Mention Ikea and most people will think of smart, stylish, and affordable furniture. The news that the company actually makes entire houses - and for over ten years now - will come as a shock to many. Since 1996, Ikea and its partner Skanska have been quietly experimenting with the idea of building affordable houses on factory floors. These houses, known as BoKlok - Swedish for "smart living", are now available in five countries: Sweden, Denmark, Norway, Finland, and the UK.
Ingvar Kamprad, the founder of Ikea, had been mulling over the idea of building homes for a while when, in 1996, he sensed the right time had come, according to the company. The real estate market in Sweden, Ikea's home country, was prohibitively expensive for many families. Demand exceeded supply in the residential property sector. More importantly, small households that compromise one to three people were, and still are, under-served by the existing market. In Stockholm, more than 85 percent of households were considered "small" in 2008 while 75 percent of the countryside fell in the same category.
The current demographic trend towards smaller households reflects the growing number of single parent homes, young adults, and retirees that decide to live on their own. A bulk of this demographic segment, specifically single mother families, has a hard time finding housing that meets its needs. "There are many players building for the conventional nuclear family, but few were concentrating on small households. Therefore this was the segment BoKlok choose to focus on," according to information provided by Ewa Magnusson, a Marketing Manager at the company.
Before launching itself into the market, Ikea studied Swedish household income figures in terms of how much the target customer, mostly single mothers, could afford to pay monthly after taking care of all their other needs such as food, clothing, transportation, daycare, and insurance. The company then surveyed shoppers in its stores asking them one basic question - what they wanted in their homes. The answers it received were consistent in their demands. People wanted to feel secure in their homes and preferred smaller developments. They would rather be near the countryside and in good terms with their neighbors. They dreamed of having small gardens and wanted a "home that was [full of] light, well planned, functional, and furnished with natural materials."
When the BoKlok project began, the prefabricated homes were sold at specific Ikea stores. Currently, owners are chosen through a lottery system. "Interest in our apartments has been so great that, rather than operate a waiting list, we distribute apartments through the drawing of lots," according to Ikea. While the concept remains the same, the design of the houses has been adjusted to the tastes of their target countries. What is best selling in Sweden doesn't necessarily translate in the Danish, Norwegian, Finnish and UK markets.
In Sweden, Ikea offers three types of BoKlok homes - multiple family houses, apartments, and has recently added villas to its line. They all have high ceilings and extra large windows to allow in maximum light. Most are fitted with oak floors, tiled bathrooms, and Ikea kitchens. The villas come with maximum adaptability to customers' tastes while the other two types have limitations. The homes are built in modules and then delivered to their final site. Assembly, done by Ikea itself, takes a short time - just a day to install a six apartment building. "By the time the evening falls, the roof is on and the building is completely watertight," according to the company.
Ikea boasts a high satisfaction rate among BoKlok homeowners. The company surveys customer satisfaction at each of its BoKlok projects. "Three months after our customers have moved in, all are asked to participate in a survey conducted by an independent company. These surveys consistently show high levels of satisfaction," according to the company. Average satisfaction scores are about 84 percent with many projects coming in at above 90 percent.
At least one BoKlok development has fallen victim to the financial crisis. The Gateshead development in the UK was touted as an answer to the housing shortage that was plaguing the British market a couple years ago, according to The Independent. However, since then real estate prices have plummeted and mortgage loans can no longer be obtained easily. Families in BoKlok's target market, more than any others, need generous credit to make major purchases such as housing. Due to disappointingly weak sales, further BoKlok projects in the UK have been put on hold indefinitely.
In order to pique buyers' interest, BoKlok UK has resorted to bribing buyers with various incentives. On offer, for example, is a try before you buy scheme that allows prospective buyers to rent the apartments for six months before making a decision to buy them. To further sweeten the deal, if a renter decides to buy, the money they paid during their six month stay will be refunded, potentially covering a good bit of their mortgage deposit.
Over 3,500 apartments and houses have been sold so far and the company is optimistic. "We have noted increasing interest in BoKlok. Our current capacity is around 1,000 apartments per year, but we envisage this figure rising appreciably over the coming years," it states.
Perhaps the ultimate test for BoKlok homes is whether and if prospective buyers begin to see them, overtime, not just as their only choice but as their preferred option. Most have a range of eco friendly features, such as solar panels and low cost heating, which may attract interest from environmentally aware consumers. Ikea prefab houses have already received some attention from the green media. The company can potentially harness this interest and convert it to more sales. For now, it can only hope the situation in the UK is a temporary bump down a long path ahead and won't catch on into its other markets. It needs weather the global economic crisis without being brought down to its knees.