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Making Sense of IKEA

by 
Ethan Chernofsky
 on 
September 3, 2019
Making Sense of IKEA

We ran a series of reports for our Q2 Retail Index including dedicated posts on the Grocery, Apparel, Food, and Home Improvement sectors. And it was while researching the last of the group, that we noticed a retailer with traits that differed dramatically from the rest of their category - IKEA. 

Compared to nine other top players in the space, IKEA saw a significantly higher percentage of weekend visits than any competitor. Nearly 50% of their visits in Q2 came on weekends, where the average of the other nine was below 40%. And the same approach led to a dramatically higher visit duration with IKEA visitors spending nearly 80 minutes on average in a store, while the average of the other nine was just above 40 minutes. That’s nearly double the amount of time spent in a location!

And the ramifications of this approach are enormous. So we dove into IKEA data to analyze the traits that set the brand apart and to understand what this means for their neighbors.

The Uniqueness of IKEA - Quality over Quantity

To put IKEA’s approach into context, we compared the company’s visits with Menards nationwide over the 12 month period from August 2018 through July 2019. For this period, Menards, one of the better brands in the sector when it comes to repeat visits, saw an average of 7.2 visits per visitor. IKEA, on the other hand, saw only 2.5 visits per visitor, a dramatically lower number. This places an added emphasis on maximizing each visit to drive conversions.

And the data indicates that IKEA does just that. Instead of focusing on repeat visits, IKEA provides a ‘destination’ shopping experience. The average visit duration over this period was 81 minutes, more than double the 40-minute duration that the average Menards visitor spends at a store. Imagining a customer willing to invest that much time without making a purchase is incredibly difficult and the ability to drive high intent customers is an enormous asset for IKEA.

The need to dedicate this amount of time also disproportionately brings visitors to IKEA on weekends, where they see 49.4% of visitors come on a Saturday or Sunday. Comparatively, Menards sees only 39.8% of their visitors on the weekend. This allows IKEA to optimize their staffing, operations and campaigns accordingly, knowing that their distance makes them the cause for a visit, and not just a stop on the way.

Why Does It Matter for IKEA and Menards?

The information is critical for IKEA in order to maximize the way they expand their retail footprint, optimize marketing and more. When you are a weekend destination that requires a lot of time for a visit, you must focus on optimizing your physical properties. IKEA has shown a tremendous mastery of this. The image below shows the True Trade Areas - places where visitors actually come from - for four different stores in Southern California. Shockingly, there is almost no overlap between the trade areas, meaning IKEA has been able to effectively determine how far a customer will travel for a store.

Returning to our comparison with Menards, the below image shows two locations in Michigan, and the difference is stark. The IKEA (blue) has visitors coming from an incredibly large trade area, while the Menards (red) sees a far more localized distribution. For Menards to expand across the country they would need far more properties to achieve the same reach that IKEA accomplishes with far less. Yet, on the flip side, they are given far more flexibility in the ways, times and channels they can use to reach their audience.

The point is made even more clear when analyzing the distances that visitors traveled. Nearly 82% of this Menards visits come from within 10 miles, while over 76% of this IKEA’s visitors come from beyond 10 miles. 

Why Does It Matter For Their Neighbors?

But this data doesn’t only matter for IKEA and Menards, it has a huge potential impact on the shopping centers that house them and any brand that wants to sit nearby. Because of the demands placed on visitors to come on a weekend or during a period when they have time to spare, IKEA visitors are more likely to shop or eat out before and after their visit. 26.0% of IKEA visitors nationwide continue shopping after a visit as opposed to 19.4% for Menards. 9.6% will go to a restaurant after, whereas 6.9% of Menards visitors will. These differences present unique opportunities and considerations for co-tenants. 

How should you arrange staffing? When should you create deals to boost downtime? All of this data can help co-tenants improve their numbers by taking advantage of the opportunties and disadvantages that come from having either of these brands as a neighbor.

Conclusion

And this is perhaps the most important point. IKEA isn’t better than Menards or vice versa, but they are definitely not the same. For each brand to drive success they need to understand and internalize the differences that set them apart and create a customer experience that supports it. From marketing to staffing to market planning, there are powerful insights based on this data to help increase revenue.

But critically, these insights are not limited to the brands themselves. Shopping center owners, nearby tenants and beyond can find ways to improve their performance and profit by adapting tactics to help leverage the strengths of neighbors. Cross promotions, well-targeted campaigns and deals, and beyond can all be developed in order to leverage a company’s wider context to drive value.

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