retail management opening an ikea retail store in ho chi minh city

Firstly, with the business idea “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”

Vietnam National University – Ho Chi Minh City International University

SCHOOL OF INDUSTRIAL ENGINEERING & MANAGEMENT

RETAIL MANAGEMENT GROUP 02

OPENING AN IKEA RETAIL STORE IN HO CHI MINH CITY

Lecturer: M.Sc Nguyễn Hoàng Huy

III LOCATION ANALYSIS 7

1 The IKEA’s Competitor in Ho Chi Minh City 7

2 The IKEA’s Location 8

a) Huff’s Gravity Model 9

b) Analysis the IKEA’s Location 13

IV RETAILING CHANNELS 13

6 Frequent Shopper Program 22

VII MARKETING COMMUNICATION MIX 22

1 Type of Paid Advertisement 22

2 Types of Unpaid Advertisement 24

3 Cooperative Advertisements 26

4 Types of Sale Promotion 27

VIII CUSTOMER SERVICES 29

1 IKEA’s Current Customer Services 29

1.1 Customer Service Center 30

1.2 Using data to create the best product and services for IKEA’s customers 31

1.3 Return Policy 32

1.4 Gift Services 32

2 Renovation 32

2.1 Customer Centric Return 32

2.2 Innovation in customer experience 32

2.3 Set Specific Goal 33

2.4 Build a core team 33

IX STORE LAYOUT AND DESIGN 33

1 Store Design Objective 33

2 Criteria for New Store 34

I.PROPOSE RETAIL TYPE 1 Retail Type

IKEA, a Swedish home furnishings retailer, has been operating in international markets since 1973 in Switzerland IKEA now has a big number of stores in 37 countries and is expanding in a number of locations, including Asia, where the brand has only been present for a decade IKEA welcomes more than 706 million customers each year to its 378 shops In FY20, their website IKEA.com received over 3.6 billion visits With IKEA stores in many countries – and more on the way as they expand into new markets – retail is their primary business

We advocated that IKEA be chosen to develop a plan for the company's first retail store in Vietnam A specialty retail store is defined as a type of retail establishment The breadth of a company's product offering, not the product it sells, decides if it is a specialist store A specialty store is one that is regarded as an expert in a specific type of product

2 Why IKEA?

Firstly, with the business idea “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” of IKEA, it is very suitable for Vietnamese requirements about a modern - smart home Customers can easily find all the quality, nice and intelligent furniture for rearranging their house at IKEA which does not cost too much money like other luxury brands

Secondly, IKEA has a huge distribution channel which they can ensure that all customers obtain accurate products in time with the best quality Moreover, under all conditions, the flow of goods must be as efficient as possible, ensuring that the products that customers seek are always accessible for purchase Therefore, they can come to IKEA to shop anywhere at any time they want without a fear of running out of stock

Lastly, the number of visitors to IKEA's website is rapidly expanding, resulting in a favorable impact on the company It is ideal for clients who do not have enough time to visit an IKEA store but prefer to purchase from the furniture of their own home Furthermore, the online environment and shipping technique help clients feel more at ease when purchasing, allowing them to purchase more items for their homes

IKEA has the potential to become a major player in the retail industry Moreover, with a company like IKEA known for its innovative approaches to modern clients, there is a good chance that this company will flourish in this new field

3 Products Sold

Coming to IKEA, customers will experience shopping with a variety and assortment of merchandise Each IKEA store carries around 10000 products in various categories and designs such as many different types of home decoration (plants, pictures, carpets, etc including RENS sheepskin carpet, which is the best seller in IKEA), a lot of smartly

designed-furniture (beds, bookcases, tables, chairs, ), which Billy Bookcase is one of the most popular products, and several DIY goods that can help clients decorate their home in their own style by themselves

1 Customer Definition 1.1.Age

IKEA’s target consumers are people between the ages of 20 to 34 as of 202 This age combined with their salary bracket are most concerned with buying stylish, contemporary, quality furniture at the best price possible, which is precisely the type of furniture IKEA sells According to analytics, after people reach the age of 34, the numbers shopping at IKEA drop off dramatically Because of the contemporary designs of their furniture and the low prices they offer, it is feasible for IKEA to attract the younger consumer This age bracket is turning to their maturity period, so they tend to tighten their budget as they move into their apartment or home Furthermore, for some who like to move house frequently, IKEA is still an optimal choice because of the aforementioned reasons Another aspect due to the target in the customer’s age is that IKEA can offer the furniture designs this age of consumers is looking for at prices their competitors cannot beat

1.2.Gender

The figures are quite evenly split when it comes to which gender shops at IKEA more frequently In terms of which gender is faster at putting IKEA furniture together, males are on average faster than females In addition, both men and women shop for furnishings in comparable places Men, on the other hand, are more likely than women to shop at retailers that encourage a do-it-yourself approach to furniture and home design, such as Home Depot and Lowes

1.3.Income Level

IKEA's major target market is the worldwide middle-class customer (with an income ranging from $35k to $80k) Because they work hard and spend their money on high-quality products, people in this pay bracket seek to get the most bang for their buck Consumers in the middle class are looking for high-quality furniture at a reasonable price Furthermore, this group is ready to pay a bit extra for furniture that will last for a long time The company's ability to develop and establish a global presence is due to IKEA's cheap prices on fashionable furniture

1.4.Marital Status

The business strategy of IKEA targets two main marital status: single living with other significance and married and starting a family In particular, they are loyal to brands (including TV brands) that match the way they consume entertainment In such cases, they do not base all their decisions on cost, they can be extremely brand particular Moreover, they

are loyal to brands that communicate the importance they place on form and function— form and function that reflects their values

2 Trade Area 2.1.Accessibility

The store is closed to businesses, schools, residences, which can provide customers from a wide range of segmentation with a high level of accessibility In addition, we have to consider some natural and man-made barriers to make it easy for customers to enter and exit the site Besides, we can utilize a few benefits to make better availability, for example, close to transport stopping, …

2.2.Natural and Physical Obstacles

Choose a place where there are few natural and physical obstructions to make it easier to recognize the store's presence whenever they have a request and reach it from multiple directions

2.3.Store Type

A specialty store that supplies IKEA products

2.4.The essence of goods, assortment, alternative source locations for items

IKEA products refer to all life-related products used in people's daily life, including furniture and daily necessities Different consumer groups have different needs for household products thanks to the various aesthetic methods and consumption concepts This also

requires market positioning within the home design process, so as to draw in more consumers Since its inception, IKEA furniture has been dedicated to designing and

producing exquisite and sturdy low-priced products to fulfill the wants of the public for home consumption

2.5.Competition

The new stores will be located in a highly competitive location in the furniture business However, we have enough reason to choose that place as favorable for the IKEA store Firstly, IKEA’s brand value is a good reason to attract a large number of customers who passionate about DIY products Secondly, besides trading and producing specialty products, IKEA store also offer other personal services that other stores do not have, such as a small food court, which ensures customers can shop comfortably Finally, with product prices at IKEA lower than rival stores, it is a strength to attract customers in the age group of 20 to 40 who make up the majority of the Ho Chi Minh City population

In conclusion, according to the factors mentioned above, the size of trade area is relatively large which in 3 km from 50 to 70 percent of customers Moreover, the optional exchanging region will be within 5 km generating about 20 to 30 percent of site customer and the furthest region includes remaining customers

III.LOCATION ANALYSIS

1 The IKEA’s Competitor in Ho Chi Minh City

Due to the fact that the IKEA store is the first retail store in Vietnam, we will use information about location conditions of Nha Xinh store in order to have the optimal selection for the IKEA’s location in Ho Chi Minh City The main reason for choosing Nha Xinh store is its similar business model to IKEA Nha Xinh infrastructure stores is mainly located in Hanoi and Ho Chi Minh City:

❖ In Hanoi:

• Nha Xinh store F4 Tower, Cau Giay District • Nha Xinh store Sun Plaza, Tay Ho District • Nha Xinh store Vincom Center, Dong Da District

❖ In Ho Chi Minh City:

• Nha Xinh store Thao Dien, District 2 • Nha Xinh store Phu My Hung, District 7 • Nha Xinh store Hai Ba Trung, District 3

We will consider the site in Ho Chi Minh City, there are three sites that Nha Xinh store is located in the table below:

District 2 Hai Ba Trung District 3 Phu My Hung District 7 Traffic

connection

Convenient for highways Located right in the center of the residential area Quick connection to the city center

Quick connection to the shopping center and residential area

Located right in the center of the residential area Quick connection to the shopping center

Infrastructure It is always invested and

being developed rapidly

It has been and is being developed rapidly

Large-scale shopping center with high-end estate projects

Residential

Target Market District 2 and Binh Thanh

District

District 1 and District 3

District 7 and in 10 km radius of surrounding area

standards due to their high earnings

living standards due to their high earnings

Surrounding Luxury Residences ( Thao Dien Residence, Holm Residence )

Located at the

center of city High-class metropolis Phu My Hung

Table 1 Analysis of three Nha Xinh stores

2 The IKEA’s Location

When choosing the site for a store, we always have a number of considerations, including visibility, affordability and lease terms There are three aspects to consider while choosing the optimal site for a new shop The first step is to choose a city Second, the location of a city's region or type of site should be examined The final step is to choose a specific location Many factors must be evaluated throughout each phase:

• The trade area's sales and traffic growth possibilities Third phase:

• The flow of traffic

• Neighboring stores' complementary character • Parking availability

• The site’s price

• Competitor vulnerability

Based on the above reasons, Song Hanh Street and Quoc Huong Street are being evaluated for the store’s location

a) Huff’s Gravity Model

The Huff’s mathematical model for location calculation: 𝑃𝑖𝑗 =

Where:

Pij = Probability of a customer at a given point of origin i traveling to a particular store j Sj = Size of the store j

Tij= Travel time or distance from customer’s starting point to the store j

 = An exponent to Tij that reflects the effect of travel time on different kinds of shopping trips

In this case, we assume the exponent to Tij is  = 3 Therefore, we form a distance matrix for store location:

Distance

(km) Hai Ba Trung highway Hanoi

Ton Dat Tien

Dist

1 Dist 2 Dist 3 Dist 7 Hanh Song Huong Quoc Hai Ba

Table 2 Distance matrix for the current network

❖ Song Hanh Street:

District 1 Distance

0.03648483 Hanoi

District 7 Distance

0.007652 Hanoi

Determine the market size of district 1, district 2, , district 3, district 7:

The market size is defined as the number of sales or potential customers to the business by looking up the sales number Observing and researching the market is extremely important for operating the business Assuming that customers are willing to pay 4 million VND to shop at IKEA Furniture and housing stuff is quite expensive, and the shelf-life is long, so people paying at least 8 million is reasonable These are 4 districts in Ho Chi Minh city which have the most considerable demand for furniture consumption

District 1 is the place which has mostly customers buying furniture not only for houses, but also hotels, restaurants, and so on Consequently, the furniture market size of district 1 is the largest District 2 and 7 are the places that witness the development of properties such as apartments, Vinhome Beside the heavy furniture like sofa, wardrobe, people have demanded some small stuff for decoration District 3 has a smaller market size than three previous districts, but it is still noticeable

The table below presents the market size:

Market size (billion VND)

Table 3 The market size of Dist.1, Dist.2, Dist.3, Dist.7

The expected annual sales of each IKEA’s store are evaluated based on below formular: ∑ 𝑃𝑖𝑗 × 𝑀𝑎𝑟𝑘𝑒𝑡 𝑠𝑖𝑧𝑒(𝑖)

𝑛𝑖=1

The expected annual sales (billion VND)

Quoc Huong Street 888.137208

Table 4 The expected annual sales of two IKEA's stores

Therefore, the store on Song Hanh street in District 2 should be opened for better profit

b) Analysis the IKEA’s Location

Without a question, retail location is one of the most significant aspects of retailing The first reason is obvious: clients are more likely to prefer the location that is nearest to their home or workplace Second, store location is an important option since it may be used to boost maintainable benefit in order to compete with competitors The better a retailer's location, the more appealing it is to its customers Third, location selections are extremely risky When deciding on a new site, retailers must consider not only the significant cash required to invest in and develop the real estate, but also the long-term lease with developers

In the case of IKEA, the objective aims to speed the development of new stores abroad and reinforce the company's position as a worldwide brand The strategy for growth and development may vary from country to country However, the business adheres to the idea of reflecting each country's capital With the success of its existing locations throughout the world, IKEA is anticipated to expand its operation by building more new stores Vietnam is one of the prospective markets that the company is targeting

The brand awareness was significantly high since it will be the first store opened in Vietnam, especially in Saigon There are many places where most of the target customers are concentrated in Saigon According to the data above, there are a large number of sites in Ho Chi Minh City However, we have a strategy to build up separate stores or in office buildings Particularly, we constructed separate stores with a large total area and a large parking lot mostly in large streets of central districts Furthermore, have strong visibility by constructing stores in areas that might draw a significant number of people The locations have good visibility as well because of building up stores in places which can attract a large group of people Furthermore, consumers who go shopping will be able to come across their stores due to their interior needs for convenience and time saving Consequently, choosing to build up separate store on Song Hanh street, District 2 is our decision

IKEA, a world’s leading home furnishing multichannel retailer, has many capabilities in in-store and online shopping that get the customer satisfaction and purchase intention Until now, IKEA has already collaborated with over 150 families to design the bedrooms of their

dreams To inspire others with their own stories, IKEA organized family events in-store and continued the conversation online with how-to videos from our interior designers It even published IKEA Extra, a little magazine that detailed how people might implement the ideas in their own homes, regardless of their financial situation

However, in recent years, IKEA has gradually transformed its business strategy from multichannel to omnichannel (a combination of online channels and physical stores) in response to make a positive impact on the regional economy through accessibility, affordability, and customer and community engagement Customers who previously shop online or in-store are increasingly checking online or through an app before going to the store to see for themselves, then purchasing there or later online Additionally, IKEA is using AI to forecast its fulfillment and capacity needs to avoid big investment in customer distribution centers since IKEA’s stores play a completely different role in this omni-world Moreover, IKEA builds its brand positioning as a private furniture brand in which its products are solely offered in their own stores or websites and are not available through any other outlets

We also create a comparison table analyzing the advantages and disadvantages of IKEA's pre-applied physical store channel and Internet channel in order to make an accurate and appropriate decision for the Vietnamese market

Advantages

- The interaction and consultation between store’s staff and customers are satisfied effectively Moreover, IKEA operates as a pop-up store, so customers can practically experience the arrangement of furniture in each different area of the house.

- And to retain customers, IKEA stores also provide entertainment services such as food trucks, and the arrangement of furniture in each different area of the house.- And to retain customers, IKEA stores also provide entertainment services such as food trucks, and kids play areas that families can shop all day at the store.

- As a result, customers will be more satisfied in making purchasing decisions, and choosing IKEA as their next shopping destination.

- Because of in-house services like IKEA Picking & Delivery, IKEA Delivery, and IKEA Assembly, IKEA online outperforms its offline counterpart Although not exclusively for that purpose, they have all been designed to allow you to shop from the comfort of your own home

- The IKEA application allows you to virtually arrange IKEA furniture in your home to see how it looks and fits in the available space To use this function, scan selected pages from the printed catalogue using the IKEA app (available for iOS and Android) or browse the digital catalogue pages on your smartphone or tablet Place the physical copy of the catalogue where you want the furniture to go in your room, pick a product from the IKEA range, and wait for the magic to happen.

Disadvantages

- The consumers have to go to the store directly even though it is far away from their places It is especially inconvenient in today’s COVID-19 pandemic situation

- Customers may easily find more inspiration about furniture’s designs on its websites before online creating their own products And they can purchase them online rather than going to the store Moreover, because of the large size of physical stores, it will waste the customer’s time if they just want to buy quickly

- IKEA is such a large company that it is unlikely that they will be able to deliver your furniture the next day, despite whatever big statements you may hear and read

- The IKEA products are produced to be simple to assemble so that customers can do it by themselves, but if customers cannot or do not want to do it, IKEA will provide Assembly Service partners for helping However, the extra cost of assembling flat packs at IKEA will be another impediment for online customers

Table 5 Advantages and Disadvantages of IKEA's Multi-Channel

According to the above analysis, IKEA should offer both a store channel and Internet channel in the Vietnam market to attract more customers and provide more convenient conditions for customers For a physical store, it will appeal to customers who have children and have more time shopping IKEA’s website will attract the ones who are living in other cities and prefer to search for more specific information about the products before purchasing Moreover, IKEA should collaborate with smaller operations that provide similar services to the home furnishings retailer in Vietnam, usually at a lower cost and with far greater customer care to support in quick and efficient assembly Last but not least, IKEA should open an official store on the apps or websites of E-commerce companies that can help to extend the market, attract customers, and collaborate with such e-commerce organizations in order to arrange and deliver products to customers.

1 Buying Organization

Figure 1 Merchandise Classification and Organization

Figure 1 shows the merchandising division's organizational structure for the new IKEA retail store The merchandise group is the highest level Living room, Kitchen & appliances, and Bedroom are the three merchandise groups on the organization chart A senior vice president oversees each of the three merchandise segments The department is the second level of the goods classification scheme Each senior vice president is in charge of a number of different departments The one for furniture, for example, takes judgments on how product inventory is maintained in four departments: sofas & sectionals, lamps, tables & desks, and shelving units with bookshelves The classification is the third level of organization for managing merchandise The next step down in the classification structure is categories Each buyer is in charge of a number of different product categories A stock-keeping unit (SKU) is the lowest inventory-control unit possible An SKU is, for example, a top-selling desk named PAHL, white, size 50 3/8x22 7/8

2 Product Strategy

IKEA’s vision can be described as creating a better everyday life for many people Providing various range, well-designed and functional housing products despite the low price

to be affordable for many people is the iconic image that IKEA wants customers to know about the brand IKEA’s logo is the most signature one that people relate to when they mention IKEA To clarify IKEA marketing strategy, this brand is so original, distinctive, and iconic even though it maintains a clear value proportion

The prices of IKEA products are cheaper than other brands For instance, IKEA sells the couches and armchairs under $500 while the other brands like Crate & Barrel sell approximately $900 One of the reasons IKEA is cheap is because they apply the distinctive method to sell goods In 1956, IKEA founder Ingvar Kamprad introduced the “flat packing” which means customers will assemble the products by themselves Beside that, customers tend to feel accomplished after investing time and effort to construct home furniture, which makes people want to buy more at IKEA

Moreover, IKEA chooses materials that meet environmental protection by using recycled elements To reduce the amount of cotton used for bedding products, IKEA strategy is to mix 50% cotton with 50% lyocell fiber These components not only make the fabric comfortable but also reduce the chemical waste by recycling while producing, which will decrease pollution

Last but not least, IKEA product design is one of the important points that make people interested in its housing products Most IKEA goods are based on minimalism style, they are simple in both characteristic and shape As a result, people can decorate their house easily and can brainstorm some creative ways to decorate with simple style furniture Simple design but good quality products, IKEA is successful in product strategy

Ikea's vision strategy propelled them to the top of the global furniture market "Perhaps no other retailer on the planet has moved its basic model into so many places with so much success," said analyst Warren Shoulberg on industry website The Robin Report The furniture retailer operates 298 locations in 26 countries and generates $36 billion in annual sales IKEA's marketing mix includes a diverse product catalog that caters to various types of furnishings as well as financial resources IKEA sells a variety of items, including:

Storage & Organization: TV & media furniture, shelving units, bookcases & storage options, display & storage cabinets, dressers & storage drawers, wall shelves & hooks, sideboards, buffets & sofa tables, armoires & wardrobes, storage solution systems, clothes organizers, storage containers, …

Home Décor: plant pots & stands, vases & bowls, decorative accessories, candle holders & candles, plants & flowers, wall décor, mirrors, clocks, noticeboards, memo boards, & bulletin boards, storage boxes & baskets, home fragrance & diffusers, …

Baby & Kids: nursing, feeding & eating, kids’ storage & organization, kids lightning, baby textiles, baby toys, cribs & crib mattresses, changing, bathing & potty, kid furniture, …

Lighting: lamps & light fixtures, LED Light bulbs, smart lighting, decorative lighting, integrated lighting, outdoor lighting, bathroom lighting, …

All of their items have a distinct modern appearance that is current and appealing to the teenage demographic IKEA has a range of offerings for various events, as well as a section on their website dedicated to collections that might be given as gifts throughout the holidays This also aids in the acquisition of new customers

The notable product from the IKEA store that is suitable for home space in the table shown below, it includes 2 varieties For each kind, there are 4 SKUs (2 colors x 2 sizes)

Desk for

Table 6 Assortment Plan for PÂHL Desks

Figure 2 People take a rest at the sitting area packed with IKEA's PÂHL desks

1 Pricing Background

Pricing strategies decide the value business set for their items The price can be set to boost benefit for every unit sold from the market It can likewise be utilized to protect a current market from new contestants, to expand a portion of the overall industry inside a market or to enter another market Estimating methodologies can carry both upper hands and inconveniences to its firm and frequently direct the achievement or disappointment of a business; subsequently, it is essential to pick the appropriate methodology A business can utilize an assortment of valuing procedures when selling an item or service To decide the best estimating system for an organization, top managers need to initially distinguish the organization's assessment position, value segmentation, estimated capacity and their estimated response technique In this section, IKEA's pricing policy will be inspected, in every part, pricing technique, answers for rivalry among existing furniture stores and how it keeps retaining clients

2 Pricing Strategy

IKEA, the world’s biggest furnishings retailer, is understood for presenting excessive value in phrases of innovative designs, more than one functionalities with a quite low price It has been capable of stake out a completely unique valuable strategic position for itself by carrying out some of the following activities from its rivals Shoppers love IKEA because of how affordable furniture is IKEA sells couches, armchairs, and tables for about half of what competitors do According to Business Insider, people can buy a couch for under $500 at IKEA However, at other stores that specialize in home furnishings, like Pottery Barn or Crate & Barrel, couches typically cost at least $900, if not more Obviously, IKEA is assumed to

apply the Everyday Low Price strategy, which is defined as selling between the regular sale price and the deep-discount sale price The secrets of low price products at IKEA are that firstly, they decide the cost value they want to sell a product at before determining the actual specifics of the product, such as the materials Secondly, this is the key point that makes IKEA a phenomenon, they propose the flat packing of furniture Flat packing not only makes products easy to ship but also reduces the price because of cutting down the cost of assembling Customers of IKEA need to make the trade offs for affordable furniture that involves assembling products by themselves

non-3 Pricing Competition

Along with a decent pricing strategy, convincing advancements and offers should be delivered to improve the competitive limit of the retailers IKEA, as going up against other furniture stores, additionally presents different value prices for their clients

Successive deals at unequaled of the year, with direct discounts on the item costs, not just furniture but different items also

Figure 3 Discount Strategy

Coupons for charges that meet a few terms

Figure 4 Coupons Strategy