IKEA, the well-known Swedish retail giant, was forced to shut its doors to customers for nine months due to the pandemic and local lockdowns across the UK and Ireland. As a business that has historically prided itself on customer experience, IKEA had to think and adapt quickly when the pandemic hit.
In this case study, Constantinos Mourouzides, CFO of IKEA UK&I, discusses the business strategy implemented by IKEA to ensure survival and growth in a volatile, uncertain year.
What were some of the key challenges you were faced with during the pandemic?
As a retail business, the pandemic had a huge impact on our organisation in three key ways. Firstly, it affected our operations. We had to close our stores for a total of nine months across both the UK and Ireland in 2020 and 2021 due to various lockdowns and government restrictions. As a retailer that has always relied on providing an in-store customer experience, our main point of contact with customers was immediately shut off when we had to close. Without a way of reaching us, we saw a huge decline in offline sales for the year.
However we also saw a 31 percent increase in digital sales which presented its own challenges. We had to innovate and think quickly in order to meet changing consumer behaviour. Although we were successful in coming together to provide solutions such as Click and Collect to meet customer demand, some waiting times were longer than usual for customers trying to get an item or speak to our support team.
Secondly, closing our stores also had a huge financial impact on our business. In FY20, we lost 10 percent of our sales compared to the previous year, going from £2.1bn in 2019 to £1.9bn in 2020. Visitors to our stores were down 21 percent due to closure, but we did see sales rise by 31 percent online compared to 2019, which helped to balance the scales. We also lost market share, as some of our competitors were allowed to remain open during the period of closure for retail.
Our third challenge was keeping our people safe. During the pandemic, everyone’s health and well-being was seriously threatened and as a business we had a responsibility to take care of our people first. We took the decision to close our stores shortly before the Government announcement in March 2020 and we transitioned to a work-from-home model quickly and relatively seamlessly. For those employees that couldn’t work from home, we introduced safe systems of working by implementing the necessary social distancing, one-way systems, temperature check-ins and self-isolation procedures.
What steps did you take to rise to the challenge and improve the situation?
As a business, we are lucky to have financial strength by being part of the larger Ingka group. As a result, we have been in a position to weather the financial loss during the pandemic and make larger decisions that will benefit us over the long-term.
One of the first decisions we made during the pandemic was to support our workers and communities. Despite making a 10 percent loss in 2020, we decided not to claim from the government and furlough our workers and instead pay them fully. In the same way, we also supported a lot of our main suppliers and worked closely with them to minimise the financial impact on their business. We did this by rearranging our contracts where we could and offering financial liquidity where possible.
We also partnered with RetailTRUST to launch an IKEA Covid-19 Emergency Fund which was available to any co-worker experiencing additional financial hardship as a result of the pandemic such as outstanding rent and mortgage payments or health and childcare costs.
A big portion of our decision-making revolved around reaching our customers in new, innovative ways. As our in-store avenue had shut down, we had to adapt quickly, rebuild processes and think agilely.
We did this in a number of ways. Firstly, we managed our costs and accelerated a lot of our plans, including Click and Collect to meet the 31 percent rise in demand in digital sales. Initially, Click and Collect was a very manual process that demanded a lot of time. However as the pandemic shifted how we worked and connected with our customers, it was incredibly important that we automated this as much as possible.
As such, we worked hard to streamline the process and turn our stores into local fulfillment centres and safe collection points for customers. We introduced a new system that monitored the availability of products across both our central warehouse or our stores. If the product was available from the store nearby, there would be a shorter lead time and which was more beneficial to the customer. We also decided to reduce our delivery price for doorstep deliveries.
Secondly, we completed a large digital development project in our Customer Support Centre. We implemented tools that could automate the requests that we knew our customers were asking. This freed up time for our contact centres as we experienced an increase in calls during the pandemic and customers also didn’t always have to speak to someone on the phone.
Finally, a big decision and focus of the last year and a half has also been our investment in sustainability. This has helped us to optimise our costs such as reducing energy and waste. They are smart investments that we have accelerated during the pandemic because, over time, they provide a big benefit. It also reduces our impact on the environment as a business, which gives pride to our people. It’s a win win all round.
Did you achieve your goals? What was the outcome?
In many ways, Covid accelerated our transformation and pushed forward a lot of things we already had planned.
Our communication as a board increased significantly from twice a year to twice a month during the pandemic. This was to encourage dialogue, make the necessary and difficult decisions and ensure that we were all synced on the direction of the business during the pandemic.
As a result, we were clear with our intentions and our communication to the finance and wider team in UK&I. We now have a stronger sense of togetherness and a solid platform for closely aligning ourselves with the urgent needs of the planet and its inhabitants.
Financially, although we lost market share in the offline part of our business, we gained it online. Our hope is that now we have reopened, we will regain market share offline again and maintain our online share, which will make us much stronger moving forward.
What are your key learnings? Is there anything you would have done differently?
Businesses must adopt a more agile way of working if they are to be prepared for the unexpected. CFOs must listen and understand the environment to make and change decisions and accept the fact that there is only so much you can scenario plan and predict.
Secondly, always go back to your values and your purpose as a business. At IKEA, we knew our people and our community was more important than extra profit and I think that’s an important approach to have as you cultivate a valuable workforce. Also, encourage a growth mindset. To see a challenge and take opportunities requires a growth mindset which I believe is vital if an organisation wants to continue to grow and progress, particularly in an uncertain and unpredictable environment.
A final key learning is that the pandemic really helped to remind us all how important life at home is and how we can create a better everyday life for people at home. We often think about the two weeks holiday per year that people take, but what’s more important is the fifty weeks we spend at home. It has been a great opportunity to come together to serve that notion, and I think it has brought us closer together as an organisation.