Ikea’s post-pandemic gamble
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🛋️ Ikea’s home improvement long game 🛋️
The Buy/Sell/Hold Analysis
One of the biggest winners in our virus-induced straits is the home improvement industry: Folks are fixing up their bathrooms, adding on rooms, and installing elaborate patios, pools, and gyms. The suburban real estate boom has added fuel to the fire, as a rush of urbanites relocate to homes with grassy spaces. These trends have had a gigantic upside for businesses like Wayfair, Home Depot, and Lowe’s.
Not so much for Ikea, the Swedish-based furniture chain. For decades, Ikea was the go-to store for the masses with empty rooms to fill, or life-stages to adapt to. And with its low-priced, ready-to-assemble furnishings, it should have benefitted as much or better than anyone from the home improvement mania. Instead, it has slumped, temporarily closing stores rather than extending its hours, and worse, failing to prime its online shop and delivery capabilities for the e-commerce surge. Annual sales for the year ending in August were down 4%, to $46.5 billion.
But the company now seems to have woken up in a dramatic way. In a gamble that the home-fixup shift will outlast the pandemic, Ikea says it’s going to launch around 50 new stores, 60% more than the 30 or so it opened last year. That’s in part a big bet that people will remain in nesting mode for the long term, eager to return to physical shops.
It’s doubling down, too, on the return of the city, because that’s where Ikea plans to open most of the new stores. Amid doubts that people are still sold on the urban dream, Ikea is focusing its new efforts on compact stores that will look fundamentally different from the sprawling suburban edifices for which it is famous.
Until Covid-19, Ikea was a quaint mess: Its stuff was sturdy, sleek, cheap, and easy to assemble, but the retailer did not make it easy to get — unless you wanted to pay a ton of money for delivery, you had to haul yourself over to the distantly located stores, navigate cavernous warehouses big enough to house a small city, and drag your stuff to your car. And good luck if you wanted to buy online; you might never receive your order, and even if you did, it could be wildly late. Strangely, this friction was part of its charm — until Covid-19.
Now, Ikea says it gets it. It knows it has to change, and even before the new shops open, there is partial evidence that it’s already doing so: Even while chronically screwing up orders, it has seen a 45% to 60% surge in online sales during Covid. That suggests that even if it’s late to the game, it may already be trying to clean up its e-commerce act — while betting on it’s next big offline one.
Verdict: Buy
— Steve LeVine
⚡ Lightning Round ⚡
⚡ Venmo is moving beyond peer-to-peer payments by launching its own credit card. Keeping with the company’s digital origins, it will be both a physical and virtual card that can be managed using the Venmo app. Along with its parent company PayPal, Venmo is one of the pandemic’s fintech winners; it processed $37 billion in total payment volume in Q2 2020 — up 52% from 2019 — thanks to surging demand for digital and contactless payment methods. And credit cards are much easier to use than QR codes for most consumers making everyday purchases. Buy.
⚡ Even throwback home gym companies are benefiting from the Peloton Effect. Remember NordicTrack? Its parent company, Icon Health & Fitness, raised $200 million from investors, revaluing it at over $7 billion, according to Bloomberg. Surging sales for home equipment from brands like Peloton and increased downloads of fitness apps during the pandemic mean that even 1980s, VHS-era relics see a chance to cash in on a once-in-a-generation shift in workout habits. Buy.
⚡ Pizza and bottomless salad restaurant chains take a Chapter 11 hit. One of the saddest twists in the saga of restaurant chains fighting to stay solvent through the pandemic comes from California Pizza Kitchen, which canceled an auction to sell itself on Tuesday when “no qualified buyers showed up, ”according to the Wall Street Journal. Another struggling chain, Ruby Tuesday — which filed for Chapter 11 bankruptcy on Wednesday — will be permanently closing 185 restaurants; an unfortunate but unsurprising development, as there may be no harder time in modern history to operate a chain whose signature feature is an endless salad bar. Sell.
⚡ The pandemic continues to disproportionately push women out of the workforce. Over 800,000 women left the workforce between August and September, compared to just 216,000 men, reports the New York Times. One critical reason for this discrepancy: On average, married women carry far greater burdens than men when it comes to domestic labor and raising families. One Northwestern University study cited by Business Insider found that, during weekday working hours, mothers provide 70% of childcare. With many schools and childcare providers stuck in limbo, the one-two punch of lockdown conditions and the economic downturn have exacerbated long-standing gender inequity, forcing women back home in more ways than one. Sell.
📈 The Number: $120
The price of the newly-released Cole Haan X Slack limited edition sneakers, per Cole Haan.
As we’ve noted previously, Zoom has left Slack in the dust when it comes to being the work-from-home enterprise hotshot. Perhaps to steal back some of the spotlight, Slack has stepped up with a … sneaker collaboration? That’s right — Slack and Cole Haan have teamed up to offer a $120 pair of limited edition kicks in four colorways that borrow from Slack’s logo. According to Cole Haan, they were designed “with the Slack crew, over Slack.” The move is such a head-scratcher it naturally got an avalanche of mostly skeptical attention. (“Bizarre,” said GQ.) According to AdWeek, the experiment fits into Cole Haan’s goal of targeting younger creative customers and Slack superfans, though it’s not clear that actual young people will want to wear SaaS merch. Meanwhile, “the Slack crew” has simultaneously announced forthcoming new features for its actual product, most notably a tool for sending video messages within the platform — “very much like Instagram stories, or Snapchat stories,” the company’s CEO told The Verge. In short, Slack is looking to generate some attention around its brand, and if that entails lots of dunking on a puzzling crossover product, so be it. It’s not the sneakers that matter — it’s the buzz.
— Rob Walker
📖 Longread of the Week: How MacKenzie Scott — Amazon’s first employee, Jeff Bezos’s ex-wife, and one of the world’s richest women — is rewriting the philanthropy playbook to give away her $60 billion fortune.
🔎 Marker’s New Fixation 🔎
It finally happened: The rare case of a brand flawlessly capitalizing on a viral moment without being annoying or heavy-handed about it. When Idaho Falls-native Nathan Apodaca’s car broke down on the way to his job at a potato warehouse, he pulled out a skateboard and a bottle of Ocean Spray and filmed himself chugging Cran-Raspberry juice and lip-syncing to Fleetwood Mac’s “Dreams” on TikTok as he rolled the rest of the way to work. The 20-second TikTok clip, which captured a tranquil “morning vibe” (as Apodaca captioned it), has racked up over 29 million views since it was posted on September 25, launching the 1977 Fleetwood Mac song to #1 on the iTunes charts. The clip’s virality also represented millions in free publicity for Ocean Spray, the Massachusetts-based juice maker, whose CEO filmed his own homage to Apodaca’s TikTok and gifted him a cranberry-colored pickup truck; TikTok then spun the original video into an ad spot that aired Thursday night during MLB playoffs. The moment added a bit of levity to an otherwise miserable week in an otherwise miserable year. We’re just holding our breath, hoping that no disappointing news breaks about anyone involved in the stunt. We can’t take another Milkshake Duck.
— Kaushik Viswanath, Senior Editor, Marker
(Not already signed up to receive Buy/Sell/Hold? You can sign up for it here.)
