IKEA is a global retailer, with hundreds of stores throughout dozens of countries in which they sell home furnishings that are low-priced, yet thoughtfully designed (Hill & Jones, 2012; Lutz, 2015). IKEA has 380 stores in 48 countries, with 43 of those in the United States (Gillies, 2017). In addition to its large warehouse style stores (Hill & Jones, 2012), IKEA also sells its products through their catalogs and website (Hill & Jones, 2012; Ordoñez, 2018).
IKEA was founded in 1943 by Ingvar Kamprad in Sweden (Hill & Jones, 2012; Shoulberg, W. 2015). At 17 years old, Kamprad was a young entrepreneur selling fish, magazines, seeds, and pens via mail order (Hill & Jones, 2012). Five years after founding the company, furniture was added to the company’s product offerings (Hill & Jones, 2012). The first IKEA catalog was issued in 1949 (Hill & Jones, 2012).
IKEA focused on designed furniture that was both functional and stylish, yet simple enough to be produced efficiently, allowing for low retail prices (Erply, n.d.; Hill & Jones, 2012). Kamprad wanted “to make it possible for people of modest means to buy their own furniture” (Hill & Jones, 2012, p. C90). IKEA’s first employee, Gillis Lundgren, was responsible for the design process that focused on efficient furniture manufacturing (Hill & Jones, 2012). Lundgren came up with the self-assembly feature, which also led to the “flat pack” method of shipping the furniture pieces (Jarret & Nguyen Huy, 2018; Hill & Jones, 2012). By 1956, IKEA furniture and self-assembly were synonymous (Hill & Jones, 2012).
Shortly after, IKEA began selling its furniture at home furnishing fairs in Sweden (Hill & Jones, 2012). This put IKEA at an advantage over its competitors, as the middleman was cut out of the buying & selling (Hill & Jones, 2012). However, two events occurred that put into motion what would become two key successes of IKEA. First, IKEA was prevented by established Swedish retailers from taking orders at an annual furniture trade show, and second, furniture manufacturers refused to sell IKEA products due to pressure from retailers (Hill & Jones, 2012). With the occurrence of these events, IKEA started producing all of its designs in-house, and it also found a Polish manufacturer who would produce their products. Furniture manufacturers in Poland charged much less than those in Sweden, benefiting IKEA’s production costs by as much as 50% (Hill & Jones, 2012).
From self-assembly furniture to flat pack shipping, from in-house design to sourcing affordable manufacturing, and from stores setup like showrooms to a restaurant within the store, much of IKEA’s success was born out of necessity (Jarret & Nguyen Huy, 2018). After competition from other mail order companies nearly bankrupted IKEA (Jarret & Nguyen Huy, 2018), it opened its first store in 1958, in which it its furniture was set up in configurations for customers to experience in person (Hill & Jones, 2012). The store became so popular, that IKEA started selling car roof racks for customers to bring home flat packs of furniture (Hill & Jones, 2012). In time, IKEA realized the need for a restaurant as customers who had traveled long distances needed to eat before making the journey home (Hill & Jones, 2012). The showroom configurations and restaurant within the store became hallmarks of IKEA stores (Hill & Jones, 2012). Today, Ikea stores are a unique destination for shoppers, offering a showroom shopping experience and cafeteria (Lutz, 2015).
Competitors considered IKEA products to be of low quality, however a Swedish magazine article published in 1964 praised IKEA’s quality and budget friendly pricing, drawing middle-class buyers (Hill & Jones, 2012). With an increase in its customer base, IKEA opened its third store in Stockholm (Hill & Jones, 2012). The Stockholm store became so popular that long lines formed at checkouts, causing a backlog in order fulfillment in the warehouse (Hill & Jones, 2012; Jarret & Nguyen Huy, 2018). IKEA responded to this problem by implementing a system of self-service pickup for customers (Hill & Jones, 2012; Jarret & Nguyen Huy, 2018). Flat-packed furniture was picked up inside the warehouse by customers who then put the packages on trolleys to bring to the checkout (Hill & Jones, 2012; Jarret & Nguyen Huy, 2018). This method of customer fulfillment became a signature of the IKEA shopping experience (Hill & Jones, 2012).
IKEA began expanding outside of Scandinavia in the 1970’s when it began a rapid expansion into Western Europe over the course of 15 years (Hill & Jones, 2012). With its continued success, IKEA proceeded to expand its stores throughout Europe and Canada (Hill & Jones, 2012). Although its attempt at expansion into the UK was met with competition from Habitat, a UK business with similar aesthetic and pricing to IKEA (Hill & Jones, 2012). IKEA’s expansion into the US market was also met with challenges.
IKEA opened its first US store in 1985 (Hill & Jones, 2012). The US furniture market was much like that of Western Europe, in which two fragmented market existed, a low cost, poor quality segment and an expensive high-quality segment (Hill & Jones, 2012). However, IKEA found that its European-style furniture designs and sizing did not meet American needs (Hill & Jones, 2012). IKEA focused on redesigning products, opened new, larger stores, reduced costs and in turn retail prices (Hill & Jones, 2012). As American culture began to become more interested in design and accepting of low budget furniture, IKEA focused its advertising on younger American buyers (Hill & Jones, 2012). US sales began to grow due to the successful changes in advertising and design, becoming second only to sales in Germany in 2008 (Hill & Jones, 2012). With its successful expansion experience in the US, IKEA used the experience to increase its sales in the UK, China, and Japan (Hill & Jones, 2012). IKEA understood the need to customize its products and stores to local customs (Hill & Jones, 2012).
IKEA’s target market is middle class, generally young, buyers looking for low-priced furnishings, with up to date designs (Hill & Jones, 2012; Lutz, 2015 Shoulberg, 2015). IKEA’s stores are designed to lure buyers to purchase more items than they may have planned by having a layout that requires customers to walk through every part of the store to get to the checkout (Hill & Jones, 2012; Ordoñez, 2018; Shoulberg, 2015). IKEA’s products are designed with clean lines, attracting buyers who appreciate the simplicity of Swedish design (Hill & Jones, 2012). IKEA’s commitment to offering low cost products led them to a system of pricing their products 30%-50% below competitors’ prices (Hill & Jones, 2012).
The company is able to maintain low prices by sourcing low cost materials and obtaining full knowledge of productions costs before starting a project (Erply, n.d.; Hill & Jones, 2012). In time, IKEA found the best way to keep costs low and production efficient, was to establish relationships with suppliers in each of the company’s big markets (Gillies, 2017; Hill & Jones, 2012). While IKEA outsources the majority of its production, it does manufacture about 10% in house.
IKEA came into manufacturing a portion of its products in house due to the collapse of Eastern European suppliers after the fall of the Berlin Wall in 1989 (Hill & Jones, 2012). IKEA’s purchase of Swedwood, a Swedish manufacturer, allowed IKEA to focus on in house production efficiencies (Hill & Jones, 2012). IKEA’s unique manufacturing strategy and business model focuses on product design in Sweden and manufacturing in developing countries to keep costs down (Jarret & Nguyen Huy, 2018). The final assembly of most of its products is performed by the consumer which reduces costs (Jarret & Nguyen Huy, 2018).
Kamprad chose not to take IKEA public as he believes the stock market would have negative implications on the company. In fact, Kamprad made a unique business choice in 1982 when he transferred his interest in IKEA to a non-profit foundation (Jarret & Nguyen Huy, 2018). The foundation is the legal owner of IKEA, with Kamprad on the committee. IKEA’s trademark and concept is owned by Inter-IKEA, a privately held company, based in Luxembourg (Hill & Jones, 2012). Inter-IKEA receives 3% of sales from each IKEA store per a franchise agreement held between each store and Inter-IKEA (Hill & Jones, 2012). This complex set of company arrangements protects IKEA from external influence, and provides protection (Jarret & Nguyen Huy, 2018).
IKEA runs on efficiency and frugality, which are traits that trace back to it’s founder Kamprad (Erply, n.d.; Hill & Jones, 2012). IKEA has an egalitarian culture, all employees are expected to be frugal and work in open space offices (Erply, n.d.; Hill & Jones, 2012; Jarret & Nguyen Huy, 2018). Executives don’t wear suits and can be found working on store floors (Hill & Jones, 2012). IKEA focuses on hiring from within rather higher experienced workers from outside the company (Hill & Jones, 2012).
In 2017, “IKEA employed about 13,000 workers in the U.S. and implemented generous parental leave policy, giving employees with one-to-three years’ experience up to three months paid leave. Those with three or more years are eligible for four months leave to care for a new child” (Gillies, 2017). According to IKEA’s U.S. President Lars Petersson the company wants to create a better everyday life people, including their employees (Gillies, 2017). IKEA believes this new policy is a good investment for the company’s future (Gillies, 2017). The company anticipates lower staff turnover because they won’t feel they need to leave their job when they have a baby (Gillies, 2017).
IKEA has a unique strategic model, of which several factors make it work. First, it successfully merchandises product as short-term furniture solutions, to be used for as long as customers need it (Shoulberg, 2015). Second, their target market is young and looking for inexpensive pricing, which IKEA provides (Shoulberg, 2015). In addition, their store layout with cafeterias entice shoppers, many making it a destination shopping experience (Shoulberg, 2015). Finally, IKEA uses catalogs to draw buyers to the stores (Shoulberg, 2015).
IKEA is a globally successfully company that focuses on efficiency and offers affordable, functional furniture to consumers. It maintains a people-focused culture. These key elements of IKEA’s business model, along with Kamprad’s strong discipline in financial matters, a focus on improvisation is a key part of the company’s success. It continues to grow, with nearly $38 billion in total sales in 2017, a 7% increase over 2016 (Gillies, 2017). IKEA’s website is a portal to what products are in the stores and what is in its catalogs. While online sales may not be critical to IKEA´s strategy, it can enhance its global presence (Ordoñez, 2018).
In conclusion, IKEA’s strength is dependent on environmental factors, including its structure and organizational culture (Jarret & Nguyen Huy, 2018). Being prepared for the unpredictable and understanding local cultures are two factors that have brought success to IKEA. If IKEA continues to appreciate its customers and employees, and provide affordable furnishings with low production costs, I believe it will continue to grow globally.