Mike Ward, President of IKEA USA gave the keynote address at the 6th Annual Retail Industry Leaders Association (RILA) Conference in Orlando last week where he unveiled IKEA’s sustainability strategy.
I caught up with Ward a couple of days later to discuss the new strategy in greater detail.
TriplePundit: What are the main elements of IKEA’s new sustainability strategy?
Mike Ward: The new strategy really outlines for us how we want to transform the business in the next few years, using sustainability as a key platform of the business plan. People and Planet Positive is a way to explain to ourselves and to everyone what we’re going to be focusing on.
3p: So what’s different now?
MW: We’re looking at three change drivers. The first is a more sustainable life at home. We’ve always been fascinated with the way people live, and have focused our innovation on improving life, always at a low price. Sustainability adds another dimension to that challenge. Next we discussed energy independence and independence in the way that we source materials. That shows up in our commitment to renewable energy and the work we’ve done in our supply chain, particularly with respect to wood and cotton. The third aspect is a better life for the people and communities where we do business.
3p: What does sustainable life at home look like?
MW: That is where we can really add the most value. We have to be clear that even though people are becoming more aware, it’s a hard change for some people to make. But we, and all retailers, can be a big part of motivating people to make the change to a more sustainable way of living at home, because our products are so good.
3p: How do you reconcile being a provider of low-cost furnishings with bringing sustainability into people’s lives, in cases where the more sustainable options currently cost more, like organic food, for example, or cotton, or LED light bulbs?
MW: Cotton is a good example. We buy quite a bit of cotton. In fact, almost one percent of all the cotton grown in the world goes into IKEA products. The way we’re working with cotton is to really go back to the source. We work with the Better Cotton Initiative (BCI) where we have an opportunity to influence the way it is produced. This is an independent organization that works with farmers to help them figure out how to use less water, less pesticide, and less fertilizer, therefore growing cotton more sustainably.
3p: And adding your buying power helps improve the prices.
MW: Yes, it does. We’ve set a goal that by 2015, all the cotton we buy will be produced in line with the BCI standards.
3p: Are your customers aware of this?
MW: One of the things we’ve realized is, in general, the way we’re communicating with people when it comes to these issues needs to be improved. We feel that we need to create conversation around this and people will become more interested. We want IKEA to be a place where people can go and learn about this and get good solutions.
3p: So you really see yourselves as change agents, with every item you sell carrying an opportunity for people to change both how they think and how they live. Would you agree?
MW: Perhaps. But the products have to be so good, that the sustainability part is just implicit. Take induction cooking, for example. Most people today are convinced that cooking with gas is best. Now this new technology shows up which is very efficient. It magnetically heats the pan without heating up the cook top, and it gives amazing heat control, which leads to better cooking. That’s a product that actually does both, it’s sustainable, it’s efficient, but it also provides a higher quality experience.
3p: These products will clearly save the customers money over time, but will also require a higher initial outlay.
MW: Yes. Induction cooking is more expensive, though ours is less than most and we are working to drop the price even further. Unless we can, many people won’t be able to afford it. That’s one of the challenges we have.
3p: So how do you retain your customers who have come to you for low price, if now what you are selling is sustainability? Now you are asking customers to pay more, taking on that burden, in order to save money and be more sustainable down the road.
MW: That is a challenge for us and it goes to the heart of our business because we’ve always worked this way. We’ve always taken interesting ideas and made them as widely available as possible through creating volume. And that’s what we intend to do in these areas, as well. We will be dropping the price on our LED lighting over the next few years. We need to remove that barrier.
3p: At the same time you’re working on reducing the price, you’re also convincing people why it makes sense to buy these in order to create the demand, then getting the volumes up to bring the prices down.
MW: That’s at the heart of how we do business.
3p: So what about energy independence?
MW: When it comes to what we’ve done with renewable energy, we’ve really been focusing on investment in wind and solar. We now have over half a million solar panels installed on our buildings globally and quite a few wind turbines. By the end of fiscal year 2015, we will produce 70 percent of the energy we consume. And by 2020, we will produce 100 percent. In the US, 90 percent of our buildings already have solar installations and we’ve done that in just two and a half years. Now we’re starting to look at what role fuel cells might play at our warehouses and stores.
3p: Why fuel cells, too?
MW: At our stores, the solar panels only provide 12-15 percent of our power demand, given the roof area available. At our distribution centers, we can get close to 80 percent. We’re also converting all of our store lighting to LED. That will save us 11 percent in our electric usage.
3p: Great. What about transportation? You move a lot of stuff around.
MW: One thing we are doing to reduce our transportation footprint is remove all wooden pallets from the supply chain. We are replacing them with much thinner paper pallets or plastic loading ledges that are simply attached to the boxes. The saves a lot of weight and space in our containers. We are also using bigger trucks and containers.
Compared to traditional wooden pallets, this approach saves 75,000 tons of CO2 per year, a 6 percent savings. It’s been a big job to do this. We’ve had to change our racking infrastructure and goods handling equipment.
MW: We are also doing some interesting things with our products. Like, our best-selling sofa, the Ektorp, can be folded in half, which makes it easier to ship, while still being easy to assemble. We can now ship twice as many Ektorps per container as we did before. That saves thousands of transports per year and ends up lowering the price of the product. That puts product, price and sustainability all together.
3p: Sounds like basic good design.
MW: We need to convince people not to be put off by the fact that it’s folded in half. But the fact is, we have a story to tell.
3p: Speaking of transportation, how much of your product is produced here in the U.S.?
MW: We produce more in the U.S. than people might think. Almost 24 percent of what we sell here, is made here. Especially large items like sofas, mattresses, and kitchen cabinets. We see lots of opportunities in the next few years to increase that.
3p: I wanted to ask you about product take-back. Have you looked into the possibility of picking up old furniture to be recycled when you deliver new, or letting people bring products in when they are done with them?
MW: We have a group within the company that is looking at the whole chain, and how we might be able to reuse the material and put it back into making new products. That’s something that we’re putting quite a bit of energy into right now and see as a very important part of the whole product cycle. We’re already experimenting here in the U.S. There are some state and local regulations involved which limit our abilities to take back mattresses, but where we can we have been experimenting with mattress take-back programs.
3p: Anything else you want to add?
MW: Our plan is that by 2020 we’ll have a fourfold increase in the number of sustainable products sold. By the end of 2016, we want all of our cook tops to be induction, and we want energy consuming products to be 50 percent more efficient than they were in 2008, and we want to offer those products at the lowest price on the market.
3p: So that leaves better life and communities?
MW: All of global furnishing suppliers and all of our global food suppliers are now compliant with our supplier code of conduct called IWAY. I’m also personally excited by our annual soft toy promotion. That’s where we donate a euro for every soft toy sold to a fund that helps children get access to education. So far the program has reached 8 million. Our goal is to donate 20 million euros per year by 2020.