Ikea looks to build on '06 success

New store near Rishon Lezion set to open mid-2007

ikea 88 (photo credit: )
ikea 88
(photo credit: )
Having spiked the negative trend that the war in the North created for many consumer-related businesses, Ikea Israel is looking to build on its success in the July-August period with the launch of an expanded product line for 2007 and the opening of its much-anticipated second store. "For us, the war influenced our business for the better," said Shlomi Gabai, chief executive officer of Ikea Israel. "Firstly, residents from the North were relocated in the Center and were looking for something to do and they wanted to spend. Ikea became like an outing for them and they spent a lot on household accessories during the month." This was coupled with the annual summer sale Ikea held over the last month, he added, marking the end of its catalog year and paving the way for its new selection for 2007. Gabai spoke to The Jerusalem Post as the company prepared to release its new catalog Wednesday, reflecting on the successes of the last year and the prospects for 2007. "We've shown constant growth year-to-year since opening seven years ago despite [negative] events, such as the Intifada, that influenced the market, and we expect this trend to continue," Gabai said. Maintaining that growth will be essential in the coming year as the company expects a number of key investments to take shape during the period - the most notable being the long-awaited opening of its second store near Rishon Lezion in the second half of 2007. While the company did not say how much it has invested in the project, the new store will cover 33,000 square meters, out-sizing the current Netanya store by some 10,000 square meters. Gabai said the new store aimed to give easier access to residents of the South and Jerusalem. Hinting at the possibility of a third store in the future, he said that each Ikea store can handle around 1.5 million visitors a year, which is the number it expects to reach by the end of 2006, having surpassed the million mark in the first six months. The company is also in the process of upgrading its after sales service at an investment of between $600,000 and $700,000, which includes the building of a new customer services center. These investments come against the backdrop of consistent sales growth since the opening of its store in Poleg Junction, south of Netanya, in 1999. Since then, over 11.5 million visitors have been to the store. For the first half of 2006, the Matthew Bronfman-owned business reported sales of NIS 193 million, representing growth of 8.4% over the parallel period last year - this after a growth of 12.7% growth in 2005 when the wider market grew 4.5%, Gabai added. Furniture sales made up 60% of the six-month revenue, while the remaining 40% came from household accessories. The biggest growth product so far this year has been the range of leather couches, which increased by 37% over the January to June period from year-ago levels. The most notable trend product for the company has been the 8% rise in kitchen accessories sales. Gabai stressed, however, that the 6.3% increase in spending by the average trolley during the year has been the most encouraging statistic for Ikea. "This shows us that Israelis have grown accustomed to the concept that we bring to the market," he said. The company attributes much of its success to the launch of its new catalog each September, which this year will be sent to some 1 million households countrywide between August 31 and September 20. Launched in Israel at an investment of NIS 9 million, the catalog features 2,877 of the 7,139 products the store has on display, of which approximately one-third are part of its new range. It also includes a NIS 100 coupon valid for purchases of over NIS 1,000 made through September. The catalog also commits the company to set prices for the 12 months ahead and consumers will be pleased to know that these are an average 2% lower than in last year's portfolio despite the 1.7% rise in the euro, which Ikea Israel uses to buy its products. Of its existing products, Ikea said 42%, or 3,012 items stayed at around the same price, while prices dropped for 22%, or 1,598 products. Just 513 products are priced higher than last year. Aimed at giving "solutions for a better life," the '07 edition focuses on four living areas - the living room, bedroom kitchen and children's room. "Our research showed that the way of living has changed especially with the media entering more rooms in the house," Gabai explained. "We have tried to give ideas to people on how to improve their quality of life - to be more together at home." The catalog forms Ikea's premium advertising campaign for the year in line with the company's global policy, as it is being distributed in 35 different countries in 27 languages with some 175 million copies having been printed worldwide. While Israel shares the same catalog as 11 other countries - Turkey , Greece , Iceland and Taiwan among them - Gabai noted that purchasing patterns in different countries were minimal when choosing what to include. "We believe that people have the same needs all over the world, no matter where they are, with some differences," he said. In Israel , he noted by way of example, families tend to eat communal dinners more frequently than in Europe and therefore like bigger dining room tables. The Jewish kitchen also has certain needs, he added. Ikea is confident it has produced a catalog that will set the tone for continued success. "This is our catalog and the year we have ahead of us. We go into it with great expectation and forecasts for a successful year," Gabai said. "With this, we are building and working towards our second store."