The Vision? Something From IKEA in Every Home

When IKEA Israel CEO Shlomi Gabbai sits in a restaurant or visits the homes of friends, he examines the cutlery and tableware to see where it was purchased. In a great many cases, he discovers the IKEA logo.

"Three years ago I was interviewed for the company paper and was asked what my vision for the future was," says Gabbai. "I replied: `That every home in Israel have at least one thing from IKEA.'"

Gabbai was appointed acting CEO of IKEA in May 2004, after Gil Unger left the company and went to manage Blue Square. About two weeks ago a deal was signed for the sale of Blue Square Co-Op Society's IKEA Israel holdings (75 percent) to Matthew Bronfman for $38 million, following which Bronfman mentioned to the media that Gabbai's appointment will be made permanent.

Bronfman's purchase of IKEA, however, will result in more changes than the title on Gabbai's business cards. Plans for a second branch of the international furniture and housewares chain will soon be implemented, after three frustrating years of delays for the company's local executives.

The delay was due to Co-Op's focus on the search for a buyer, rather than on developing the chain, pursuant to a court order for the sale of Co-Op assets and the disbursement of the proceeds to Co-Op members.

The new branch is due to open in 2006, south of Tel Aviv. Gabbai explains that the company needs 60-70 dunams (15-18 acres) of land, and that no final decision has been made regarding the exact location. The cost of constructing the new branch is estimated at NIS 50-60 million.

IKEA Israel expects the second branch to increase company sales by about 60 percent. The Netanya branch enjoyed sales of NIS 1.13 billion over the past four years: NIS 211 million in 2001; NIS 308 million in 2002 and NIS 325 million in 2003. During the first 10 months of 2004 sales totaled NIS 288 million, with sales for the whole year estimated at NIS 360 million.

Many yet to visit

Although some of the new branch's sales will be at the expense of sales at the Netanya store, many Israelis have not yet been exposed to IKEA, and the new branch will make this possible. Company data shows that 4 million Israelis have visited IKEA - many of them more than once - with visits to the store approaching 6 million.

To prove the existence of the forecast potential, Gabbai displays a study conducted by IKEA throughout the world once every three years in countries in which it operates. The survey covered 1.08 million people who live within a radius of 45 minutes travel from the Netanya store. The findings showed that between 2001 and 2004 visits by these people more than doubled, from 0.8 visits per year, to 1.8 visits annually.

IKEA, 60 percent of whose sales come from furniture and kitchen cabinets, was named as the first choice in furniture by only 7 percent of interviewees. By 2004, this figure had risen to 30 percent. Still, the Israeli branch has a long way to go to capture the heart of local consumers. In IKEA's 2002 survey of Western Europe, 47 percent of those surveyed defined the store as their first choice.

Gabbai is also confident of increased sales in 2005, while the new store is being built.

"2004 was our best year, and 2005 will be even better," declares Gabbai. "IKEA will grow by 5-6 percent in every parameter - visitors, sales and profits."

Some of this growth will come from the introduction of new product categories, such as Swedish delicacies. Gabbai says that near the restaurant or cafe at every IKEA branch worldwide there is a section that sells Swedish foods, such as smoked salmon. This section has not yet been developed at the Israeli store due to import problems. Another new category being considered is accessories for pets.

Gabbai objects to the contention that IKEA's success is based only on its low prices, and constantly mentions the shopping experience.

"IKEA is more than just furniture and kitchen accessories," insists Gabbai. "People come to us for a good time. Every morning 70-120 people eat breakfast at our restaurant. I think our restaurant is the busiest place in the area."

Gabbai has been involved in the furniture business in Israel for many years. Before joining IKEA's staff, he worked for Beitili.

"IKEA changed the standards in the furniture and home accessory market," says Gabbai, "and in retailing in general. Data from the Central Bureau of Statistics show that furniture prices have dropped 30 percent since IKEA came here."

Gabbai recalls that when the chain first came to Israel and introduced its fixed price policy, some people said that the Israeli consumer loves to bargain, and that IKEA would not succeed.

"Of course that's wrong," says Gabbai. "When an Israeli customer sees a good deal, he or she simply buys."