Dive Brief:

• Ikea routed more than half of its order fulfillment through its stores rather than customer distribution centers in 2021, its franchisee, Ingka Group, reported in a blog post. It plans to continue the practice in 2022 to improve lead times and make delivery more sustainable.
• "Last financial year we saw a big increase in total volumes fulfilled, and 51% of total volume was fulfilled from stores, an increase from 43% the previous year," said Tolga Öncü, retail operations manager at Ingka Group, in the company blog post.
• To further accommodate the shift, Ikea plans to launch more than twice as many store fulfillment automation projects in 2022 compared to 2021. The Sweden-based furniture retailer said it made more than $3.5 billion in investments in its physical and online operations last year.

Dive Insight:

Ikea is seeking to improve its e-commerce capabilities after struggling to adapt to the surge in orders at the beginning of the pandemic.

Ikea upgraded its physical stores in addition to its distribution and customer fulfillment networks as it pursues an omnichannel transformation. But significant transport and raw material constraints continue to drive up costs, "with no anticipated break in the foreseeable future," Ingka Group said.

Inter Ikea Group, the Ikea franchisor, absorbed an estimated $280 million in supply chain-related costs in fiscal year 2021 and expects to take on more related costs in 2022.

Large retailers have turned to operational investments to mitigate high transportation costs. Big Lots and Arhaus, for example, invested in their fulfillment operations after Vietnam factory shutdowns and other disruptions battered the furniture retail industry.

Ikea plans to launch 80 projects using robotics, automation and drones for fulfillment in stores, compared to 32 such projects in fiscal year 2021, the company said. It expects to open more stores and expand its click-and-collect service, which costs Ikea about one-fifth as much as home delivery. The company did not provide specific estimates for improved lead times or delivery sustainability.

"We'll open 30 new customer meeting points in various formats in this financial year, from the traditional stores with the full experience to planning studios and inner city stores with same day delivery," Öncü said.