Can IKEA be the first to assemble a vision for sustainable retail?
06 June 2016
Retailers have a particular problem when it comes to sustainability. You can’t escape from the fact that the more stuff you sell – and that means more materials, energy, emissions and waste – the more profit you make.
It’s hard to develop of vision of a sustainable future where we’re satisfied with what we have, when your entire business model incentivises you to come up with new ways to make us want more, more, more.
IKEA became an interesting focal point for this dilemma at the beginning of the year when, rather unusually, its head of sustainability Steve Howard was quoted by the Guardian – and then re-quoted in lots of other mainstream outlets – as suggesting that Western society had achieved “peak stuff.”
It’s pretty much unprecedented for the comment of a corporate sustainability professional to suddenly make news in a way that suggested that the company was making some big, deliberate policy statement. The fact that it did so rather caught IKEA by surprise.
Incidentally, it also rather underlines the difference you get when ideas are expressed simply and evocatively by companies in a position to influence the discussion. It was notable because it happens so rarely.
Notwithstanding IKEA’s discomfort about one random quote that was blown up and led a few journalists to add 2 plus 2 to make a declaration of imminent market decline, the heart of the dilemma remains.
IKEA, in common with certain other ambitious retailers, is talking about how it can develop new business models along ‘circular principles’. The argument is that a circular economy avoids waste by bringing end-of-life products back into the chain as the source of raw materials for new products whilst also extending the life of products, encouraging resale and so on.
It’s easy to say, but for a retailer model based on volume sales, it’s not such an easy problem to actually solve.
So far, what IKEA has shown is that it is serious about improving the environmental footprint of its manufacturing and operations overall.
It has massively invested in renewable energy, and expects to be a net exporter of clean energy by 2020. It has helped its suppliers to become 18% more energy efficient over four years. It has been using its public voice to lobby governments for stronger action on climate change, for instance calling – with others – for new EU laws to cut truck emissions.
So consumption-as-usual with a lower footprint is certainly within grasp, and IKEA deserves credit for the energy and purpose it has brought to the task. Few others have done so much.
But it knows it has to go further. One of its key aspirations is to enable its customers to live life more sustainably. To that end, it has already changed all of its lighting to LED lighting, which the company says will, by 2020, have led to electricity savings equivalent to the annual consumption of the people of London and Paris combined.
And that isn’t just a case of better stuff for consumption-as-usual, because the company specifically targeted extended life lighting. In principle, it was resisting the logic of its own market signals to aim to reduce consumption. But that’s just one instance, and it’s hard to do that to scale, especially when the competition isn’t.
And it’s still only a small step. The new disruptive business models in this space are those that switch the business logic on its head. Where the market rewards you for doing the right thing, rather than the obvious thing.
So, for example, changing products into services. If someone leases something from you as a service, then you make more profit if the thing they’re using lasts for a long time. As opposed to the model if they buy it from you outright, when you’ll make more profit if it needs replacing on a regular basis.
Can the company that is famous for selling cheap furniture arrive at a vision for making that sort of shift? Can it influence its customers to actually want to live more sustainably?
In its strategy, IKEA says that it aims by 2020 to achieve more than a fourfold increase in sales from “products and solutions inspiring and enabling customers to live a more sustainable life at home.”
It’s a vague target. Presumably any product that has some performance improvement, however slight, on its predecessors could qualify as falling under this category. It’s not that IKEA is trying to sell Greenwash – it surely does enough to be taken as being serious in its aspirations. It’s just that it’s really hard to quantify what this means in practice across a broad range of activity.
The other consumer-influence target is even more vague: “Take a lead in more sustainable food by enabling and encouraging a balanced diet.” There are good things to be done there, and IKEA is already doing many of them. But, as a target, that doesn’t really paint a vision of what sort of progress is possible. There are no numbers attached, so hard to know whether the scale of achievement is in line with IKEA’s reach as a business.
The real challenge of genuinely circular models is that customers may not be ready for them.
For example, a few years ago, Interface Carpets tried turning its business model from a product to a service and was forced to abandon it in the face of solid customer resistance. Good intentions aren’t enough if people are wedded to the old models.
So IKEA is testing out its options. There is a current UK-based research and development project with 250 households to examine lower-consumption ways to take people through key life changes, such as moving house or having a baby. Looking at where elements such as take-back, leasing or sharing models might be attractive and accepted.
Such research is not altruistic. The phenomenon of new disruptive start-ups in other sectors is well enough established now with the likes of Uber, AirBnB and Netflix, to be able to expect that similar in-roads will be made by new entrants to IKEA’s market if the status quo is embraced for the long term.
So far, that still feels a long way off.
For now, the focus remains on making products in a more sustainable way in the first place. There have been some attempts to extend the life of products, with certain countries offering resale options, and shipping large numbers of spare parts to encourage product repair rather than disposal.
But that big additional step – providing the product that can make a profit from those economies where ‘peak stuff’ has been achieved (not just the developing economies that are expected to provide most of the growth) still lies beyond reach.
IKEA is one of just a handful of big traders in ‘stuff’ who are actively working to be the first to take that step and to move onto another level altogether in the writing of the sustainability story.