Published on 08/06/2016 by Punchmedia

Furniture Giant Ikea to Go Online

Fighting for a space in an Ikea car park on the weekend and navigating its maze-like stores may soon become a thing of the past with the major retailer to start testing an online retail store in Australia by the end of calendar 2016. Ikea Australia will establish an online portal within the next six months and start testing different fulfilment models in several urban locations, including a small format IKEA store and pickup point, an unbranded pick-up point and a third-party depot similar to one already operating in Tasmania. Country managing director David Hood believes the online store could eventually become Ikea's largest outlet in Australia, where sales will rise around 20 per cent this year, passing the $1 billion mark for the first time. Furniture retail industry revenue in Australia is expected to rise by an annualised 2.3% during the period through 2015-16. As industry goods are sold at the retail level, consumer demand is the primary driver of sales. Over the past five years, volatile consumer sentiment and housing construction activity have heavily influenced demand, despite growth in household discretionary incomes. In 2015-16, industry revenue is forecast to grow by 2.3% to reach $7.9 billion, as lower interest rates provide consumers with greater discretionary income and make purchasing furniture through finance more attractive.

Operating Landscape

Interest rates in Australia have declined over much of the past five-year period. This has worked in the industry's favour as lower interest rates translate to lower household debt repayments, leaving consumers with more discretionary income for furniture purchases. The appreciating Australian dollar between 2010-11 and 2012-13 reduced the price of imported furniture, making industry products more affordable for retailers and consumers. Increasing industry revenue reflects a general fall in the price of industry goods causing a proportionately greater increase in sales volumes during the period. Much of the industry's revenue growth over the past five years can therefore be attributed to improved consumer purchasing power. Residential construction activity has fluctuated substantially over the past five years and strongly influenced industry revenue. During 2013-14 and 2014-15, a surge in residential property development amplified the volume of industry sales, with industry revenue growing by 3.2% and 9.8% respectively. A projected slowdown in revenue growth during 2015-16 is largely due to an anticipated downturn in multi-unit apartment construction amid growing fears of oversupply.

Profit and Competition

Furniture retailers have been subject to increased competition from both internal and external sources. Internally, retailers compete against one another on the basis of price, product range and quality. Externally, operators are subject to competition from department stores and online-only retailers. Pure-play online furniture retailers are mainly viewed as a threat to operators at the lower end of the market. Operators catering to the mid-range and upper end of furniture markets are largely immune to this threat, due to the luxury associated with their products, some of which entail a high degree of customisation. Given the high durability of industry goods, consumers are increasingly using auction websites to purchase used furniture, despite limited scope for inspection prior to purchase. With the operating landscape growing more competitive, industry operators have incurred greater costs to retain market shares. These costs have come through increased marketing expenses and costs derived from expanding their presence online, further narrowing industry profit margins.  

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Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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