Ikea plots organizational overhaul to improve agility

Dive Brief:

Swedish furniture retailer Ikea plans to revamp its organizational structure, breaking into smaller entities in order to become more agile and competitive, Reuters reports. The move was outlined last year and first considered in late 2014, Reuters adds.
Ikea Group, which operates 290 stores worldwide, is owned by parent company Ingka Holding, based in Leiden, Netherlands. But Ingka Holding in turn is owned by the nonprofit Stichting Ingka Foundation, an arrangement viewed in many quarters as a means to allow Ikea to avoid paying taxes. The Ikea trademark and concept is owned by yet another private company, Inter Ikea Systems.
The plan is for Ingka to sell its design, manufacturing and logistics subsidiaries to Inter Ikea, but maintain operations of Ikea stores.

Dive Insight:

If the plan to break up Ikea sounds convoluted, it is, in part because the home furnishings retailer is working from an already complicated structure.

The setup has allowed the company (or companies, plus a nonprofit) to maximize revenue without paying much in taxes. Involving tax-exempt entities in the mix has allowed Ingka to operate for years at a margin of 14%. Inter Ikea's margins have been even higher, according to Reuters, which notes that supermarkets and other do-it-yourself retailers have margins under 5%, compared to Amazon at under 2%.

But while margins have been high, Ikea's labyrinthine structure may also have hampered its ability to compete in a world of intense retail competition requiring speed and agility. That competition includes robust e-commerce, which increasingly includes furniture and other home goods from upstarts and legacy retailers as well as Amazon.

"We have been a little bit protected in the home furnishing business, in margin pressure in my view, if I compare with supermarkets or do it yourself businesses," Torbjorn Loof, CEO of Inter Ikea Systems (which, in the new setup, will focus on jump-starting Ikea’s lagging e-commerce efforts) told Reuters.

In an interview with CNBC last fall, Ikea CEO Peter Agnefjäll said that the retailer arrived late to e-commerce. For years, it eschewed digital sales and deliveries, focusing instead on physical stores and its print catalog.

Now, Ikea plans to increase e-commerce to achieve a sustained overall growth rate of 10% per year. The company wants to double overall sales by 2020.