years in Singapore as Ikea’s director of distribution for Asia Pacific. COMPANY PROFILE: IKEA Ikea will reach 10 stores in Australia when it opens its North Lakes store north of Brisbane later this year. The Swedish furniture giant launched in Australia in 1975 with a store in Sydney and is currently in the building a new distribution centre in Marsden Park in northwest Sydney, which is due for completion in 2016. Justin Grey: How are FY16 figures shaping up for Ikea? David Hood: Pretty good. We had the new store in Sydney last June, which is coming up to its one-year anniversary and we had Canberra [open] in November. We’re very, very strong in the Melbourne and the Brisbane markets. In fact, in Brisbane we’re desperate now for the second store to open, which will open in mid-November in North Lakes, which is the Westfield centre 25 minutes north of the city. North Lakes is not in the Westfield centre; it’s our own store right on the motorway, but it will connect to the existing Westfield centre through a mall. It’s a huge growth area in northern Brisbane. The first store is trading now at not far off capacity. So all in all, we are totally, for the country, on goal for the year. JG: How are the newest stores, Marsden Park, in Sydney, and Canberra performing? DH: Marsden Park is a very, very different store. Canberra has, I wouldn’t say, exceeded our expectations, but we had a feeling that it would do a lot better than we actually budgeted for, which is really good, of course. We had never planned to build a store in Canberra, and then an opportunity came up opposite Costco by the airport that we felt was really interesting. We had fabulous support from the local government there and we decided we would go there but we’d make the store very simple. So both Marsden Park and Canberra are one-level stores. They take out all the additional needs for escalators and complex equipment, and we’re able to build them much more cheaply. They’re still big – 25,000 square meters and car park of roughly a 1000 spaces – but much more simple for the customer and for us to build. The range is the same and the commercial areas are actually as big as a normal store – we take out is a lot of the back areas and all the extras that you need. We’ll also open in Marsden Park, in another part of the business park there, our first distribution centre. We are opening a purpose-built distribution centre in May next year. That will be fully operational somewhere around July and August; it’s a big facility with about a 100,000 cubic metres of stock, so 100,000 pallets. It has multi-function, so we will at a future stage use that as the base for entering into online. We’re likely to build one more distribution centre but we’re just finalising the plans. JG: Ikea will have 10 stores in Australia once North Lakes opens… DH: Maybe I should explain. We will have eight stores on the east coast when North Lakes opens and we have the two franchise stores, Perth and Adelaide, which are run by an independent operator. So that makes it 10. JG: What’s the background on those two franchised stores? DH: Long story. For many, many years we had these small 3500 square metre [in Australia]. One was in Moore Park [Sydney]; there was one in Blacktown [Western Sydney], completely not the Ikea concept. That was the way up until about 1999 and then there were a lot of business issues and the company globally decided that they would take over the east coast and try to make the right thing. And then they sold the franchise for Perth to an external individual; he’s had that franchise for quite some time. We have franchises in many countries, but usually not a franchise and an Ikea company in the same country. It’s a historical thing…how that looks long-term is a question. When you see our sales, this year we’ll break, or be thereabouts, $1 billion for our seven stores on the east coast. Then North Lakes will come next year and be then added. Of course, you don’t see the sales of the two franchise stores in there, so it’s not really the total brand. They get their figures as a separate company, of course. JG: Are the smaller format Ikea stores that we’re seeing in Europe feasible for Australia for smaller catchment areas that can’t justify a full store footprint?   DH: I had a discussion a year ago about smaller format. I call them ‘touchpoints’. Touchpoints can mean a lot of things. Today, the smallest Ikea format really that’s official globally, is about 20,000 square meters, so we generally will build nothing less than that. There is now a move in some markets – Norwich and Aberdeen in the UK, Pamplona in Spain – to have pick-up points or ‘touchpoints’. There’s also now one in Japan. These are small, 3000 square metre units that give the local area a flavour of Ikea. They are usually linked to a bigger store that might be a two-hour drive away or something like that and you can go in there and experience certain aspects of a range. Primarily it is a showroom, with very, very limited takeaway articles. There are some things you can buy and take, but you can order in the store to have it collected. These are being tested around the world in various locations; there’s a lot in Canada. If you take somewhere like Tasmania, where you’ve got roughly the same amount of people as Canberra, in a place like that what we’d do today is have unbranded pick-up points. Basically, you can order from Melbourne, we will deliver it to locations in Tasmania [not branded as Ikea] and you come to our unit to collect it. Then the next step from that, if we can build the business enough, is to have a small format Ikea store. Realistically, 100,000 people is just not enough to support a big Ikea store. JG: What other locations are you looking at for future small format stores? DH: We certainly have interest in Central Coast in the Newcastle area because that’s a big population. We can look at the outlying secondary cities in the northern part of Queensland and up to Cairns, but we actually have a whole strategy for it. We’ve designed what we want to do and how we want to really cover the whole of the east coast. We also see tremendous potential in southern Queensland, Northern New South Wales. There’s a lot of people around that area and they have a good hour and a half or two-hour drive to Ikea. We see really obvious places where we can do this. In the next 12 months we will definitely carry on and develop further our Tasmania business; we have an opportunity there. Then we will also do a test in an urban market with online. We want to roll this slowly because we have to have the logistics set up. We have big volume. You can’t do this without having the right back-ups so we will definitely test something in an urban market in the next 12 months. The third area is I would like to have a branded pick-up point within six to nine months. We’re very actively looking now at how we could get our first branded pick-up point in this country. We want to use these and learn a little bit about how it’s going to work and how do we work with the mother store and the daughter store. We’ll try some different things. JG: The typically required catchment to justify a new Ikea store is one million residents within a 20-minute drive. Is that still what you operate on? DH: We used to use this figure…Canberra blows that one out of the water. Canberra is about 475,000. It depends on a lot of things, [for example] what income have they got. Canberra has been incredibly interesting for us. We probably learned more there than we ever learned by putting a second and third store in Melbourne. There’s been a lot of interest from outside of Australia at the store in Canberra because we also went very hard with stripping back the extras. Not just the build – it’s not a smaller store – but build a store and keep it simple. Why do we need to have all this stuff that some other bigger stores have been lumped with because someone decided that that’s the way we’re going to design them? We’ve really been quite challenging about facilities and all the things that we have in the store. It’s worked. JG: Would you consider something smaller on a temporary basis to cater for those areas in which you can’t justify a full store? How do you cater for customers in, say, southwest Sydney, who don’t feel compelled to drive to Ikea in Rhodes, Tempe or Marsden Park? Do you even need to cater for them? DH: This has always been the challenge. This question is accessibility. Of course, online shopping gives people accessibility. I think you will see these kinds of things developing. The big store will always be incredibly important for us because it’s more than just a retail unit – it’s also a warehouse to some extent. If you take a market like Canberra, 11 per cent of the people coming to [Ikea] Canberra are coming from more than two hours drive. And they’re spending about 10 times more than the average customer who lives in Canberra. We’ve not got a problem with the average spend in Canberra; people are very high-income, they buy a lot. What’s happening today is you have to look beyond the old days of us building a store in Canberra and that’s it. It’s not just for Canberra. What does it mean when you go to the two and even the three hours beyond? How do we make ourselves accessible to those people? If you look at Brisbane it’s the same thing. You’ve got North Lakes in the north now, we’ve got Logan in the south. We see potential in the west of Brisbane, no question. We see some potential now right in the south of Queensland and around northern NSW. Then it’s how do we fill in the rest between North Lakes all the way up to Cairns? We’ve got to figure that out. We have all the plans, we know what we’d like to do, it’s just a question of trying to go for the most successful ones first. You have to be sure that what you’re doing is right. JG: Where is Ikea at in terms of launching an Australian e-commerce channel? DH: The UK has been an [e-commerce] pilot country and it is incredible. It’s now the biggest store. There were a lot of store managers who thought, ‘I’m going to lose business now we’re going online’. It’s actually been the opposite. You’ve been in an Ikea, so you know what a White Billy Bookcase looks like, but you get home and you think, ‘Damn, I should have had that extra pack of shelves’. What you do is you order that online; you don’t go back for the extra pack of shelves. There’s been a lot of add-ons and selling on and it’s been incredibly successful. They’re really rolling out fast now.     That’s the pilot country also for our new web solutions in Ireland. There’s a lot happening there and that will start to roll out globally. JG: Are you looking at any of the Master’s Home Improvement sites to potentially lease? DH: Not really. When you listen to what I was just saying about smaller units where we could have these touchpoints, of course all these places are interesting. Even Dick Smith, when that was closing, we took a look at the portfolio just to see, if there was anything anywhere that might fit in with our existing plan. But it’s not like we’ve booked 10 stores in Masters so we can quickly go in and open 10 Ikeas. That won’t happen. It’s more that it has to be part of our strategy and it has to be in the place we’ve already identified where we want to be. If it doesn’t fit into that, I don’t think we’ll waste time or money. We did look at them – we look at anything like that that will come up. JG: What’s the strategy for launching Ikea in New Zealand? DH: I probably shouldn’t say this one, but I’m not going to be here forever, so I’ll say what I said when I came [to Australia]. We absolutely should be interested and look at some sort of set-up in New Zealand. There’s an opportunity there, without question. H&M will go there later this year, but they’re very quick – they can get in and get it done. We have a little bit longer company process. I think it’s absolutely an opportunity to have probably a big store, and then work with those touchpoints and online shopping and work that way. There’s a definite opportunity in New Zealand, for sure. JG: There’s been a lot of talk about large international corporations eschewing their corporate tax obligations in Australia. What’s Ikea’s relationship with ATO like? DH: Our relationship with the tax people here is very good. We do everything that everybody else does. Whether we’re audited or checked, I would say here is not different to the other countries I’ve worked in in terms of the expectation and the relationship we have. We do everything by the book in Australia as we’re expected to do and we have had audits and all the different things in the past. I don’t expect that to change; that’s what you’d expect in any country. I don’t think at all we have a bad relationship actually with any authorities we deal with. I think it’s the opposite. Last week we were just the first retailer in Australia to be awarded Trusted Trader status as a company. It’s the supply part of Ikea, because we worked as a pilot with the customs authorities to ease the process of importation. There’s only 35 companies in Australia who’ve got it and Ikea supply are one. And we’re the first furniture retailer. I don’t think we’ve got anything to hide. I think it’s very transparent – it’s there for people to see. JG: What’s on the cards for Ikea for the remainder of 2016? DH: I think we’re at a tipping point now as a country. We’ve got multiple stores in each market and I think the distribution centre is the catalyst for us being able to really take what we consider to be a pretty big jump in the coming years. We have big ambitions in what’s still a relatively small country. I think we really have got the right platform now and a number of other little things on the way. Our range is super strong. Globally in Ikea we have a tremendous platform as a company. We do everything in-house. Everything is designed and controlled and the long-term thinking that a private company can do will pay off and put Ikea in Australia in a position that, in my opinion, we probably should have been in 10 years ago. Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.