of the chain. “The capacity of the St. Petersburg market allows us to open two or three hypermarkets and at least five small format stores in the next two years,” noted M. Kuchment. Investments in opening one store will amount to about 120 million rubles. The company estimates the cost of promoting the network in the first year of operation in a new market at 5% of turnover.
Hoff places a special emphasis on online sales. According to M. Kuchment, in St. Petersburg, the share of online trading in the network’s revenue structure can reach up to 20%.
Nevsky patch
Hoff considers the Swedish concern IKEA and furniture shopping centers where products from Russian manufacturers are presented as its main competitors. “We will compete with them head-on,” said M. Kuchment. “I don’t think that we will take a significant market share in a city with one hypermarket, but when we build 3-4 hypermarkets, I think that we can talk about a market share of at least 10% in the next 2-3 years.” He estimates the total capacity of the market for household goods and furniture in St. Petersburg at 40 billion rubles.
Some competition for the capital's player in St. Petersburg may come from DIY hypermarkets (two of them - OBI and Castorama - will be direct neighbors of Hoff), which also offer an assortment of furniture, notes Ivan Fedyakov, CEO of INFOLine. Taking into account the DIY segment, the volume of the market in which Hoff will operate can be estimated at 60-90 billion rubles, the expert believes.
Maria Evnevich, a member of the board of directors of Maxidom, also speaks about the fierce competition in the market. “St. Petersburg is called the “Nevsky Piglet” because the city has the highest concentration of chains in the country. Therefore, any retailer in St. Petersburg faces the same problem - competition.”
Delayed repair syndrome
However, according to I. Fedyakov, competition is not the main problem for furniture sellers. “The main challenge for sellers of furniture and related household products is the poorly developed culture of furniture renovation,” says the expert. “The average Russian here rarely changes furniture; most often it is due to renovations.”
The head of INFOLine refers to data from a survey by VTsIOM, during which it turned out that although Russians’ spending on repairs and renovation of furniture takes first place among planned savings, in the end, not all of those who decide to renovate do it.
Reference
The Hoff network was founded in 2008 by Alexander Zayonets and Mikhail Kuchment. The first hypermarket was opened in 2009 in Moscow. Today, the network includes 24 stores - 16 hypermarkets (eight in Moscow, two in Krasnodar and one each in Samara, Rostov-on-Don, Voronezh, Yekaterinburg, Kazan) and eight mini-format stores.
The turnover of Domashny Interior LLC, which manages the network, according to the company’s own data, in 2016 reached 18.3 billion rubles. (including VAT), of which 2.4 billion rubles. amounted to online sales. This year the company plans to reach more than 24 billion rubles. (including VAT), while online sales should amount to more than 3 billion rubles.
