Business policy and strategy case – ikeaMay 29, 2022 2022-05-29 11:37
Business policy and strategy case – ikea
Business policy and strategy case – ikea
IKEA in 2013: Furniture Retailer to the World
Charles W.L. Hill
IKEA is one of the world’s most successful global retailers. By 2012 IKEA had 320 home furnishing superstores stores in 40 countries and was visited by some 776 million shoppers. IKEA’s low-priced, elegantly designed merchandise, displayed in large warehouse stores, generated sales of €27.5 billion in 2012, up from €4.4 billion in 1994, and €4.2 billion in net pro t. Although the privately held company refuses to publish detailed nancial data, its net pro t margins were rumored to be around 10%, high for a retailer. The founder, Ingvar Kamprad, now in his 80s but still an active “advisor” to the company, is rumored to be one of the world’s richest men.
IKEA was established by Ingvar Kamprad in Sweden in 1943 when he was 17 years old. The edgling com- pany sold sh, Christmas magazines and seeds from his family farm. It wasn’t his rst business—that had been selling matches which the enterprising Kamprad had purchased wholesale in 100 box lots (with help from his Grandmother who nanced the enterprise) and then resold individually at a higher mark-up. The name IKEA was an acronym, I and K being his initials, while E stood for Elmtaryd, the name of the family farm, and A stood for Agunnaryd, the name of the village in Southern Sweden where the farm was located. Before long Kamprad had added ballpoint pens to his list and was selling his products via mail order. His warehouse was a shed on the family farm. The customer ful llment system utilized
the local milk truck, which picked up goods daily and took them to the train station.
In 1948 Kamprad added furniture to his product line and in 1949 he published his rst catalog, distributed then as now, for free. In 1953 Kamprad found himself strug- gling with another problem, the milk tuck had changed its route and he could no longer use it to take goods to the train station. Kamprad’s solution was to buy an idle fac- tory in nearby Almhult and convert it into his warehouse. With business now growing rapidly, Kamprad hired a 22 year old designer, Gillis Lundgren. Lundgren origi- nally helped Kamprad to do photo shoots for the early IKEA catalogs, but over time he started to design more and more furniture for IKEA, eventually designing as many as 400 pieces, including many best sellers.
IKEA’s goal as it emerged over time was to provide stylish functional designs with minimalist lines that could be manufactured cost ef ciently under contract by suppliers and priced low enough to allow most people to afford them. Kamprad’s theory was that “good furni- ture could be priced so that the man with that at wal- let would make a place for it in his spending and could afford it”.1 Kamprad was struck by the fact that furni- ture in Sweden was expensive at the time, something that he attributed to a fragmented industry dominated by small retailers. Furniture was also often considered a family heirloom, passed down across the generations. He wanted to change this: to make it possible for people of modest means to buy their own furniture. Ultimately, this led to the concept of what IKEA calls “democratic design”—a design that, according to Kamprad, “was not just good, but also from the start adapted to machine production and thus cheap to assemble”.2 Gillis
School of Business, University of Washington, Seattle, WA 98105
Case 18 IKEA in 2013: Furniture Retailer to the World
Lundgren was instrumental in the implementation of this concept. Time and time again he would nd ways to alter the design of furniture to save on manufacturing costs.
Gillis Lundgren also stumbled on what was to become a key feature of IKEA furniture: self-assembly. Trying to ef ciently pack and ship a long-legged table, he hit upon the idea of taking the legs off and mailing them packed at under the tabletop. Kamprad quickly noticed is that at packed furniture reduced transport and warehouse costs, and also reduced damage (IKEA had been having a lot of problems with furniture dam- aged during the shipping process). Moreover, customers seemed willing to take on the task of assembly in return for lower prices. By 1956, self-assembly was integral to the IKEA concept.
In 1957 IKEA started to exhibit and sell its products at home furnishing fairs in Sweden. By cutting retailers out of the equation and using the self-assembly concept, Kamprad could undercut the prices of established retail outlets, much to their chagrin. Established retailers re- sponded by prohibiting IKEA from taking orders at the annual furniture trade in Stockholm. Established outlets claimed that IKEA was imitating their designs. This was to no avail however, so the retailers went further, pressur- ing furniture manufacturers not to sell to IKEA. This had two unintended consequences. First, without access to the designs of many manufacturers, IKEA was forced to design more of its products in house. Second, Kamprad looked for a manufacturer who would produce the IKEA designed furniture. Ultimately he found one in Poland.
To his delight, Kamprad discovered that furniture manufactured in Poland was as much as 50% cheaper that furniture made in Sweden, allowing him to cut prices even further. Kamprad also found that doing business with the Poles required the consumption of considerable amounts of vodka to celebrate business transactions, and for the next 40 years his drinking was legendary. Alcohol consumption apart, the relationship that IKEA established with the Poles was to become the archetype for future relationships with suppliers. According to one of the Polish managers, there were three advantages of doing business with IKEA: “One concerned the deci- sion making; it was always one man’s decision, and you could rely upon what had been decided. We were given long-term contracts, and were able to plan in peace and quite. . . . A third advantage was that IKEA introduced new technology. One revolution for instance, was a way of treating the surface of wood. They also mastered the ability to recognize cost savings that could trim the
price.”3 By the early 1960s, Polish made goods were to be found on over half of the pages of the IKEA catalog.
By 1958, an expanded facility at the Almhult loca- tion became the rst IKEA store. The original idea behind the store was to have a location where customers could come and see IKEA furniture set up. It was a supplement to IKEA’s main mail order business; but it very quickly became an important sales point in its own right. The store soon started to sell car roof racks so that customers could leave with at packed furniture loaded on top. Noticing that a trip to an IKEA store was something of an outing for many shoppers (Almhult was not a major population center, and people often drove in from long distances), Kamprad experimented with adding a restaurant to the Almhult store so that customers could relax and refresh themselves while shopping. The restaurant was a hit and it became an integral feature of all IKEA stores.
The response of IKEA’s competitors to its success was to argue that IKEA products were of low quality. In 1964, just after 800,000 IKEA catalogs had been mailed to Swedish homes, the widely read Swedish magazine Allt i Hemmet (Everything for the Home) published a comparison of IKEA furniture to that sold in traditional Swedish retailers. The furniture was tested for quality in a Swedish design laboratory. The magazine’s analy- sis, detailed in a 16-page spread, was that not only was IKEA’s quality as good if not better than that from other Swedish furniture manufacturers, the prices were much lower. For example, the magazine concluded that a chair bought at IKEA for 33 kroner ($4) was better than a vir- tually identical one bought in a more expensive store for 168 kroner ($21). The magazine also showed how a liv- ing room furnished with IKEA products was as much as 65% less expensive than one furnished with equiva- lent products from four other stores. This publicity made IKEA acceptable in middle-class households, and sales began to take off.
In 1965, IKEA opened its rst store in Stockholm, Sweden’s capital. By now, IKEA was generating the equivalent of €25 million and had already opened a store in neighboring Norway. The Stockholm store, its third, was the largest furniture store in Europe and had an in- novative circular design that was modeled on the famous Guggenhiem Art Museum in New York. The location of the store was to set the pattern at IKEA for decades. The store was situated on the outskirts of the city, rather than downtown, and there was ample space for parking and good access roads. The new store generated a large amount of traf c, so much so that employees could not
keep up with customer orders, and long lines formed at the checkouts and merchandise pick up areas. To try and reduce the lines, IKEA experimented with a self-service pick up solution, allowing shoppers to enter the ware- house, load at packed furniture onto trolleys, and then take them through the checkout. It was so successful that this soon became the norm in all stores.
By 1973 IKEA was the largest furniture retailer in Scandinavia with 9 stores. The company enjoyed a mar- ket share of 15% in Sweden. Kamprad, however, felt that growth opportunities were limited. Starting with a single store in Switzerland over the next 15 years the company expanded rapidly in Western Europe. IKEA meet with considerable success, particularly in West Germany where it had 15 stores by the late1980s. As in Scandinavia, Western European furniture markets were largely fragmented and served by high cost retailers located in expensive downtown stores and selling rela- tively expensive furniture that was not always immedi- ately available for delivery. IKEA’s elegant functional designs with their clean lines, low prices and immedi- ate availability were a breath of fresh air, as was the self-service store format. The company was meet with almost universal success even though, as one former manager put it: “We made every mistake in the book, but money nevertheless poured in. We lived frugally, drinking now and again, yes perhaps too much, but we were on our feet bright and cheery when the doors were open for the rst customers, competing in good Ikean spirit for the cheapest solutions”.4
The man in charge of the European expansion was Jan Aulino, Kamprad’s former assistant, who was just 34 years old when the expansion started. Aulino sur- rounded himself with a young team. Aulino recalled that the expansion was so fast paced that the stores were rarely ready when IKEA moved in. Moreover, it was hard to get capital out of Sweden due to capital controls, so the trick was to make a quick pro t and get a positive cash ow going as soon as possible. In the haste to expand, Aulino and his team did not always pay attention to detail, and he reportedly clashed with Kamprad on several occasions and considered himself red at least four times, although he never was. Eventually the European business was reor- ganized and tighter controls were introduced.
IKEA was slow to expand in the UK, however, where the locally grown company Habitat had built a business that was similar in many respects to IKEA, offering styl- ish furniture and at a relatively low price. IKEA also en- tered North America, opening up seven stores in Canada between 1976 and 1982. Emboldened by this success, in 1985 the company entered the United States. It proved to be a challenge of an entirely different nature.
On the face of it, America looked to be fertile terri- tory for IKEA. As in Western Europe, furniture retail- ing was a very fragmented business in the United States. At the low end of the market were the general discount retailers, such as Wal*Mart, Costco, and Of ce Depot, who sold a limited product line of basic furniture, often at a very low price. This furniture was very functional, lacked the design elegance associated with IKEA, and was generally of a fairly low quality. Then there were higher end retailers, such as Ethan Allen, who offered high-quality, well-designed, and high-priced furniture. They sold this furniture in full service stores staffed by knowledgeable sales people. High-end retailers would often sell ancillary services as well, such as interior de- sign. Typically these retailers would offer home delivery service, including set up in the home, either for free or for a small additional charge. Since it was expensive to keep large inventories of high-end furniture, much of what was on display in stores was not readily available, and the client would often have to wait a few weeks be- fore it was delivered.
IKEA opened its rst U.S. store in 1985 in Philadelphia. The company had decided to locate on the coasts. Surveys of American consumers suggested that IKEA buyers were more likely to be people who had travelled abroad, who considered themselves risk takers, and who liked ne food and wine. These people were concentrated on the coasts. As one manager put it, “there are more Buicks driven in the middle than on the coasts”.5
Although IKEA initially garnered favorable reviews, and enough sales to persuade it to start opening addi- tional stores, by the early 1990s it was clear that things were not going well in America. The company found that its European-style offerings didn’t always reso- nate with American consumers. Beds were measured in centimeters, not the king, queen, and twin sizes with which Americans are familiar. American sheets didn’t t on IKEA beds. Sofas weren’t big enough, wardrobe drawers were not deep enough, glasses were too small, curtains too short, and kitchens didn’t t U.S. size ap- pliances. In a story often repeated at IKEA, managers noted that customers were buying glass vases and using
Case 18 IKEA in 2013: Furniture Retailer to the World
Case 18 IKEA in 2013: Furniture Retailer to the World
them to drink out of, rather than the small glasses for sale at IKEA. The glasses were apparently too small for Americans who like to add liberal quantities of ice to their drinks. To make matters worse, IKEA was sourcing many of the goods from overseas and they were priced in Swedish Kroner, which was strengthening against the U.S. dollar. This drove up the price of goods in IKEA’s American stores. Moreover, some of the stores were poorly located, and the stores were not large enough to offer the full IKEA experience familiar to Europeans.
Turning around its American operations required IKEA to take some decisive actions. Many products had to be redesigned to t with American needs. Newer and larger store locations were chosen. To bring prices down, goods were sourced from lower cost locations and priced in dollars. IKEA also started to source some products from factories in the United States to reduce both trans- port costs and dependency on the value of the dollar. At the same time, IKEA was noticing a change in American culture. American’s were becoming more concerned with design, and more open to the idea of disposable furniture. It used to be said that American’s changed their spouses about as often as they changed their dinning room table, about 1.5 times in a life time, but something was shift- ing in American culture. Younger people were more open to risks and more willing to experiment, and there was a thirst for design elegance and quality. Starbucks was tapping into this, as was Apple Computer, and so did IKEA. According to one manager at IKEA, “ten or 15 years ago, travelling in the United States, you couldn’t eat well. You couldn’t get good coffee. Now you can get good bread in the supermarket, and people think that is normal. I like that very much. That is more important to good life than the availability of expensive wines. That is what IKEA is about”.6
To tap into America’s shifting culture, IKEA reem- phasized design, and it started promoting itself with a series of quirky hip advertisements aimed at a younger demographic; young married couples, college students, and twenty to thirty something singles. One IKEA com- mercial, called “Unboring”, made fun of the reluctance of Americans to part with their furniture. One famous ad featured a discard lamp, forlorn and forsaken in some rainy American city. A man turns to the camera sympa- thetically. “Many of you feel bad for this lamp,” he says in thick Swedish accent, “That is because you are crazy”. Hip people, the commercial implied, bought furniture at IKEA. Hip people didn’t hang onto their furniture either, after a while they discarded it and replaced it with some- thing else from IKEA.
The shift in tactics worked. IKEA’s revenues dou- bled in a 4-year period to $1.27 billion in 2001, up from $600 million in 1997. By 2012 the United States was IKEA’s largest market after Germany, with 44 stores accounting for 14% of the global total revenues.
Having learnt vital lessons about competing in for- eign countries outside of continental Western Europe, IKEA continued to expand internationally in the 1990s and 2000s. It rst entered the UK in 1987 and by 2012 had 18 stores in the country. IKEA also acquired Britain’s Habitat in the early 1990s, and continued to run it under the Habitat brand name. In 1998, IKEA en- tered China, where it had 14 stores by 2012, followed by Russia in 2000 (14 stores by 2012), and in 2006 Japan, a country where it had failed miserably 30 years earlier (by 2012 IKEA had 6 stores in Japan). In total, by 2012 there were 320 IKEA stores in 40 countries and terri- tories. The company’s plans call for continued global expansion, opening 20 to 25 stores per year, funded by an investment of around €20billion.
IKEA’s latest target market is India, where it has plans to invest €1.5 billion and ultimately open 25 stores. In late 2012 India’s foreign investment board approved IKEA’s plans to open stores in the country. However, the approval came with strings attached. The board denied IKEA to offer products in areas that the government thinks are politically sensitive, and where it wants to pro- tect local retailers. These include food and beverage out- lets, which are a standard feature of its stores around the world, and 18 of the 30 product categories it had initially applied for. Those 18 categories include gift items, fab- rics, books, toys, and consumer electronics. It remains to be seen how IKEA will adapt to these retractions.7
As with the United States, some local customization has been the order of the day. In China, for example, the store layout re ects the layout of many Chinese apartments, and since many Chinese apartments have balconies, IKEA’s Chinese stores include a balcony section. IKEA also has had to adapt its locations in China, where car ownership is still not widespread. In the West, IKEA stores are generally located in sub- urban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers delivery services so that Chinese customers can get their purchases home. IKEA has also adopted a deep price discounting model in China, pricing some items as much as 70% below their price in IKEA stores outside of China. To make this work, IKEA has sourced a large percentage of its products sold in China from local suppliers.
On thing that IKEA has refused to adapt to, how- ever, are business practices that clash with its values. The company prides itself on its “clean” image and is will- ing to halt investment in order to protect that. In the mid 2000s it put investment in Russia on hold as a protest against endemic corruption. It subsequently red two senior executives in the country for allegedly turning a bribe to a subcontractor to secure electricity supply for its St Petersburg outlets.8
Senior executives at IKEA have been know to com- plain that they could expand the business faster, were it not for administrative “red tape” in many countries that slows down the rate of expansion. According to the cur- rent CEO, Mikael Ohlsson, the amount of time it takes to open a store has roughly doubled to 5 or 6 years since the 1990s. Ohlsson singled out German local authori- ties as having planning restrictions designed to protect local city center shops that are detrimental to IKEA’s ex- pansion plans. Ohlsson argues that such regulations are holding back investment by IKEA, and thus job creation, across the European Union.9
the Ikea concept and BusIness model
IKEA’s target market is the young upwardly mobile global middle class who are looking for low-priced but attractively designed furniture and household items. This group is targeted with somewhat wacky offbeat adver- tisements that help to drive traf c into the stores. The stores themselves are large warehouses festooned in the blue and yellow colors of the Swedish ag that offer 8,000 to 10,000 items, from kitchen cabinets to candle- sticks. There is plenty of parking outside, and the stores are located with good access to major roads.
The interior of the stores is con gured almost as a maze that requires customers to pass through each department to get to the checkout. The goal is simple; to get customers to make more impulse purchases as they wander through the IKEA wonderland. Customers who enter the store planning to buy a $40 coffee table can end up spending $500 on everything from storage units to kitchenware. The ow of departments is constructed with an eye to boosting sales. For example, when IKEA managers noticed that men would get bored while their wives stopped in the home textile department, they added a tool section just outside the textile department, and sales of tools skyrocketed. At the end of the maze,
just before the checkout, is the warehouse where custom- ers can pick up their at packed furniture. IKEA stores also have restaurants (located in the middle of the store) and child-care facilities (located at the entrance for easy drop off) so that shoppers stay as long as possible.
Products are designed to re ect the clean Swedish lines that have become IKEA’s trademark. IKEA has a product strategy council, which is a group of senior managers who establish priorities for IKEA’s product lineup. Once a priority is established, product developers survey the competition, and then set a price point that is 30 to 50% below that of rivals. As IKEA’s web site states, “we design the price tag rst, then the product”. Once the price tag is set, designers work with a network of suppliers to drive down the cost of producing the unit. The goal is to identify the appropriate suppliers and least costly materials, a trial and error process that can take as long as three years. In 2008 IKEA had 1380 suppliers in 54 countries. The top sourcing countries were China (21% of supplies), Poland (17%), Italy (8%), Sweden (6%), and Germany (6%).
IKEA devotes considerable attention to nding the right supplier for each item. Consider the company’s best-selling Klippan love seat. Designed in 1980, the Klippan, with its clean lines, bright colors, simple legs, and compact size, has sold over 1.5 million units by 2010. IKEA originally manufactured the product in Sweden but soon transferred production to lower-cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. In 2010 there were ve suppliers of the frames in Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, IKEA concentrated production in four core suppliers in China and Europe. The resulting ef ciencies from these global sourcing decisions enabled IKEA to reduce the price of the Klippan by some 40% between 1999 and 2005.
Although IKEA contracts out manufacturing for most of its products, since the early 1990s a certain proportion of goods have been made internally (today around 90% of all products are sources from indepen- dent suppliers, with 10% being produced internally). The integration into manufacturing was born out of the collapse of communist governments in Eastern Europe after the fall of the Berlin Wall in 1989. By 1991 IKEA was sourcing some 25% of its goods from Eastern European manufacturers. It had invested considerable energy in building long-term relationships with these
Case 18 IKEA in 2013: Furniture Retailer to the World
Case 18 IKEA in 2013: Furniture Retailer to the World
suppliers, and had often helped them to develop and purchase new technology so that they could make IKEA products at a lower cost. As communism collapsed and new bosses came in to the factories, many did not feel bound by the relationships with IKEA. They effectively tore up contracts, tried to raise prices, and under invested in new technology.
With its supply base at risk, IKEA purchased a Swedish manufacturer, Swedwood. IKEA then used Swedwood as the vehicle to buy and run furniture manufacturers across Eastern Europe, with the largest investments being made in Poland. IKEA invested heavily in its Swedwood plants, equipping them with the most modern technology. Beyond the obvious bene ts of given IKEA a low cost source of supply, Swedwood has also enabled IKEA to acquire knowledge about manufacturing processes that are useful both in product design and in relationships with other suppliers, giving IKEA the ability to help suppliers adopt new technology and drive down their costs.
For illustration, consider IKEA’s relationship with suppliers in Vietnam. IKEA has expanded its supply base here to help support its growing Asian presence. IKEA was attracted to Vietnam by the combination of low cost labor and inexpensive raw materials. IKEA drives a tough bargain with its suppliers, many of whom say that they make thinner margins on their sales to IKEA than they do to other foreign buyers. IKEA demands high quality at a low price. But there is an upside; IKEA offers the prospect of forging a long-term, high volume business relation- ship. Moreover, IKEA regularly advises its Vietnamese suppliers on how to seek out the best and cheapest raw materials, how to set up and expand factories, what equip- ment to purchase, and how to boost productivity through technology investments and management process.
organIzatIon and management
In many ways IKEA’s organization and management practices re ect the personal philosophy of its founder. A 2004 article in Fortune describes Kamprad, then one of the world’s richest men, as an informal and frugal man who “insists on ying coach, takes the subway to work, drives a ten year old Volvo, and avoids suits of any kind. It has long been rumored in Sweden that when his self- discipline fails and he drinks an overpriced Coke out of a hotel mini bar, he will go down to a grocery store to buy a replacement”.10 Kamprad’s thriftiness is attributed
to his upbringing in Smaland, a traditionally poor region of Sweden. Kamprad’s frugality is now part of IKEA’s DNA. Managers are forbidden to y rst class and ex- pected to share hotel rooms.
Under Kamprad, IKEA became mission driven. He had a cause, and those who worked with him adopted it too. It was to make life better for the masses, to de- mocratize furniture. Kamprad’s management style was informal, nonhierarchical, and team based. Titles and privileges are taboo at IKEA. There are no special perks for senior managers. Pay is not particularly high, and people generally work there because they like the atmo- sphere. Suits and ties have always been absent, from the head of ce to the loading docks. The culture is egalitar- ian. Of ces are open plan, furnished with IKEA furni- ture, and private of ces are rare. Everyone is called a “coworker”, and rst names are used throughout. IKEA regularly stages anti bureaucracy weeks during which executives work on the store oor or tend to registers. In a Business Week article then CEO, Andres Dahlvig, described how he spent sometime earlier in the year un- loading trucks and selling beds and mattresses.11 Cre- ativity is highly valued, and the company is replete with stories of individuals taking the initiative; from Gillis Lundgren’s pioneering of the self assemble concept to the store manager in the Stockhom store who let cus- tomers go into the warehouse to pick up their own fur- niture. To solidify this culture, IKEA had a preference for hiring younger people who had not worked for other enterprises, and then promoting from within. IKEA has historically tended to shy away from hiring the highly educated status oriented elite because they often adapted poorly to the company.
Kamprad seems to have viewed his team as extended family. Back in 1957 he bankrolled a weeklong trip to Spain for all 80 employees and their families as reward for hard work. The early team of employees all lived near each other. They worked together, played together, drank together, and talked about IKEA around the clock. When asked by an academic researcher what was the fundamental key to good leadership, Kamprad replied “love”. Recollecting the early days, he noted that “when we were working as a small family in Aluhult, we were as if in love. Nothing whatsoever to do with eroticism. We just liked each other so damn much.”12 Another man- ager noted that “we who wanted to join IKEA did so because the company suits our way of life. To escape thinking about status, grandeur and smart clothes.”13
As IKEA grew, the question of taking the company public arose. While there were obvious advantages
associated with doing so, including access to capital, Kamprad decided against it. His belief was that the stock market would impose short-term pressures on IKEA that would not be good for the company. The constant demands to produce pro ts, regardless of the business cycle, would in Kamprad’s view, make it more dif cult for IKEA to take bold decisions. At the same time, as early as 1970 Kamprad stared to worry about what would happen if he died. He decided that he did not want his sons to inherit the business. His worry was that they would either sell the company, or they might squabble over control of the company, and thus destroy it. All three of his sons, it should be noted, went to work at IKEA as managers.
The solution to this dilemma created one of the most unusual corporate structures in the world. In 1982 Kamprad transferred his interest in IKEA to a Dutch based charitable foundation, Stichting Ingka Foundation. This is a tax exempt, non-pro t making legal entity that in turn owns Ingka Holding, a private Dutch rm that is the legal owner of IKEA. A ve-person committee chaired by Kamprad and which includes his wife runs the foun- dation. In addition, the IKEA trademark and concept was transferred to IKEA Systems, another private Dutch company, whose parent company, Inter-IKEA, is based in Luxembourg. The Luxembourg company is in turn owned by an identically named company in the Netherlands Antilles, whose bene cial owners remain hidden from public view, but they are almost certainly the Kamprad family. Inter-IKEA earns its money from a franchise agreement it has with each IKEA store. The largest franchisee is none other than Ingka Holdings. IKEA states that franchisees pay 3% of sales to Inter-IKEA.
Thus, Kamprad has effectively moved ownership of IKEA out of Sweden, although the company’s identity and headquarters remains there, and established a mecha- nism for transferring funds to himself and his family from the franchising of the IKEA concept. Kamprad himself moved to Switzerland in the 1980s to escape Sweden’s high taxes, and he has lived there ever since.
In 1986, Kamprad gave up day-to-day control of IKEA to Andres Moberg, a 36 year old Swede who had dropped out of college to join IKEA’s mail order department. Despite relinquishing management con- trol, Kamprad continued to exert in uence over the company as an advisor to senior management and an ambassador for IKEA, a role he was still pursuing with vigor in 2012, despite being in his mid 80s.
In its half century, IKEA had established an envi- able position for itself. It had become one of the most successful retail establishments in the world. It had expanded into numerous foreign markets, learning from its failures and building on its successes. It had bought affordable, well-designed, functional furniture to the masses, helping them to, in Kamprad’s words, achieve a better everyday life. IKEA’s goal is to con- tinue to grow opening 25 stores by 2020. Achieving that growth would mean continued expansion into non- western markets, including most notably China and India. Could the company continue to do so? Was its competitive advantage secure?
Case 18 IKEA in 2013: Furniture Retailer to the World
IKEA by the numbers in 2012
Sales and Suppliers
Top Five Sales Countries
Top Five Supplying Countries
238 in 40 countries
1,380 in 54 countries14
The IKEA Range
154,000 in 40 countries
Source: Company website
Source: Company Website
Case 18 IKEA in 2013: Furniture Retailer to the World
case discussion Questions
- By the early 1970s IKEA had established itself as the largest furniture retailer in Sweden. What was the source of tits competitive advantage at that time?
- Why do you think IKEA’s expansion into Europe went so well? Why did the company subsequently stumble in North America? What lessons did IKEA learn from this experience? How is the company now applying these lessons?
- How would you characterize IKEA’s strategy prior to its missteps in North America? How would you characterize its strategy today?
- What is IKEA’s strategy towards its suppliers? How important is this strategy to IKEA’s success?
- What is the source of IKEA’s success today? Can you see any weaknesses in the company? What might it do to correct these?
- Anonymous, “Furnishing the World”, The Economist, November 19, 1995, pp. 79–80.
- Anonymous. “Flat pack accounting”, The Economist, May 13, 2006, pp. 69–70.
- K. Capell, A. Sains, C. Lindblad, and A.T. Palmer, “IKEA,” BusinessWeek, November 14, 2005, pp. 96–101.
- K. Capell et al., “What a Sweetheart of a Love Seat,” BusinessWeek, November 14, 2005, p. 101.
- C. Daniels, “Create IKEA, Make Billions, Take Bus,” Fortune, May 3, 2004, p. 44.
- J. Flynn and L. Bongiorno, “IKEA’s new game plan”, BusinessWeek, October 6, 1997, pp. 99–102.
- R. Heller, “Folk Fortune”, Forbes, September 4, 2000, page 67.
- IKEA Documents at www.ikea.com
- J. Leland, “How the disposable sofa conquered America”, New York Times Magazine, October 5, 2005, page 40–50.
- P.M. Miller, “IKEA with Chinese Characteristics,” Chinese Business Review, July–August 2004, pp. 36–69.
- B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998.
- Anonymous, “The Secret of IKEA’s success”, The Economist, February 24, 2011.
1. 2. 3. 4. 5. 6. 7. 8. 9.
10. 11. 12. 13. 14.
Quoted in R. Heller, “Folk Fortune”, Forbes, September 4, 2000, page 67.
B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998, page 53.
B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998, pages 61–62.
B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998, page 109.
J. Leland, “How the disposable sofa conquered America”, New York Times Magazine, October 5, 2005, page 45.
J. Leland, “How the disposable sofa conquered America”, New York Times Magazine, October 5, 2005, page 45. Manu Kaushik, “Conditions Apply”, Business Today, December 23, 2010.
Anonymous, “The secrete of IKEA’s success”, The Economist, February 24, 2011.
Richard Milne, “Red tape frustrates IKEA’s plans for growth”, Financial Times, January 25, 2013.
C.Daniels and A. Edstrom, “Create IKEA, make billions, take a bus”, Fortune, May 3, 2006, page 44.
K. Capell et al, “Ikea”, Business Week, November 14, 2005, pp. 96–106.
B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998, page 82.
B. Torekull, Leading by Design: The IKEA Story, Harper Collins, New York, 1998, page 83.
The supplier gures are for 2008. IKEA has not published detailed data on suppliers in recent years.