Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How IKEA Pivoted From Catalog Giant to Circular Retailer
Transcript
- Lucas: So last week I was walking through an IKEA store near Stockholm, and I noticed something I hadn't seen before — a whole section dedicated to 'As-Is' products, with signs like 'Returned, Repaired, Ready for a New Home.' And it got me thinking about the massive pivot IKEA is quietly making from a company that sells flat-pack furniture to one that's trying to become a circular retailer. Luna: Circular retailer — that's a big shift for a company that built its empire on disposable-looking but actually durable products. But what does that really mean in practice? Lucas: So IKEA has committed to becoming 100 percent circular by 2030. That means all of its products are designed to be repaired, reused, resold, or recycled — nothing goes to landfill. And to get there, they've been rolling out furniture take-back programs across dozens of markets, where you can sell your old IKEA furniture back to the store for store credit. Luna: So they're essentially buying their own used furniture back. That's a clever way to keep their products in the loop. But isn't that a huge operational headache? Logistics, refurbishing, re-selling — that's a lot of complexity for a company that's used to moving boxes. Lucas: Exactly, and that's the pivot. It's not just a marketing line. In their 2025 sustainability report, they said these circular services — take-back, resale, and rental — generated over 300 million euros in sales last year. That's still small against their total revenue of over 47 billion euros, but it's growing at a double-digit pace. Luna: Three hundred million is less than one percent of revenue. So it's a drop in the bucket, but it's a fast-growing drop. And honestly, it's a signal — they're building the infrastructure now, before the regulatory pressure really hits. Lucas: And the regulatory pressure is coming. The European Union's new right-to-repair directive is already forcing manufacturers to make products last longer and be repairable. IKEA is front-running that, and they're also responding to a cultural shift. Consumers, especially younger ones, are increasingly open to buying second-hand. A recent survey showed that over 40 percent of millennials have bought used furniture. Luna: It feels like they're trying to own the second-hand market before someone else does. Like, if they don't do it, a startup like Kaiyo or AptDeco is going to eat into their resale value. Lucas: Right. And IKEA has a unique advantage — they know the product, they have the supply chain, and they have the physical stores. That's something a pure online reseller doesn't have. So they're leveraging their stores as collection points and even as mini-refurbishment hubs. Luna: So it's a smart strategic move, but what about the economics? Refurbishing a used Billy bookcase can't be cheap. Are they actually making money on this, or is it a loss leader? Lucas: That's the million-dollar question. IKEA hasn't broken out the profitability of their circular services, but they've said they aim to make them financially sustainable by 2028. Right now, they're investing heavily in the infrastructure — they have dedicated teams, reverse logistics, and they're experimenting with different models like furniture rental in several markets. Luna: Speaking of experiments, I read about their rental program that they tested in the Netherlands and Switzerland. You can lease a sofa or a desk for a monthly fee, and at the end of the term, you can buy it or send it back to be refurbished. Lucas: Yeah, and that's a radical shift from their traditional model. Leasing isn't just about selling a product once — it's about managing the product's entire lifecycle. It changes the incentive structure too. If you own the product for years, you're going to design it to last longer and be easier to fix. Luna: And that's the real pivot — from selling a product to providing a service. It's like what Rolls-Royce did with jet engines, selling hours of flight instead of the engine itself. Lucas: Exactly. IKEA is essentially becoming a service provider for furniture. But it's a tricky transition. Their entire supply chain is optimized for volume and low cost, not for reverse logistics and repair. So they're having to build an entirely new operational muscle. Luna: It's also a cultural challenge. Their people are used to a certain way of doing things. How are they getting the stores on board? Lucas: They've been rolling out training programs and even gamifying the process. Employees get points for handling returns that get resold, and some stores have made 'As-Is' a destination section with better placement. It's about making circularity feel like a core part of the job, not a side project. Luna: It's a long game. And honestly, it's a bit of a bet that consumers will actually change their behavior. Are they going to bring back their old IKEA furniture instead of just throwing it in the dumpster? Lucas: That's the big uncertainty. Right now, participation varies wildly by market. In Sweden, they've seen really strong uptake on take-back, but in other countries, it's been slower. It depends on whether people see the value — both the store credit and the environmental impact. Lucas: And there's a delicate balance to strike. If they make it too easy to return, they might cannibalize new furniture sales. If they make it too hard, the whole thing fails to scale. They're walking a tightrope. Luna: Before we go deeper into that, I'm curious — and this might be a bit of a pivot — has any of this affected how you think about your own furniture choices? Because I know you're a bit of a minimalist, but you also have that IKEA 'Hemnes' dresser, right? Lucas: You got me. I actually bought that dresser second-hand on the take-back program. It was a demo model, so it had a few scratches, but I got it for forty percent off. And honestly, it's been great. It made me realize that refurbished furniture can be just as good. Luna: That's a nice little endorsement. And you know, if these conversations have moved your work or your thinking forward in any small way, the show stays free thanks to listeners who choose to buy us a coffee. If that's you, you can find us at buy me a coffee dot com slash fexingo. Every bit keeps the lights on. Lucas: Yeah, it genuinely does help. And we're back to the topic in a second, but I think the point is that when you experience the second-hand side of IKEA yourself, you start to see the potential. Lucas: So, back to that tightrope. The cannibalization risk is real, but there's an interesting dynamic at play. When IKEA resells a used Billy bookshelf, they're not just making a smaller profit on that item — they're also keeping that customer in the IKEA ecosystem. They might come back for a matching shelf or a new drawer front. Luna: So it's a customer retention play more than a profit center. And that makes sense, because the cost of acquiring a new customer is way higher than retaining an existing one. Lucas: Exactly. And there's another angle: it's a huge sustainability story. IKEA has set science-based targets to reduce their climate footprint by 50 percent by 2030, and circularity is a key lever. By extending the life of their products, they're avoiding the carbon emissions that come from manufacturing new furniture. Luna: That's a serious impact. I read that the furniture industry accounts for something like 0.5 percent of global CO2 emissions. It's not the biggest, but it's not negligible either. Lucas: Right, and IKEA has the scale to move the needle. They sell about one billion products a year. If even a fraction of those get a second life, the cumulative effect is enormous. Luna: So what's the biggest obstacle to making this work? Is it the logistics, the consumer behavior, or something else? Lucas: I think it's the economics of reverse logistics. It's expensive to collect, transport, inspect, clean, and repair furniture. And IKEA's products are designed to be cheap, so the margin on a refurbished item is often thin. They're going to have to find efficiencies in the process — maybe through automation or by partnering with local repair shops. Lucas: They've also started experimenting with AI to assess the condition of returned items. A store employee can photograph a piece of furniture, and the AI will recommend whether it should be resold, repaired, or recycled. That could cut down a lot of manual work. Luna: That's fascinating. So they're using technology to make circularity more feasible. It's not just about good intentions — it's about operational efficiency. Lucas: And they're also learning from other industries. They've studied how companies like Patagonia have built a repair and resale model. But Patagonia has a much smaller product range and a higher price point, so the dynamics are different. IKEA has to figure out how to do this at massive scale with low margins. Luna: It's a huge challenge, but if anyone can do it, maybe it's IKEA. They've proven they can reinvent themselves before — like when they moved from selling furniture in physical catalogs to e-commerce. Lucas: That's a good point. They made that pivot successfully, and their online sales have grown to over 25 percent of total revenue. So they have a track record of adapting. But circularity is a bigger shift because it challenges their entire business model, not just their distribution channels. Luna: So what's your take — will IKEA actually hit that 2030 goal of being 100 percent circular? Lucas: I'm cautiously optimistic, but I think they'll miss the 100 percent mark. They'll get close — maybe 80 or 90 percent — but some product categories are just inherently hard to make circular. Think about textiles or plastics in sofas. Those are tough to recycle economically. But if they get to 80 percent, that would still be a massive achievement and a blueprint for other retailers. Luna: It's a bold vision, and even if they fall short, the direction is clear. I'm really curious to see how this plays out over the next few years. Lucas: Me too. And I think the key takeaway is that IKEA is showing that even a giant retailer can start to change its DNA, but it takes time, investment, and a willingness to redefine what 'selling furniture' means. It's a pivot that's still in motion.