Fredrik C. Johansson deep dives into the retail innovation that drives IKEA’s success in Korea with Alex Jensen.
Fredrik and Alex discuss the entrepreneurial spirit that he loves at IKEA and that drives the company to innovate in all aspects of their business. Not only adding retail e-commerce to the brick-and-mortar stores, but also ensuring that the human contact remains with online shopping with the human remote sales teams.
Alex and Fredrik discuss how the pandemic forced IKEA to rethink both its supply chains and its retail spaces, how would they cope with such a massive drop in available containers? How would they cope with strict limits on in-store visitors to the retail outlets?
Fredrik also discusses the impact of changing demographics have had on the IKEA business retail model. How would IKEA adapt from serving the family with kids model, to a country where 40% of people live alone as well as the extra factor of more and more elderly people living alone?
IKEA is a company that takes sustainability seriously, from the flat pack strategy, which reduces their supply chain carbon footprint, to the renewable and recyclable materials used in 70% of their products, to the 2030 goal of being a climate positive company.
Fredrik also looks to the future, expressing IKEA’s desire to use or purchase green energy where it can, a challenge in Korea, still very much a coal-dependent country.
The interview wraps up looking at the fair trade aspects of the business model, how IKEA ensures that its suppliers, and sub suppliers receive a fair slice of the pie.
Today’s episode was brought to you by The Four Seasons Seoul, stylish elegance in the very heart of Seoul.
Retail innovation is key to the outstanding success of IKEA Korea.
Today we talk retail, and IKEA’s continual push for innovation.
Alex Jensen: You’re listening to Koreabizcast with the KBLA. I’m Alex Jensen. And it’s Friday, October 29th
Now, it’s not just COVID-19 that’s having a profound impact on life and doing business in Korea. We’re also seeing some serious demographic changes. For instance, you’ve probably heard we’re a fast-aging society, but did you know that as of last month, the percentage of single person households surpassed 40% For the first time, according to government data, for a business such as IKEA, that’s surely going to affect demand for home furnishings and what types of products people want.
But then factors like region matter to today we can address this and more with the man steering IKEA in this country. This latest episode is brought to you by the Four Seasons Hotel Seoul, stylish elegance in the very heart of the city.
Alex Jensen: So then, we have a standing by IKEA Korea CEO Fredrik Johansson, thank you so much for joining us.
Fredrik Johansson: Thank you very much for having me.
Alex Jensen: And what’s nearly last couple of years it’s been Can you give us an overview of your pandemic business environment just to set us up here?
Fredrik Johansson: Now the pandemic has been there certainly very, very challenging to us. I mean, when it first hit, we had no clue what would come out of it. And we had no clue how long it would last. But overall, we can say that in the very beginning of the pandemic, people focused a lot on their homes and the needs were sky high, because people realize that the home is no longer a place only to eat and do a few things.
But it’s also a movie theater, it’s homeschool, it’s working from home and lots of things. Then later on, as time passed, people started focusing on other things, and there was also a little bit of COVID fatigue and so on.
And so, it has been ups and downs along the way. We have also had some challenges with our supply chain, especially between Europe and Asia when it comes to transport so availability of containers and so on. But all in all, we have tried to stay agile and to really look into the biggest needs that people had at any certain time and to meet those needs.
Alex Jensen: And just for clarification, when did you first come to Korea?
Fredrik Johansson: The first time I came to Korea was in 1995 as an exchange student, but I moved here 4 years ago to work here for IKEA.
Alex Jensen: You know, I love hearing from people who experienced that huge gap. There’s a few people I’ve met in that situation. I never came here until I actually moved here, which was in 2010.
So, I didn’t get 1990’s Korea, I witnessed the 88 Olympics from afar. And then the World Cup a few years later, how big a gap, do you see in public life and your own personal experience of Korea in that time
I mean, I loved it in the 90s and I love it now. One reason for that might be actually that when I came as an exchange student, I met my wife to be here at University in Korea.
Fredrik Johansson: It’s a very big gap is basically a different country. I mean, I loved it in the 90s and I love it now. One reason for that might be actually that when I came as an exchange student, I met my wife to be here at University in Korea.
So, when coming back 4 years ago, we came back with two teenagers, a Korean wife that hadn’t lived in Korea for 20 years. She had been touring the world with me. But it’s still amazing to be here and great that we were able to bring the two kids and let them connect with one of their home countries.
Alex Jensen: Yeah. And so, these days, how are you enjoying life here? personally, again, I mean, the work life must be pretty busy. But there is this emphasis on work life balance these days. Do you get that just about right?
Fredrik Johansson: I believe so. I mean, as you say, there’s a lot to do. I think most people have enough to do certainly. But I think also Seoul offers so much from a private point of view too, I mean, with my dog, I just love to walk along the Han River. There are so many parks here and we of course have family in Korea that we love to visit the district to explore the country. So, I think we really try our best to make sure that we have a good balance to be able to enjoy life in Korea on top of the work life that is.
Alex Jensen: One great thing about having dogs in Korea, it forces you to go out and have some interesting walks, which I’ve done a lot by the Han River as well. By the way, I hope my dogs haven’t terrorized yours without me knowing that. Professionally, what was it about this challenge that also really excited you 4 years ago?
Fredrik Johansson: What excited me was the entrepreneurial spirit behind it because we are still fairly new in Korea. I mean, we opened the first store 7 years ago now coming up to 7 years. So, when I came, we had only one store here and we had no ecommerce channel.
And the vision is to create the better every life for the many people. And you can’t do that in a country of 50 plus million, if you have only one store, you need to expand physically, but you also need to make yourself available online.
So how do we truly penetrate the market to make sure that we also can live up to the vision here much better. And the vision is to create the better every life for the many people. And you can’t do that in a country of 50 plus million, if you have only one store, you need to expand physically, but you also need to make yourself available online. And that is ecommerce, but it’s also with remote, human remote sales and so on. So, you have to find ways to really help the many people to have a better home. And that I felt was extremely challenging and in a positive sense, to be part of that journey to open up IKEA to the country and the country to IKEA and help as many people as possible.
Alex Jensen: Well, I remember coming here in 2010, and needing some furniture pretty quickly and not really knowing where to turn, when you go to department stores here, the furniture they have on show can be extremely expensive. You have to kind of know where to look, in other words, to get local furniture at a decent price. But there was definitely demand for IKEA products back in 2010.
Even though there were no official stores here, you could kind of access them online, there was that then swell of demand when you finally opened it up? What was it about IKEA thing that resonated so strongly with Koreans then and perhaps now still?
Fredrik Johansson: I would like to think that it starts with the fact that we are a purpose driven company, I mean, we are still owned by foundation. So, it’s not a profit maximizing company, we really try to be a good neighbor, we try to do as well as we can.
But I think one of the main things is certainly our design that we have a very distinct design at the Scandinavian design that is, and that it’s also affordable, and that people know that it’s not again, about maximizing profit is about reaching as many people as we can. and whatever profit we make, we actually put into expanding further.
And on top of this, for this affordable price, you get something of good design, but also the quality that lasts and that will age beautifully. I think that is certainly some of the things, then you also have lots of Koreans that have spent time abroad and they have been acquainted then with IKEA and I think that just wanted to have IKEA back home as well.
Alex Jensen: So, you mentioned you had one store when you arrived, you now have this is my calculation, correct me if I’m wrong three stores in Gyeonggi Province, another one fairly recently in Busan and you’ve also got an IKEA lab in Seoul, and you’ve got planning studios, can you talk us through that lineup?
Fredrik Johansson: Now you’re right with your accounting there is more than in the past IKEA used to be quite a single mind that I would say I mean, we had our big blue and yellow boxes, somewhere in potato fields, where you had access by car and so on and if you wanted to do business with us, you had to go there. Then a number of years ago, we said that well, more and more people actually opt out of having a car.
And more and more people don’t feel that it’s good value for time to travel all the way to an IKEA store. So, we need to make sure that we penetrate also the city centers. And that opened up for a range of different formats from keeping the old standard stores because they are still somehow the backbone in our offline business. But we also have an option to have smaller stores which are typically let’s say, 1/3 of the big stores. We have extra small stores which are in the city centers, for example, in Paris, or Shanghai.
And then we have the city shops, which is an even smaller format that we can have where we more have smaller products for immediate pickup, then we have planning studios where there’s no immediate pickup, but we help you to plan your dream home.
And then the things get shipped to you. Then we also have more experimental things, for example, like the lab, which is more of a time restricted thing where we go in to drive a certain agenda than with a lab that we have in Seongsu. So, it was about sustainability to try to push sustainability to be on every person’s mind here.
Then certainly the ecommerce itself is tremendously important today, because there are also those areas in Korea and other countries where you just too far away from any of the physical touch points. So, I’m talking about other provinces, like Jeolla-do and so on, to give them a fair chance to be able to enjoy our products. They can order online or have human remote sales talking to one of our coworkers, and that will then help them through the journey.
Alex Jensen: Well, speaking of different regions, you’ve got quite a big gap between most of your stores and options and then Busan, is Busan a very similar level of demand, or is it doing even better for example?
Fredrik Johansson: It is a different demand. There’s different demographics there. You have actually less kids and more and more age population. So that automatically gives us a little bit of a different demand. But the reception in Busan has been absolutely phenomenal for us, I will say.
They had the awful long been anticipating our arrival. So, it has been an amazing journey for us. The challenge for us in Busan has been that we opened in the very beginning of the pandemic. And we are still in the pandemic we have actually not seen Busan operational in normal times, so to speak. So, what will happen after we are done with the pandemic? or the restrictions are gone? We will you don’t know. But we are we think it will be even more fantastic to be honest.
Alex Jensen: One particular aspect of IKEA is building things yourself. And I don’t know, I feel like the whole world has become so much more impatient. Do you find in Korea that lots of people take advantage of the someone come into your house and build that thing? or do you find that people are increasingly understanding what IKEA as original model was all about that you’d get things in a box and build it yourself.
Fredrik Johansson: More people choose the assembly service here than in Western Europe, if you look at the percentage of sales that we have, but at the same time, I actually thought it would be even higher, but Korean people take a lot of pride in assembling their own stuff that gives you also a bit of ownership and you’ve been part of the whole journey of the product.
So, I must say that is something that has been embraced to a bigger degree than we anticipated, which is which is very positive, because it saves you money naturally.
Alex Jensen: Right. It does. Time, money, perhaps just going to IKEA for the meatballs. How many people do that?
Fredrik Johansson: A lot, a lot, actually, I mean, the meatballs that they are kind of a signature dish that would say for IKEA. And we have recently here in Korea also launched the plant ball, which has 96% lower carbon footprint, and that has also been received extremely positively.
And I thought it would be positive, but we are actually in Korea. Look at all the meat balls that we have on offer. So, the veggie bowl, the plant bowl, and the meatball, the share of the plant bowl in Korea is actually the highest in the world. And I did not expect that considering that it’s such a meat-eating country.
Alex Jensen: Would it be an option to partner with one of the local markets and make IKEA food available outside of IKEA stores, would that defeat the magic of going to IKEA?
Fredrik Johansson: I would maybe defeat the magic but we also conceptual company with a very strong concept. So, it’s very clear what channels we should use for our for our range. And things might change moving forward considering how global trade and global retail is changing. But for now, it’s not an option today to start selling our meatballs or anything else in other channels.
Alex Jensen: Also, you talked before about the different demographics in Busan. I’d like to pick up on that point before we get into other aspects of sustainability that are here in Korea that society is changing so fast, the whole country is moving towards being aged and we’re also seeing more single person households.
And when I first became a single person household out of university, I think I went to IKEA in the UK, the first thing I did probably to get some furniture. But if you are a 70 plus single person household in Korea, that’s a very different need and level of demand for furniture. How does this general situation in Korea, the demographic cliff that they say we’re sliding towards impact IKEA?
Fredrik Johansson: First of all, I think that our range is so wide that there is something for everyone there. That said, it is different in every city in every country and when we came into Korea, it was living with children, that was the main focus for us because we felt there were the biggest needs.
We also see a lot of single people actually coming to us, especially the younger, but we also see the elderly generation browsing around and picking something that will make their make their home a bit better for them.
That said, when it comes to the growing amount of single households, we are very well prepared, I would say. And we also see a lot of single people actually coming to us, especially the younger, but we also see the elderly generation browsing around and picking something that will make their make their home a bit better for them. So, as I think that whatever might happen with the demographics, we can be there to serve the many people.
Alex Jensen: So, as you hinted with a couple of your answers so far, sustainability is clearly very important to you. And I had that sense already even before connecting. But can you tell us a bit more about how you’re leveraging your role in that direction?
Fredrik Johansson: Yeah, I think maybe interesting enough. And I’d say that was the reason from the very start. But just the fact that we ship products around the world flat pack, of course, that saves lots of space, and that then saves a lot from an environmental point of view as well.
We have said that by 2030. We should be a climate positive.
So, we were already having a bit of a head start there potentially. But then I think what is important is that today 70% of all our products are renewable or recyclable already, we need to get that up to 100% certainly, but we are actually quite in in a good place already, I would say, at least compared to most other retailers. We have said that by 2030. We should be a climate positive.
And we are well on the way there already today we’re actually on a global scale, we are producing more green electricity than we are using electricity in totality. In Korea, if we look at a few things here we had as a goal last year, last year for us means fiscal year 21, which is the year that ended here end of August to secure that the 20% of all our home deliveries were done by electrical vehicles, we reach 25. This year, the goal is to reach 40%, and then we should be 100% by 2025.
Then the plant ball is another thing that I that I mentioned here, I mean, we save 96% carbon footprint every time we sell a plant ball instead of a meatball. For us also, when we talk about sustainability, we see that in a wider sense, we also include equality, inclusion, all these kinds of things also within that sustainable world for people, not only the environmental part and we have really tried to do our part in terms of inclusion and equality, both when it comes to two genders, when it comes to age when it comes to single moms when it comes to people with a different sexual orientation.
I think also that we have, we have been able to contribute a bit, there’s a lot more to do. But I’m pretty proud of what we have done already there actually. We’ve also been part of the P4G when Korea or President Moon arranged the Partnership for Growth, we were one of the sponsors there.
We are part of the Swedish green, Swedish Korean Green Alliance, which is another sustainability alliance, where we’re looking to how we can decrease the carbon footprint and make it possible for the many Korean people to contribute. Maybe the most important thing, though, is that as a lot of our range is sustainable, we show that it doesn’t have to cost money to be sustainable as a citizen. But by buying the right product to actually contribute directly or indirectly to making Korea a greener and better place to live.
Alex Jensen: Are there any particular challenges around sustainability that IKEA would face, or other businesses would face in Korea in particular, can we use this platform, for example, as an opportunity to raise some issues that need to change?
Fredrik Johansson: The biggest challenge for us is the availability of green electricity or green energy is not until January this year that it even existed, that you can actually decide that I want to buy green energy that is possible now, but still on a very, very small scale.
So, what we are doing in many, many other countries ranging from the US to Russia to you name it, we go in and we invest in green energy, that might be solar panels, that might be wind energy. Of course, we have solar panels on all our stores, on the roofs of all the stores but we can do so much more.
So, I mean, we actually invest billions of euros every year into green energy. So, if it can’t be done here in Korea, what can we do to support we have the money to do it, and we have the willingness to do it. So, we are constantly looking for opportunities of investing into green energy.
Alex Jensen: Yeah, one of the slightly concerning things, maybe very concerning things around the pandemic has been, I think the massive increase in waste as a result of all these disposable masks that we’re all still wearing course masks are important but can’t help think that there’s a lot of waste being generated as a result of people wearing them often for just one day.
And then also this energy crisis that the whole world is facing as forcing Korea and others, as we already heard, actually on the podcast this week towards fossil fuels, again, like coal, it’s very concerning. Does it discourage you?
Fredrik Johansson: It is troublesome definitely. But I think is more it’s somehow a catalyst to make sure that we change the way that we produce energy and that we use energy. So, I would like to see it in a positive context as well, as kind of a wakeup call that we need to act now, or it will be too late.
Alex Jensen: Yeah, and I always think actually, we Korea, we’ve got the reminder all the time around air pollution. When that gets bad, it means we’re moving in the wrong direction. And there’s nothing like breathing in dirty air to inspire us, I would hope to clean up our act.
The business environment here is certainly richer for your presence. Do you plan to expand further? Are you going through a bit of a transitional period because of the pandemic where it’s watch and wait and see what happens with demand as people emerge from COVID?
Fredrik Johansson: To some degree, it is a period of waiting and seeing what’s going on. I mean, it’s very clear that we need to enter physically into cities, like Daegu and Daejeon and Gwangju the question is with what format, so we need to understand a little bit better here.
What will actually happen after the pandemic because now natural we’ve seen a big boost In online commerce, so what will happen when things go back to normal, when people still choose to buy more online? or will we people come back and say that, ‘No, I need that contact with your fantastic employees and I need to touch and feel the product’.
So, we will certainly open more physical touch points. But exactly what is a bit unclear. Is it still these big 40,000 square meter ships? or is it smaller units and maybe more of them.
Alex Jensen: And one potential obstacle from a pure business point of view, of courses, you search for beds online, let’s say, you got a Coupang or NAVER shopping, and you’re looking for a standard wooden double bed, and you might get options coming up with mattress included for something like 3-400,000 won, often made in China pretty much always made in China at that price point. If a consumer decides on that option, I know that you can’t speak for everybody. What is the environmental cost of that? Or what is the cost perhaps to them of going for that kind of cheaper option?
Fredrik Johansson: Oh, that’s a that’s a good question and a very difficult question. I don’t know the, say environmental impact of every product. I mean, for us, it’s the totality, we have the same set demands on sustainability, no matter the price point. So, for me, it’s probably more of choosing the right mattress for you. I mean, in terms of how firm should it be?
And how thick should it be? And what is it that you need? That doesn’t necessarily reflect back on the price of it, even though of course, normally, the more pricey mattresses offer better comfort, and are probably better for you when you’re back over time. But I think the important thing is just to choose the mattress that fits your sleeping style the best, and that that will make you happy.
Alex Jensen: Yeah, I mean, I guess, with something like IKEA, as you suggested before, with the design, you’re getting something that immediately is different. And many people just love that. And they’re gonna prefer that to the option that the generic option that I’ve just described that you would find at a lower price point online.
But I’m, perhaps I’m also driving at something deeper than that, for example, we have no idea the labor conditions that’s allowing that cheap price, we have no idea the materials that are being used. It’s a challenging retail environment, isn’t it? online, if you just purely rely on that?
That’s kind of why I prefer the offline experience. Because you get a better idea of what you’re getting. What do you think and what would you recommend for people who are shopping purely online?
Fredrik Johansson: I think it more and more I see in Korea that doesn’t only matter what you buy, it actually matters with whom you do business and at the IKEA, we started with something we call IOA, IKEA has way of doing business in the year 2000.
We started making sure that every supplier and sub supplier that they pay fairly that that we make sure that they have the right protection gear, that we don’t use more pesticides or whatever it might be that the necessary. And so, everything is secured there, so to speak. And I think the consumers overall know that. And so, you should always feel safe when you buy something from IKEA, we have been in a number of global initiatives, for example, better cotton, where we secure first of all, that the people growing the cotton that they get fairly paid.
Second, that we help them, so they don’t need as much pesticides, actually none and they also save lots of water. And so, with our size globally, we have both the willingness and the ability to actually support companies and single farmers and so on all over the world, to have a better future and also to contribute towards a better world. And I think that is important, but I also see that very much in Korea that people care with whom they their business, is it a company that is treating people well?
Is it a company that the chairs my personal values are he said the company that stands for something completely different? And as long as that is part of the equation, I feel that we have come very far we certainly have a lot to do. We will never be satisfied. I think that we have reached some kind of an end goal. But I’m very proud of where we are standing there as a business.
Alex Jensen: Well, it’s something I’d like to wish you all the best with and perhaps we can meet again, one of your labs or some sort of creative experience that we can record it would be really nice to meet you in person Fredrik Johansson. It’s been a pleasure speaking with you today.
Fredrik Johansson: Absolutely. Thank you very much for today.
Alex Jensen: Yeah, thank you very much. We’re hearing there from IKEA Korea CEO, Fredrik Johansson. It’s been a great opportunity to go a little deeper on today’s episode brought to you by the Four Seasons Hotel Seoul, stylish elegance in the very heart of the city. And we look forward to connecting with you again on Monday from 7am Korea time.