Swedish furniture company, IKEA makes a shift from its traditional linear fast furniture model to a circular business of renting out furniture. Can Ikea become 'Netflix of Furniture'?
Ikea is the biggest furniture company in the world. Founded in Sweden in 1943, today the IKEA Group sells ready-to-assemble furniture, kitchenware, and home accessories in over 400 stores worldwide. In 2019, Ikea explored an interesting venture. They tested out a furniture rental model in 30 countries. With concerns about sustainability ever-rising, this move is an attempt at a circular and environment-friendly business model.
How does it work?
Currently, in the rental model, you initially commit to renting the product for an entire year. After this first year, the monthly price of renting reduces, and the contract can be extended monthly. After returning the product, IKEA will refurbish and rent it out again, or sell it second hand. To derive the most from a product (by renting it out multiple times or selling it second-hand) IKEA is incentivized to design sturdy products that last long.
This is the opposite of IKEA’s traditional fast furniture policy, in which they sold cheap products of relatively lower quality, which the customer would have to purchase again upon break-down. The value chain switches from linear (in which you acquire raw materials, make the product, and sell it) to circular (you receive the product back). This will also add to the economy as it creates jobs – for the transportation, delivery, repair, recycling, and resale of rentals.
One of the main factors determining the success of this model will be the cost of renting furniture. Will the price be affordable, or would it be cost advantageous to buy furniture? Hence, the price and the time you expect to rent furniture for would be crucial to making this decision. Another factor is the type of consumer.
For example, a customer might be willing to go for rentals even if the cost of ownership is less if they relocate a lot and dislike the hassle of disassembling and transporting their possessions (hence valuing the convenience of rentals). However, the proportion of such consumers is small in the market, and this model will likely not appeal to most customers except for a certain niche (such as college students or individuals with occupations that require a lot of traveling).
Rise of Subscriptions
The youth increasingly tend to rent – be it homes or transportation, paying monthly subscriptions for platforms such as Spotify and Apple Music, OTTs, phone bills, and other rental expenses. This move appears to exploit that tendency while also appealing to its more environmentally consumer base. However, it does tend to be cheaper to buy furniture, and another monthly bill would not attract an Average Joe.
The rental model will find most of its users in businesses. It is a common practice to rent furniture for offices. As offices possess a lot of furniture for their employees – office desks, chairs, etc., it is convenient to rent these out. It eliminates the difficulty of disposing of many products when they lose functionality and makes it easier and more convenient to regularly upgrade to fresher models to build a good work environment. It also frees up capital for other investments, as it avoids spending a large sum of money on buying furniture in one go.
Move towards Sustainability
Ikea released its first-ever Climate Report for FY21 and aims to reduce the climate footprint and move towards using renewable energy by 2030. The rental system releases owners from the task of owning and maintaining furniture, the struggles associated with relocation, and throwing away items that lose their utility.
It appeals to flexible and mobile customers and those who prefer access to ownership. It could also appeal to those who wish to stay up to date with the latest trends, as they can simply stop renting and switch out for the newer trend, removing the personal responsibility of ownership and disposal, and easily freeing up space. This is a switch to products as a service model – instead of the customer buying and possessing responsibility for the product, the provider of this service becomes responsible.
Investing in Rental Startups
Ikea recently invested in Nornorm, It allows users to rent furniture for their offices on a subscription basis in an effort to cut waste and encourage circularity in workspace design. Nornorm puts together personalized office designs for its customers, installs the furniture, and provides an app to manage preferences such as desk height.
Currently, BCG is working together with them to furnish its offices. This deal may be worth up to $100K per month in revenue. But you may wonder, What if someone cancels their furniture subscription? So, If a client cancels their subscription, Nornorm disassembles and collects the furniture, which it then repairs and uses in other spaces. Normally, Companies don't change their furniture often so it can be a steady flow of income for Ikea and Nornorm.
Nornorm recently struck a deal with the visual collaboration platform, Miro. It will furnish Miro’s headquarters in Amsterdam, offices in Berlin, and workspace in Austin, Texas. This deal symbolizes the entry of IKEA’s rental model into US markets.
Where is it available?
IKEA introduced this rental model in a limited capacity in six countries in 2021 – Finland, Sweden, Denmark, Norway, Spain, and Poland. It plans to expand and test out this rental in 30 countries. IKEA is offering students in Netherlands the offer to rent a bed, desk, table, and chairs for a monthly fee of up to 30 euros ($33.68).
Owning vs Renting Furniture
Let us assume that you want to rent a couch, 2 chairs, a table, and a coffee table. This whole set will cost you €817.08 ($864.75) for the whole year, after 1 year of renting the furniture subscription prices will go down by half so next year it will cost you €408.54, and so on.
But if you just buy the whole set then it will only cost you €697.97, So currently renting furniture is not worth it, and Ikea knows it that's why it is only focusing on B2B. But many other companies are attempting to make renting furniture possible in future.
Will you rent furniture for Ikea?
Yes
No
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