Since launching operations in October last year, IKEA Indonesia attracts tens of thousands of people to its first store in Indonesia, every day. The Swedish home furnishing company’s approach to business is “quality products at low price” that is not merely regarded as a promise, but also serves as a gist of its operational excellence and renowned modern design. For a retail business, providing quality products at affordable prices is not easy, let alone to inculcate fresh ideas in layouting the favorite spots at home – something done quite impressively by IKEA in its showrooms. During an interview with Marketeers, IKEA’s General Manager Mark Magee shares the creative nature of IKEA’s business and his approach to winning Indonesian customers.
Prior to your assignment in Indonesia, you have traveled to many countries and established retail franchises. What differences do you observe between Indonesia and those markets?
I was lucky enough to come to Indonesia sometime in 2001-2002 when I was actually looking to find a potential franchise partner for my previous business. And I have to say, it was a huge pleasant surprise when I returned to Indonesia in 2012, having seen the country roughly ten years before. The first thing that hit me was the huge number of tower blocks in the central area. I remember buildings at Bundaran HI area were big structures back then, but now they just look like small buildings.
In a way, that’s one of the things which answers the question. It is the pace of development in Indonesia since the democratic movement has begun. I think Indonesia has a sound democratic system and it has also built over into the commercial elements of the way people do business in this country. The second thing I would say about is how Indonesia compares in terms of scale and numbers. Indonesia has 250 million people and is the world’s fourth largest populated nation. When it comes to consumerism, Indonesia has huge potential, not only in Jakarta, but also in other major areas such as Surabaya, Medan, Bandung, and Makassar.
Furthermore, there are a significant number of people moving into the middle class. I guess you already hear that story from many people, but in that respect, businesses are all the same; we look for potential.
Particularly in terms of behavior, what kind of uniqueness do you find in Indonesian customers?
We find that most of Indonesian customers are quite family oriented. The last statistic we looked at highlights every household in our catchment area has 6.9 family members, including one grandparent or two. Interestingly, it also has 2.9 children on average, which is somewhat higher than global standard. This is surprising because over 40% of Indonesia’s population is under 29 years old. When they go shopping, especially during the weekend, the whole family comes, plus the nannies. Therefore, the group size is much larger and there is an impact for retailers because we have more people in the store. Thus, we have to think about the sufficiency of simple things like toilets, parking lots and showroom spaces for those people to circulate. As per the data, I can say that IKEA’s children range generates sales in much greater volume than of competitors in the market, meaning a greater purchase of toys and other kids’ products. I don’t say that westerners are any less loving of their children, but there are simply more children here.
How do you attract this target audience to visit your store?
We are all about creating a better everyday life for many people. That’s our business model. We do that by offering a wide range of well-designed home furnishing products at low price. It’s not just a word for us, it’s a meaning. We deploy that business model the same way here as we do in every other country. There is only one IKEA. Predominantly, majority of our customers are between 25-45 years old families with young children.
You may hear a lot about IKEA concept, but we prefer to talk with the products rather than with words. If you show somebody how to layout a room for a family that has, let’s say, a twin, how would the bedroom look like, what would be in the dining room – I can write a book or thesis on it – but actually the best thing to do is to show them through your products. That’s why we have 55 room sets in our IKEA store.
In terms of approaching Indonesian population, IKEA Indonesia is no different. There is only one IKEA and it changes from time to time and carries a very young Scandinavian style and accent. In a lot of markets, and maybe so in Indonesia where traditional furniture has been here for long, it seems to be the younger people who are looking to express themselves through younger product styles. I think that’s one of the attractions for Indonesians coming to IKEA’s showroom. Their parents have beautifully ornate solid wood dining table and chairs, but for them it is what they grew up with and a little bit old-fashioned. IKEA offers them a chance to get modern fresh designs at very reasonable prices.
When it comes to buying home furnishing products, who is the decision maker within a family?
Indonesia is the same as the rest of the world; the lady of the house makes the decision. Based on a research, the male or traditional breadwinner, will determine the budget; although, the lady will determine what goes into the house. She’ll decide how to express the house – with her style – for the family. In that respect, Indonesians are all the same with people around the world.
“By making a product in huge numbers and getting the unit cost down, I am saving our cost for our customers’ low price” – Mark Magee
In various occasions, you said that IKEA Indonesia is catering to the emerging middle class segment. Why this segment?
Indonesia has been a booming economy for the last ten years. There are people coming into the middle-class bracket and can afford to shop at IKEA. Everyone is looking for good ideas for their home and nobody wants to pay more than they have to. So on any given day, there will be everyone, from teenagers looking for something to brighten up their room, people setting up their first house, to very well-established homeowners, looking for something a little bit different and at a great price. All they need is just go to IKEA.
How do you create an effective and relevant approach to cater to this middle class segment? How is this segment different from high-income or low segment?
Basically, we believe that there is something for everyone at IKEA. However, we focus more on middle class segment who is looking for home furnishing products that are simple in design, multi-functional, good-quality and at affordable prices. Indonesia has a lot of diversity in terms of their reachability. In a more developed western market, IKEA’s appeal is much broader because most of the customers can afford to shop. That’s the benefit of economic development. I mean, the UK started industrial revolution 250 years ago and therefore the population has been able to get the benefit from that industrial development.
Clearly, when we look at Indonesia today, there are a number of people who we may call middle class and then there are also people who are emerging fast into this segment. It is a moving phase. Our simple view of people who can afford to shop at IKEA is not based on any high technical science. When we came here, we said ‘who has a car and who has a credit card?’ It is very simple. If bank trusted you with a credit card, you probably have some creditworthiness. If you could afford one or more cars, you probably have more than enough income to shop at IKEA.
When we crossed the two figures two years ago, it came with roughly one-third of Jabodetabek’s population. At this point, the rule of thumb is that one-third, maybe a little bit more, of Jabodetabek’s people can afford our products. That might be different from, let’s say, the UK where almost everyone can shop at IKEA. However, it won’t be one-third forever. According to McKinsey, in 2030, Indonesia could be the seventh largest economy in the world. When the economy grows, the vast majority of Indonesians will have the opportunity to increase their take-home pay and come into that middle-income bracket.
Since opening in October last year, how many visitors do you have currently?
In the first week we recorded since opening in October, there were 20,000 visitors. Currently, we have between 5,000 and 6,000 visitors during weekdays and 13,000 to 15,000 visitors during the weekend.
What do you think people visit IKEA store as a result of brand value or just out of curiosity?
I think they keep coming to our store because some of them already knew IKEA brand and they look for IKEA products, which are widely known for their good design, function and affordable price. For those who do not know the brand, we welcome them to visit our store and walk through it because the IKEA store provides tips and ideas on how to solve common needs and support daily activities at home.
According to your understanding, what is the biggest expectation of Indonesian customers from a retail store? Do you think IKEA can satisfy what they desire the most?
Indonesian customers, like any other customers worldwide, are looking for products that would make their everyday life better. They are also looking for products that have good design, quality, function, and affordable price which correspond to our Democratic Design philosophy. When it comes to product development, we always base our work on five pillars of Democratic Design: good design, good function, good quality, low price, and strong consideration towards sustainability.
Based on a research, Indonesian customers tend to ask their family and friends before buying something. How do you create positive word-of-mouth within the community?
You are right. I think the two big drivers for publicity, specifically in Indonesia, are word-of mouth and social media. How do we make the most out of these two things? We understood since the very beginning that social responsibility is hugely important in Indonesia. If there is a major crisis or issue, consumers expect their trusted companies will step in to help. I can say it’s not the way it works in Holland or the UK where I am most familiar with. Clearly, there is a dimension over and above P&L (profit and loss) in this market and that a company should be a good corporate citizen.
Accordingly, our press coverage since the opening shows that roughly 50% of the articles written about IKEA are driven from CSR. To get that level of coverage, the content must be good. People don’t want to talk boring and insignificant things. If you do something different, then people will talk about it. Since we got here, we tried to do something differently. For example, we provide batik shirt for IKEA Indonesia coworkers to wear every Friday. We appreciate that batik is so close to the heart of all Indonesians. I can even say that batik is mystical. Every batik carries not only a design, but also a story. So, what we wanted to do when we got here was to engage with the local community. We run a competition for students from several universities and design schools to design batik shirt that respected the corporate color of IKEA, which is blue and yellow.
How do you position IKEA brand in Indonesia? How do you differentiate it from the competitors?
IKEA home furnishing brings inspirational ideas and solutions to create a better everyday life at home. The IKEA store offers more than just home furnishing products at affordable prices, we offer ideas and inspiration to make your house your home.
We believe that competition leads to innovation and choice for customers. IKEA itself was born out of competitive pressures brought out by other traders in the market and we’re constantly working out how we can keep improving. The IKEA offer gives the customer a new interest and wish to improve their everyday living. When IKEA brand enters a new market, the general home furnishing awareness and interest increase considerably. As a result, the whole home furnishing industry is benefited.
To offer quality products at affordable price is not easy. How do you balance these two things?
Every IKEA product must comply with the five pillars of Democratic Design: form, function, quality, sustainability, and price. A great product lives up 100% to these five points.
When we look at a product, we always start with price in mind. There is no point in designing a product that costs ten times what an average person can spend on, if you want volume. IKEA is all about volume. For example, traditional watering can has spout and handle that make it bulky while everything we ship around the world has to go in containers. So, it makes sense that the more things you can stack inside each other, the more products can move in a minimum number of containers and it helps sustainability. As you know, people say the air pollution comes from ships.
By thinking outside the box, we design a watering can that fit inside each other. Its handle and spout do not get in the way and it has an open top. This way, you can get 20 watering cans in a space where one watering can would be. By making a product in huge numbers and getting the unit cost down, I am saving our cost for our customers’ low price. IKEA’s philosophy is very simple. We don’t seek for high gross margin because all that matters is about size of the business overall.
Additionally, IKEA comes to Indonesia to introduce the do-it-yourself (DIY) concept. This is a shift in paradigm because Indonesian customers are used to being served. We offer a different proposition where the DIY concept brings independence while at the same time allows customers to get more affordable products. Trust me, you only have low price if you can have low cost. That is fundamental to the IKEA concept. If you can spare a lot of money, then you can have a great design. Nevertheless, having a good design at low cost is very difficult and we prove that we can do that.
To enable the DIY concept that provides lower price to customers, IKEA furniture products are flat-packed. By picking the product yourself, bringing it home yourself and assembling it yourself, you save money.
As you hold a master’s degree in retail management, what is the meaning of retail to you personally?
It is understanding people, either customers or coworkers. Fundamentally, my approach is people-based. It’s about understanding what our customers, coworkers need, and how we can better serve them. I think it would be very difficult to operate in a retail business properly if you’re not a people-minded person. Concentrate on people.