The Option to Lease

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Sweden’s flatpacked furniture giant recently announced a new initiative whereby the company will lease furniture as well as selling it.  I personally think it’s a great idea; however, it is naive to imagine that it will work out successfully in every market.

IKEA furniture is cheap, functional, stylish, and doesn’t last.  It is ideal for students, expats, and furnished rentals.  People tend to keep their IKEA furniture for an average of 3 to 5 years before switching.

Having said that, it is important to point out, that customer’s behaviors change depending on the location.  Factors such as: price relative to average income, transportation costs, assembly costs, resell value, and secondary market, are all major factors that will influence the success or failure of the leasing model.

In a very smart move, IKEA decided to pilot the scheme in Switzerland.  Now, I can tell you a little bit about Switzerland.  Eventhough IKEA prices are more expensive than in most G20 countries, their price as a percentage of average income is rather moderate.  The problems start after you bought the furniture.  If you don’t have a car, or decided to furnish your entire house in one go, you will need to pay several hundred Francs for delivery, and if you are not the DIY type, you should expect to fork out north of CHF100 per hour in assembly charges.

That is not the end of the problems.  A decision to move homes and take the furniture with you, will set you back a few thousand Francs.  If on the other hand, should you decide to sell it, the secondary market is pretty saturated, and potential buyers, faced with steep bills for picking up the item, will be less inclined to pay a fair price for the goods.  Getting rid of the furniture is as hard as selling it.  It takes a while to find someone interested in taking away the goods (even when given away for free), and should you decide to dump them, you are still faced with a heavy transport fee, and will have to pay the recycling center to accept it.

Under such circumstances, I would expect a leasing scheme to be very well received.  You choose your furniture, IKEA delivers it, builds it, and then takes it away.  All in exchange for a modest monthly fee.

But as always, the devil is in the detail.  How much would they charge for delivery of the goods? How much will they charge for assembly? Removal? Insurance? Interest? Knowing IKEA’s no-nonsense approach to refunds and returns, I would expect them to have a similar logical approach to leasing fees.  And should everything be managed in a logical way, I would expect the scheme to be a success.

What about other countries?

Just because it is a good idea in Switzerland, that doesn’t necessarily mean it will be a rotund success elsewhere.  Countries where transport and labor is far cheaper, and where there is an established secondary market for used furniture, will be a harder nut to crack.

Many university cities around the world, have annual furniture selling events, where graduates organize open house sales to freshmen.  Prices are generally good for the sellers, and the buyers can organize transport at a relatively modest price.  With that in mind, a leasing model will be less apealing.

Only time will tell if IKEA’s new scheme is a success or a failure, what is undeniable is that the economy is veering away from ownership.

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