IKEA Turns Your Living Room into a Digital Showroom
With the acquisition of Geomagical, IKEA brings in top Silicon Valley talent and takes another step towards augmented retail.
“IKEA has spent more than $200 million investing in or acquiring 23 companies to date. […] Acquisitions and investments will not stop and will increase.” — Barbara Martin Coppola, Chief Digital Officer, IKEA Retail
Ikea big-box showrooms are peculiar in their sameness.
The Ikea Concept, the internal set of standards and processes that dictates the retail giant’s “format”, painstakingly details everything that goes into each Ikea store. From the layout and routes, to the design of the catalogs, to the sequence of room arrangements, to the shape, color and size of pencils and notepads.
All of it, the entire experience, is designed to be at the same time familiar, enveloping and rooted in Ikea’s unique ethos. Regardless of where in the world a store is. This retail experience is hard to replicate digitally.
Who is Ikea
Ikea is today one of the world’s most well-known and largest specialty retail brands. Ikea sells nearly 40 billion euros a year’s worth of furniture and household products at 400+ franchise stores in 50 countries, employing more that 200,000 people.
Ikea was founded in Älmhult, Sweden, in 1943 by Ingvar Kamprad. At the time, quality furniture was made by craftsmen and only available to the elites. His key insight was that there was a market for well-designed, mass-produced furniture at a low price point. Kamprad infused the company with an ethos of thrift and resourcefulness, which translated into designs that were simple, practical and, fittingly, cheap to manufacture.
Very soon after starting the business, Kamprad started selling furniture through a mail-order catalog and opened a showroom to display designs and products to potential buyers, creating the first kernel of the IKEA retail experience.
The flatpack was another critical early innovation. Introduced in the 50s, it dramatically reduced the cost, complexity and risk of shipping, storage and delivery.
Starting in the 80s, as the global footprint of its retail network continued to expand, IKEA shifted to a franchising business model. It created a complex corporate structure, controlled by Stichting INGKA, a charitable foundation established in the Netherlands that, under Dutch law, provides strong anti-takeover protections for the overall business. Stichting INGKA controls virtually all of IKEA’s manufacturing, its retail business and the company’s intellectual property, and has grown to become the richest charitable foundations in the world. Arguably, this peculiar corporate structure has allowed IKEA to invest and operate for the long term and, throughout its history, emerge unscathed from several global economic downturns.
Part of the long-term investment capacity of IKEA has been directed towards investing in new store formats and in digital transformation, to “improve the shopping experience”, “secure speed, quality and capacity in last-mile delivery” and “convert visitors into customers by using new technologies”. In addition to the publicized acquisition of TaskRabbit, IKEA has made a number of investments in digital startups ( Optoro, Livspace, Ori among others). It also has experimented in recent years with internally-managed incubators and collaborations with corporate accelerators.
Who is Geomagical
Geomagical Labs’ founding team is certainly not short on Silicon Valley pedigree. CEO Brian Totty and VP of Engineering Paul Gauthier partnered up first at Inktomi in the early late 90s and went on to found Ludic Labs and later selling it to Groupon. VP of Product Phil Guindi was product manager at Adobe and Shipwire.
Geomagical has been a relatively low profile startup, backed by individual investors but no institutional venture capital.
Geomagical has quietly developed computer vision technology that enables users to scan a room, create a virtual model of it and add 3D models of objects and furniture in the space. It’s AI technology is able to extract entity information from imagery of an indoor space. Unlike more high-end, professional scanning solutions, it can do so using the types of cameras and sensors found on most smartphones.
The Deal
In April 2020, Ingka Group, IKEA’s global retail franchising holding company, announced that it had acquired Geomagical for an undisclosed sum.
In a Techcrunch interview, Brian Totty admitted that Geomagical had seen interest in an acquisition from a variety of parties, including some large technology companies, but ultimately decided that the IKEA opportunity was the most strategically attractive.
Why It Matters
Whereas for other companies Geomagical’s technology would have been at best an interesting feature, for IKEA it creates a unique, augmented experience that nicely complements its traditional showroom concept.
In a world that is, now, even more likely to accelerate its shift towards digital-only experiences and away from physical retail, Geomagical’s value to a brand like IKEA is obvious.
Amazon and Wayfar have competed toe-to-toe to capture the online furnitures shopping market. In 2019, they combined to account for nearly two thirds (63%) of the total online furniture market.
Although, at 2% share, still a small portion of the overall online market, IKEA has seen its eCommerce business grow rapidly. In 2019, the company saw online sales grow by nearly 50%, amounting to 11% of total retail sales i.e. EUR 4 billion out of EUR 37 billion.
The race is on in specialty retail. With consumers habits rapidly changing, retailers are investing in omni-channel capabilities and digital experience technology.
“Digital brings amazing opportunities for us. With the range at the core, fueled by digital, we can adapt to consumer needs faster than ever before.” — Barbara Martin Coppola, Chief Digital Officer, IKEA Retail
The Geomagical acquisition must be seen in this context. For many retailers, digitalization is a strategic imperative, one that require building out or insourcing, through digital M&A, precious technological competencies. Traditional technology procurement is simply not enough.
Just like MacDonald’s with Dynamic Yield, Nike with Celect or Best Buy with GreatCall, IKEA’s M&A rationale only makes sense against a backdrop of strategic transformation of the business of retail and as a hedge against disruption.
TL;DR
- IKEA bought Geomagical, an early-stage AI imaging startup from Silicon Valley, in April 2020.
- IKEA will integrate Geomagical 3D indoor scanning and augmented reality app in its online shopping experience.
- IKEA online sales have grown 50% YoY in 2019. Still well behind eCommerce leaders like Amazon and Wayfair.
- Retailers are acquiring digital experience apps and technologies as they shift larger and larger shares of their business to digital channels.
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