Ikea beware? Online furniture store Home24 plans expansion

Reuters News
|
Posted: Sep 19, 2013 8:57 AM
Ikea beware? Online furniture store Home24 plans expansion

By Emma Thomasson

BERLIN (Reuters) - Online retailer Home24, a Germany-based start-up which hopes to challenge Ikea's dominance of the European furniture market, is preparing to expand, betting sofas, beds and lamps will be the next big chunk of the industry to move onto the internet.

Currently only about 3-4 percent of furniture sales are made online, with shoppers often wary of making expensive purchases without seeing them in person and retailers put off by the cost of delivering bulky goods, as well as handling returns.

But after the skeptics were proved wrong by online clothing retailers, Home24 believes there is an opportunity to tap shoppers' growing comfort on the internet, at a time when many big furniture chains have been slow to adapt.

"We have the chance of changing the game in online furniture retailing," Domenico Cipolla, managing director of Home24, told Reuters in an interview at the company's Berlin headquarters.

"At the moment, you are going to drive 50 km to a suburb, queue for hours and not find what you want. Furniture is a huge category and we want to make buying easier again."

Home24 was launched in 2011 by Rocket Internet, the venture capital group also behind booming online fashion retailer Zalando whose founders, the German Samwer brothers, are reported to have pledged to "take down" Ikea and dwarf fashion's H&M.

Research firm Euromonitor forecasts global e-commerce sales of home furnishings will grow almost 10 percent a year to $24 billion by 2015 from $20 billion in 2013.

"We're not seeing stores being cannibalized so much as other categories ... but consumers are getting used to having things delivered rather than trying to strap a mattress onto their roof rack," said Euromonitor analyst Antonia Branston.

Growth is even faster in Home24's base Germany, up 58 percent to 1.23 billion euros ($1.6 billion) in 2012, according to the BVH e-commerce association. Retail consultant Ulrich Eggert sees 10 percent of German furniture sales online by 2020.

"People can continue closing their eyes to the changing pattern of what customers want, but the reality is that people are moving online," said Cipolla.

Ikea, the world's biggest furniture retailer, has been slow to embrace e-commerce given its focus on a shopping experience that combines maze-like showrooms with cafes and play areas, driving incidental purchases of high-margin accessories.

The IKEA Group, which owns most of the 345 Ikea stores worldwide, only sells online in half of its 26 markets, charges for most deliveries and does not offer the full range. But it plans to move online in most of its markets in coming years.

EXPANSION PLANS

Aside from Germany, Home24 operates in France, Austria and the Netherlands, offering free delivery for more than 50,000 products from 350 suppliers. It plans to open in Switzerland early next year, with other markets to follow quickly.

"2014 is going to be a year of international expansion," Cipolla said, declining to detail which countries are next.

Already employing 300 people, Home24 has not published figures yet, but media reports suggest it made a loss of 40 million euros in 2012 and could lose another 43 million in 2013.

Cipolla declined to say when the firm might turn a profit, adding investors like Sweden's Kinnevik, JP Morgan and German retailer Rewe backed his strategy of grabbing market share and establishing the brand - a model pioneered by U.S. internet retailer Amazon.com, which was loss-making for years.

Rudolf Obrecht, chairman of Swiss furniture chain Pfister, shrugs off the imminent threat of Home24 in Switzerland. "The sense of touch is important in selling furniture, even more so for valuable furniture," he told the Handelszeitung weekly.

The fact that many shoppers still want to test out big-ticket items like beds or sofas in person before they buy has prompted other online retailers like Britain's Oak Furniture Land or Made.com to open their own stores or showrooms.

Cipolla, a 33-year-old Italian business graduate, says Home24 is considering sending fabric samples to customers, but says shoppers can choose from a bigger range online and get more product information than what is available in store.

"If you go to an offline retailer, you are not going to sit on the couch you are going to get ... because they simply do not have the space to show all products in the sales area," he said.

Cipolla says fewer than 10 percent of goods sold by Home24 are returned even though the service is free - far lower than the up to 50 percent return rate for online fashion and with a much bigger average ticket size.

"That is a very positive sign for us in terms of how the customer accepts the assortment and how well we cracked the logistics chain," he said.

($1 = 0.7492 euros)

(Additional reporting by Anna Ringstrom in Stockholm; Editing by Mark Potter)