IKEA, a global furniture brand that has been in South Korea for 10 years, has reported poor performance, facing two consecutive years of decline until last year. There are concerns that South Koreans' preference for IKEA's modular furniture is waning, and it has been assessed that the company lacks distinct advantages when compared to competitors with fast delivery and robust services. Although IKEA has returned to growth this year, forecasts suggest that maintaining this growth trend could be challenging due to reduced investment levels.
According to industry sources on the 17th, IKEA Korea recently signed an investment agreement with Gyeonggi Province but has since withdrawn its plan to build a logistics center. This interpretation suggests that sluggish performance stemming from a market downturn has led to reduced investment.
IKEA Korea has abandoned its plan to establish a combined logistics center on a 102,000 square meter site in Pyeongtaek, Gyeonggi Province. The company has also decided to sell this land, valued at 55.5 billion won. Initially, IKEA intended to use this facility as a strategic hub to enhance online delivery logistics and sales but has ultimately retracted that plan.
IKEA Korea's hesitance in investing in the South Korean market is attributed to recent poor performance. The company has faced consecutive declines in sales over the past two years. In the 2022 fiscal year (from September 2021 to August 2022), sales totaled 622.3 billion won, down 9.5% from the previous year. For the 2023 fiscal year (from September 2022 to August 2023), sales fell to 600.7 billion won, representing a 3.5% decrease from the previous year. Operating profit was just 2.6 billion won, barely avoiding a deficit.
The recently announced sales for the 2024 fiscal year (from September 2023 to August 2024) are 625.8 billion won, marking a 4.2% increase from the previous year. During this period, operating profit surged by 616.5% to 18.6 billion won, attributed to a base effect from last year. Despite both sales and operating profit rebounding, analyses suggest that the company likely decided to cut back on investments due to the ongoing market downturn and consumer market expectations.
Since its first entry into South Korea in 2014, IKEA has garnered popularity by offering Scandinavian-designed furniture at lower prices due to reduced assembly costs. However, the situation has reversed due to the impact of a downturn in the domestic construction market and intensified competition among local furniture companies. The lack of urban stores has decreased accessibility, and IKEA's delivery services are not as fast as those offered by South Korean competitors, making it hard for consumers to find unique advantages in IKEA.
Since the COVID-19 pandemic, prolonged economic stagnation has noticeably reduced consumers' frequency of visiting IKEA, impacting the company negatively. Contrary to its global image of being affordable and efficient, IKEA has yet to leverage price competitiveness in South Korea, where it has faced controversy for pricing its products up to 1.6 times higher than in other countries since its debut.
In July of last year, IKEA Korea reduced prices on over 200 popular items, but increased prices on more than 800 items. With more products seeing price increases than reductions, more consumers began to feel the impact of rising prices. Some have noted that with many products requiring assembly, the price hikes have diminished the necessity of seeking out IKEA.
The company's model, which requires consumers to handle significant 'expenses' through self-service, is also seen as a drawback. South Korean consumers prioritize convenience and service, yet IKEA's model encourages customers to pick up and assemble items themselves for cost savings.
There are analyses indicating that South Koreans' preference for IKEA furniture itself is declining. While IKEA furniture emphasizes practicality, the differences in size between Nordic dwellings and South Korean apartments limit the practicality of its offerings. According to industry sources, what South Korean consumers actually purchase from IKEA tends to be inexpensive items like zipper bags or wine glasses.
Competitors such as Hanssem and Livart offer delivery, installation, and other services at relatively lower prices in South Korea. Consumers can easily purchase products at similar prices or even cheaper from large marts like E-Mart and Homeplus or smaller furniture stores. Stores like Nitori, which are specialized furniture shops located within urban areas and have easier access than the outskirts where IKEA is situated, are also contributing to competition in the furniture market.
An industry insider noted, "South Korea has a strong cultural disposition against the hassle of assembly and often prefers brands with luxurious designs and durability," adding that "the accessibility issue of stores located in the outskirts and high expectations for fast delivery services are limiting IKEA's growth."
In response, an IKEA Korea representative stated, "We plan to enhance customer contact accessibility to provide a convenient omnichannel shopping experience that enables consumers to encounter IKEA anytime, anywhere, and in any way." IKEA Korea invested approximately 16.9 billion won in August to introduce an automated fulfillment system at the IKEA Giheung location and is also expanding offline touchpoints, including popup stores.