Oliver Balch speaks to Pia Heidenmark Cook, chief sustainability officer for the world’s largest furniture retailer, about its ambition to achieve 100% recycled and renewable material in its products
“Low-cost”, “flat-pack”, ”Swedish”, “yellow”. Mention of the word “IKEA” and many word associations spring to mind. True aficionados of the world’s largest furniture retailer may think “Poäng chair” or “Billy bookcase”, or even “meatballs”. One term that is unlikely to crop up, however, is “circular”.
That could be set to change. In a major statement of intent, the global home-furnishing brand announced earlier this month that it is joining forces with circular economy champions, the Ellen MacArthur Foundation. The strategic partnership aims to put the home furnishing sector “on the global circular map” and to advance a wider transformation to a circular society.
It’s a bold and timely ambition. As Ethical Corporation’s latest issue (free to download here) reveals, “circular” is a hot topic at the moment, top of mind both for policymakers (the European Commission is a vocal enthusiast) and eco-minded industries. The idea of a consumption model based around reuse, repair and recycling is seen as vital to helping us live within the limits of the planet’s natural boundaries.
People are starting to see the connection between their individual choices and what we see in terms of biodiversity decline and climate change
But is such a vision really feasible for a €41bn-revenue behemoth like IKEA? And, if so, how on Earth does it hope to get there?
First off, IKEA isn’t a company known for doing things by halves. From comparatively humble beginnings (the firm was founded during WWII by a farmer’s son), it is now up there with the Walmarts and Amazons of this world as a transformative force in modern mass retail. The no-frills layout and out-of-town location of its gargantuan outlets aren’t to everyone’s tastes, but they attract shoppers in their hordes. Last year, a staggering 839 million visitors pushed their trolleys along the circuitous aisles of its 374 stores. Such success speaks to a no-messing management culture that is high in ambition and ruthless in execution.
But IKEA is no newbie to the environment game. In late 2018, the Inter IKEA Group, which controls the brand, announced its objective to become climate-positive by 2030, including a commitment to reduce absolute greenhouse gas emissions by 80% (compared with 2016). Over the last decade or so, Ingka Group, the largest IKEA retailer with 374 stores in 30 countries, has invested around €2.5bn in renewable energy projects. Its portfolio of clean energy investments – 534 wind turbines, two solar farms, and 920,000 rooftop solar modules, to be precise – generates more renewable electricity than the company’s existing demand.
In an interview with Ethical Corporation, Pia Heidenmark Cook concedes that it still early days for circularity. As chief sustainability officer for Ingka Group, her focus lies primarily with the consumer end of the circular-economy puzzle. This mostly centres on influencing how IKEA’s 10,000 or so products are (ideally) refurbished or recycled after use, although IKEA’s interconnected governance model sees her feed into critical questions of production as well (notably, material procurement and product design).
Heidenmark Cook has two important factors in her favour. The first is buy-in from above. IKEA recently set a public goal to achieve a combined total of 100% renewable and recycled content (current levels stand at 60% and a mere 10%, respectively). The second is consumer demand. “People are starting to see the connection between their individual choices and what we see in terms of biodiversity [decline] and climate change,” she notes. The recent experience of lockdown for many has heightened such awareness massively, she adds, noting the recent Google research that revealed a 4,550% increase in searches for sustainable living tips.
Although the ink on IKEA’s new partnership with the Ellen MacArthur Foundation is barely dry, Heidenmark Cook and her colleagues aren’t starting entirely afresh. IKEA introduced a set of circular design principles a couple of years ago and is slowly working its way through its product portfolio to see where opportunities for improvement can be made. Priority is given to those whose carbon footprint is largest and “trickiest to shift”, says Heidenmark Cook. At a review rate of around 2,000 products a year, IKEA’s product team has a good three more years ahead until the job is done.
Having a network in place to receive, refurbish and reissue thousands, or even millions, of returned products does feel like a head-scratcher
At the end-of-use phase, meanwhile, Ingka is experimenting with a circular-orientated product-leasing model. Leasing is commonplace across a host of sectors, from cranes in the construction trade through to company cars. Yet, for a home furnishing firm, leasing presents a number of specific challenges. On the lessee’s side, the incentive to lease usually stems from high up-front costs – a factor that IKEA’s economical pricing structure effectively negates. For the lessor’s part, meanwhile, the business model rests on leasing the same product over and over. That may work for durable object like an apartment, but not the flat-pack soft-wood tables and chairs inside it.
At present, the company is dipping its toe in the market to test the desirability and viability of the idea, Heidenmark Cook says. If the initial batch of small-scale tests currently being run in the Netherlands, Sweden, Switzerland and Poland prove successful, then more substantive pilots are earmarked to follow. As it stands, Ingka anticipates demand centring on the business-to-business market – think, office furniture for small businesses or home furnishings for short-term rental outfits like Airbnb – but it has not ruled out the possibility of leasing direct to consumers in the future.
The main hurdle with leasing relates to the infrastructure for take-back. Sure, other problems exist, like how to structure financing and track the back-and-forth flow of leased products. But for a company that coped with a 46% surge in online sales in 2019, these feel like mere technicalities. Having a network in place to receive, refurbish and reissue thousands, or even millions, of returned products, on the other hand, really does feel like a head-scratcher.
Infrastructure limitations are an ongoing gripe, and not just with IKEA. The world’s retail systems were built with an eye to wooing customers through the doors and encouraging them to spend, spend, spend. The idea of return visits was (and still is) to come back for more. When factories were built, logistics systems established, and stores designed, little thought was given to the prospect of customers returning months, or years, later to return the products they once so eagerly bought.
“There’s a capacity issue,” Heidenmark Cook concedes. “There’s not enough recycling stations or companies in place for us to achieve what we want to achieve ... We don’t have refurbishment capacity everywhere around the world so [we are] building up those networks. [Also] recovery depends on local infrastructure because there are some countries where recycling of certain materials is not technically or legally possible.”
Even so, Ingka has a march on most of its competitors. It offers basic take-back options in 22 of its 30 markets, offering to buy back IKEA-branded goods that are unmodified and in relatively good condition. After a brief quality check, the product is then resold (at the same price as the customer was paid) in the Bargain Corner of participating Ikea stores. Think of it as a mediated car-boot sale.
We rely on regional clusters to make it work … there is no point if a recycling centre is too far from the source of production
If the amounts of returned products are low, the cost of running a take-back scheme become a drain; In the event they become too high, then rapid infrastructure scale-up is required. Ingka is not facing the second issue yet, but in anticipation, the retail giant is looking to develop an approach based on regional clusters, whereby the flow of end-of-life products between stores, recycling centres and production facilities are all relatively close and interconnected.
“We don’t approach this on a global level, shifting things first left and then right, but we rely on regional clusters to make it work … there is no point if it [a recycling centre] is too far from the source of production,” observes Heidenmark Cook.
If IKEA is to hit its circular targets, it will take three c-words. The first is “cash”. The success of the IKEA brand over the years has left Ingka with substantial cash reserves, some of which is reinvested through its in-house investment unit. Most finds its way into bonds, equities and other financial instruments, yet a sizeable chunk goes into deals designed to meet business-critical needs, often with a sustainability angle. The above-mentioned €2.5bn in renewable energy projects represents a case in point.
Recent years have also seen a number of circular economy-related investments. One is Optoro, a US-based software platform designed to facilitate “reverse logistics” (essentially, the return, refurbishment and reselling of products). Others include circular-economy innovators such as the Dutch mattress recycler RetourMatras and the plastic recyclers Umincorp and NGR.
As Heidenmark Cook explains: “Ten years ago, we started to invest in wind and solar. We saw that the industry was growing and we needed renewables for our business. Now we are doing the same with recycling companies … We could go into partnership or we could also choose to invest to help these companies grow.”
The second c-word is “cooperation”. Working with industry partners and others from across the business world to “crack the challenges” associated with shifting onto a circular footing is essential, says Heidenmark Cook. That could happen through business-led initiatives, such as Circular Economy 100, a knowledge-sharing programme run by the Ellen MacArthur Foundation. Equally, it could occur via joint advocacy with other progressive-minded companies. IKEA has been an active contributor to consultation process for the European Commission’s new circular economy strategy, informing policymakers where the regulatory blocks exist and advocating for a common framework and clear rules.
We welcome legislation, but we also believe that it needs to be anchored in reality, and through collaboration
“We welcome legislation, but we also believe that it needs to be anchored in reality, and [through] the collaboration between policymakers, government and companies we can share the knowledge from different parts [of industry] and create better policy,” she states.
The third and final c-word is the consumer. IKEA owes its stellar growth to putting buyers at the centre of all it does. Is it affordable? Is it functional? Does it make people’s lives better or simpler? Such questions guide any decision across the IKEA group, including those about sustainability.
Heidenmark Cook argues that the winds are blowing in the right direction for circular solutions. Younger generations, in particular, are increasingly “putting a value on things” and “don’t want to be wasteful”, she says. Such winds are not yet a gust, far less a tornado, and will require efforts on Ingka’s part to grow in strength. At the very least, however, the home-furnishing giant has something to work with. If anyone can devise a way of squeezing circularity into a flat-pack, it is Sweden’s low-cost king.
Pia Heidenmark Cook was a speaker at this month's Virtual Responsible Business Week. #RBSVirtual. You can see her session on demand here.
circular economy Ingka Group IDEA Ellen Macarthur Foundation clean energy investment renewable electricity leasing model reverse logistics