Re-Assembly Required: What Target, Walmart Could Learn from Ikea’s Expansion


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Some retailers are known for careful planning, but when entry into a new market takes six years, that care better ensure every detail is nailed down.

Or, in the case of Ikea, every detail is Allen-wrenched in.

It appears they are, as illustrated with delightful color in a recent feature story. The piece, an anatomy of Ikea’s global expansion, serves as a guidebook to excelling in foreign markets. It also got me to comparing Ikea’s success to the failures of others over the years – most recently Target, which pulled stakes in Canada less than two years after entering, and the older account of Walmart, which abandoned Germany in 2006 after nine years that likely felt like nein years. These comparisons underscore the need for retailers to use history as their guide.

IKEA_SaudiArabiaIkea, for instance, has learned, from its own missteps. When it entered the U.S. market in 1985, it stocked its Philadelphia flagship with beds smaller than the American norm, thus requiring shoppers to buy different sheets, according to the feature story, which ran in Fortune. But the Swedish merchant transformed these flubs into foundational pieces, incorporating the reasons for the errors into its plan book and addressing them as issues before crossing into the next new territory.

To me, three key areas together assemble Ikea’s brilliant strategy, but also represent where Staples and Walmart fell apart. Let’s put it together.

Fierce fieldwork: In the Fortune story, David Marcotte of consulting firm Kantar Retail describes Ikea as “ferocious about expanding too rapidly.” Key to this fierceness its dogged commitment to researching its markets before entering them. Among the examples, Ikea studied almost 8,300 people in eight cities just to capture their morning routines (those out the door fastest are in Shanghai, at 56 minutes). It then used this research to create behavior-specific products, such as a self-standing mirror equipped with hooks for jewelry and clothing, so the owner could assemble her outfit in advance.

Target, by contrast, charged headlong across Canada with 124 stores in just 12 months, apparently with little regard for the market’s slower economic growth and higher level of business regulations. Further, many of the locations were former Zellers stores, a beloved brand among thrifty Canadians. Perhaps if Target had assigned a Canadian executive to guide the strategy, rather than relying on its U.S. management team, it would have been alerted of these and other issues, such as pending distribution challenges.

Walmart, too, applied its U.S. business model to a foreign market, thinking it would wallop the competition and woo the Germans with facsimiles of its U.S. operations. Unfortunately, it generally misunderstood the overall culture and evidently had not prepared for Germany’s powerful pro-labor heritage, according to a story in the Atlantic Times. Requiring employees to smile at strangers, to shout WALMART! during gatherings and to refrain from flirting with each other may be acceptable in some parts of the world, but not among Germans.

Price vice: With stores as big as stadiums, Ikea’s success hinges on volume, which ensures lower prices among its suppliers and therefore lower prices for shoppers, and so on. Ikea actually dropped prices by 1% in 2014, according to Fortune. The challenge globally is that what counts as a steal in Chicago is considered steep in Shanghai. Ikea sells ice cream cones in China for 16 cents apiece, a price it can afford because it manufactures in China most of the goods its sells there, cutting shipping costs. It looks at every possible place to cut individual expenses in order to support the whole, including the undersides of its furniture.

For Target, price may have cost it the Canadian market. Shoppers there quickly recognized that the same products they had seen in the United States were selling for a higher amount in their hometowns. Some of the reasons were beyond Target’s control – higher taxes and distribution costs as well as varying wages, for example. However, an early analysis might have helped it locate areas where it could offset those expenses. Walmart and Costco were beating Target on price, after all. Not a good first impression for a chain that boasts: “Expect More. Pay Less.”

Meanwhile, in Germany, Walmart was forced to raise prices on basic food items, such as milk and eggs. This occurred in 2003, after the country’s highest court ruled that Walmart’s below-cost pricing model undermined competition, according to the Institute for Local Reliance. Germany is a very cost-conscious country, but Walmart’s prices were considered a threat to small merchants. The inability to compete on price, combined with mature merchant rivals and a lack of prime developable real estate meant Walmart had nowhere to go but out.

Keeping in character: Every single item Ikea sells is Ikea branded, so it has complete control over the making and distribution of everything, from its Pax wardrobes to Ektorp Jennylund armchairs. This level of control enables Ikea not only to determine where products are made, but also to tinker with them as deemed necessary. It is, for example, in the process of simplifying its assembly requirements, perhaps the most vexing feature of Ikea products and a costly one for Ikea. Fittings can run up to a third of the cost of a product, according to Fortune.

IKEA_InteriorDecorationsTarget forfeited its control on quality largely when it lost the use of its U.S. distribution network, which could not service its Canadian stores. Further, the Canadian stores lacked the local authority to order their own merchandise, resulting in the embarrassing placement of Toronto Maple Leafs apparel, instead of Detroit Red Wings gear, in Windsor, Ontario (you’ll have to trust me on this; it was a major faux pas). Worse, distribution kinks resulted in empty shelves across stores. So not only were shoppers expected to pay more, they were getting less.

Walmart was able to distribute and sell popular American brands in Germany, but with an undesired effect – the brands were not familiar to many Germans. When Walmart attempted to better control the quality of its German operations by replacing its American CEO with a British executive, the orderly Germans viewed the sign of instability with a hairy eye. The British CEO left after only a few months to be replaced (finally) by a German executive, but one who mastered gas stations, not superstores.

These three categories combined are what have enabled Ikea to penetrate 25 countries, from Canada and Germany to Qatar and Jordan. And the market that took six years to enter? South Korea, though not without some minor missteps.

Among them, Ikea made the mistake of underestimating the number of parking spots required in the Asian country, but it Allen-wrenched that problem, too. That location is now on track to become one of Ikea’s best-performing stores.

This article originally appeared on, where Bryan serves as a retail contributor. You can view the original story here.

Republished with author's permission from original post.

Bryan Pearson
Retail and Loyalty-Marketing Executive, Best-Selling Author
With more than two decades experience developing meaningful customer relationships for some of the world’s leading companies, Bryan Pearson is an internationally recognized expert, author and speaker on customer loyalty and marketing. As former President and CEO of LoyaltyOne, a pioneer in loyalty strategies and measured marketing, he leverages the knowledge of 120 million customer relationships over 20 years to create relevant communications and enhanced shopper experiences. Bryan is author of the bestselling book The Loyalty Leap: Turning Customer Information into Customer Intimacy


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