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Ikea

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Ikea is the world's biggest furniture retailer, as well as arguably its most successful privately owned brand. Founder Ingvar Kamprad took the affordable design revolution of the 1960s and 1970s and made it a worldwide phenomenon. The Swedish retailer now offers its "affordable solutions for better living" through more than 375 stores in 47 countries. These welcomed more than 771m visitors through their doors in 2015, and Ikea's cleanly designed, space-conscious furniture units, as well a bewildering array of accessories from kitchenware to candles, can be found in well over a billion homes and offices around the globe. According to the New Yorker, one out of every 10 Europeans is conceived in an Ikea bed. From flat-pack boxes to self-service warehouses, from the Swedish cafeteria to its miniature free wooden pencils and measuring tape, even the Ikea shopping experience has a unique style all of its own.

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Analysis & Critical Summary

One of the most intriguing aspects of the Ikea story is the way in which it has become a major multinational corporation, not by adopting traditional corporate methods, but by stubbornly doing things its own way. Above all it has chosen to completely disregard the most basic tenets of customer service. In Ikea, customers traditionally serve themselves, then assemble the products themselves at home. In most countries, they also have to cart the huge, heavy flat-pack boxes home themselves as well since delivery is not an intrinsic part of the Ikea service.

The stripped-down style is apparent behind the scenes as well. Apart from at the checkout tills, Ikea staff all hot-desk from any of the in-store terminals, and don't have chairs. Managers regularly rotate with staff to serve in-store or in the warehouses during so-called "anti-bureaucratic weeks". All secretaries are shared, all travel is economy, and hotel accommodation two or three-star. In most countries there are only three or four management layers between the head of the company and the checkout staff. In everything from product design to operational activities, costs are systematically pared down to be as efficient as possible without ever being merely cheap. Yet staff are also treated well. Famously on one Saturday in 1999, to celebrate the company's 55th anniversary, all that day's sales revenues worldwide, estimated at around $65m, were shared out equally among staff. (The one-off bonus of around $1,600 was worth the equivalent of around three months' salary to some employees in China and eastern Europe).

One of the few luxuries (of a sort) the company allows itself is its famous catalogue. This annual publication is the world's single biggest free distribution publication. The 2013 edition was distributed in 62 local editions and 29 languages. Total print run was 212m copies. Distribution is planned around store locations, with around 40m copies earmarked for Germany, 30m in the US and 20m in the UK. In Sweden, every single household receives a copy unless they specifically refuse to receive direct mail. For Ikea it marks the bedrock of their marketing, accounting for around half the annual budget. (The catalogue is produced and designed in-house in Sweden). It is now accompanied by an online version and mobile app. The latter received 54m visits in 2015, while the Ikea website was visited 1.9bn times.

Ikea is also almost certainly the world's best known ambassador for Swedish culture. Most of the company's furniture remains strongly influenced by Swedish design, especially the idea of combining functionalism and modernism. The company's livery boldly champions the blue and yellow of the national flag, and those idiosyncratic product names are distinctly Scandinavian in flavour. They adhere to a specific corporate naming policy. All fabrics and curtains have girls' names, while bookcases are named after boys; rugs are named after places in Denmark, armchairs and sofas after towns or villages in Sweden, and so on. In another radical departure from standard retail practice, the group launched its own integrated TV, sound system and internet terminal in 2012 under the name Uppleva.

Above all, most of the stores around the world contain a restaurant which every day sells food unlikely to found anywhere else in the world except Sweden, including a version of traditional Swedish meatballs. Combined food sales are in excess of €1.6bn annually, putting Ikea among the Top Ten foodservice businesses based outside the US. Yet ironically, since 2001, Ikea's legal headquarters has been located in the Netherlands, alongside the charitable foundation which controls the business. Before that it was based for 15 years in Denmark to avoid Sweden's brutal corporate taxes. (The administrative HQ is still in Sweden).

The full Ikea product range extends to around 9,500 individual items. In 2006, the group also introduced a new higher quality range under the sub-brand Ikea Stockholm, but still at the same low prices. Manufacturing is farmed out to a global network of 978 suppliers in 50 countries. The biggest purchasing market is China (accounting for around 25% of supplies), but the next four biggest supplier markets are all in Europe, led by Poland (19% of purchasing). Most suppliers are independent, but the group owns Ikea Industry (formerly Swedwood Group), a major furniture manufacturer which operates 44 factories mostly in the Nordic and Baltic regions.

However one problem that does occasionally reoccur is the difficulty of adapting Ikea culture for other countries. When the store opened for the first time in the US, its Swedish managers were initially puzzled by the high sales of vases through local stores. It subsequently transpired that customers were buying them not for displaying flowers but to drink from, because the store's European-style glasses were too small for American tastes. There have also been problems maintaining Ikea's rigorous standards on other cultures. Two managers were sacked in Russia in 2010 for accepting bribes, and French police launched an investigation in 2013 over allegations that senior staff had been spying not just on staff but also possibly on disgruntled customers. In a rare case of serious design flaws in the group's products, it recalled more than 30m Malm dressers, mainly in the US, in 2016 as a result of toppling incidents in which six children were said to have died over a period of more than 20 years.

Another developing trend in the second half of the 2010s is the need to widen the store's appeal beyond its traditional customers with new retail strategies that are better adapted to new shopping habits. Recently it has begun to open smaller - sometimes even just pop-up - stores with almost no items on display. Instead these serve as virtual showrooms, where customers can order products online for delivery or later pick-up. Some of these smaller outlets also specialise in just one type of furniture - bedrooms or kitchens or bathrooms, for example, instead of all three.

In keeping with its egalitarian ethic, the company occasionally goes to extreme lengths to maintain a reputation for fair trade with its suppliers. Ikea has a strict code of conduct for its suppliers governing everything from overtime to recycling techniques. In-house inspectors around the globe evaluate suppliers every two years to ensure they comply. The company also provides its suppliers with technical assistance and leases them specialised equipment where necessary to improve productivity or quality. Put under pressure during the 1990s by Greenpeace for the damage caused to forests by the company's voracious appetite for timber, Ikea astonished the activists by not only funding their global mapping program but lending them management assistance to get it done more efficiently. In 2001, following the launch of the first Ikea store in Russia, the company was the first Western business to sign up to an ambitious plan to repay part of Russia's huge foreign debt. Ikea was granted shares in local businesses by the Russian government in return for making payments to the German treasury against the country's debt. As a result of such initiatives Ikea has tended to avoid almost all of the anti-globalisation abuse customarily heaped upon other multinationals. As one commentator noted in the Harvard Business Review, Ikea has managed to square the circle by turning its customers into suppliers (of time and labour, for example), and its suppliers into customers (of expertise and financial services).

Another reflection of Ikea's commitment to corporate responsibility is its BoKlok range of low-cost prefabricated timber-framed homes. These were launched in Scandinavia in 2004 in partnership with construction firm Skanska, targeted specifically at low-income families. Around 2,000 homes had been erected by the end of 2005. In 2007, Ikea began marketing BoKloks in the UK under license to a division of UK developer Home Group, with availability limited to families with a household income of under £30,000. In 2008, it introduced a mobile phone service in the UK to members of its Ikea Family loyalty programme. Branded as Family Mobile, it claimed to be 25% cheaper than any comparable pay-as-you-go mobile service. However take-up was limited and the service was later discontinued.

One of the group's newest diversifications is the launch of a chain of budget hotels in Europe, in partnership with Marriott, under the Moxy brand. Using lessons learned from Ikea's success in selling prefabricated homes in Scandinavia, Moxy's rooms are assembled as individual units off-site and then fitted together like modular building blocks at each hotel location. The first unit launched in Milan's Malpensa airport in early 2014. The group also owns a collection of giant shopping centres in Russia, China and other countries, operating under the Mega brand. Each one contains around 200 separate shops, and there are 40 such sites spread across 14 countries.

Financials

Despite global economic problems, Ikea has slowly but steadily increased revenues over the past few years. For the year ending August 2014, revenues for the main Ikea business were €28.7bn, up 3%. Additional rental income for shopping centres it owns in Russia brought the total to €29.3bn. The group has increased revenues ever year since 2001. Still private, the company has until recently never announced its profitability. However it revealed figures for the first time in 2010. Profits too have increased steadily, from €2.5bn in the year to 2009 to €3.33bn in ye 2014.

Preliminary figures for ye 2015 showed an 12% increase in group revenues to €32.66bn, the first time the company exceeded sales of €30bn. The main Ikea business contributed €31.9bn, with the rest from group-owned shopping centres. Net income rose 5% to €3.51bn.

As of September 2015 there were a total of 375 Ikea stores in 47 countries. All but 47 stores (in 19 countries) are owned and operated by the group or affiliated companies. The rest are run by a small group of trusted independent franchisees. In total Ikea is estimated to control around 20% of the world furniture market. Its single biggest territory is Germany, with 46 stores, and accounting for around 14% of revenues (or €4.5bn). It was matched for the first time in ye 2015 by the US (38 stores, and €4.5bn), France (29 stores, €2.6bn), the UK (20 stores, €2.2bn) and Italy and Russia (both around €1.6bn). Europe as a whole accounted for 67% of sales, North America for 18%, Asia & Australia for 10% and Russia 5%. The group has said it will focus future expansion plans on the Asian market to compensate for slower growth in Europe and America. The first stores opened in Indonesia, Croatia and South Korea in 2014. Ikea is set to launch in India in 2016.

Ikea reported another strong year in 2016, with profits jumping 20% in the period to August to €4.2bn. The group said sales rose in all but one of its 28 global markets, with combined revenues up 7% to €35.1bn. (That final figure was slightly higher than preliminary figures released previously). The strongest-performing markets were China, Australia, Canada and Poland. Sales from retail were €34.2bn, and the group has set itself a target to raise that to €50bn by 2020. Online ordering is expected to quadruple from €1.4bn this year to over €5bn.

Ikea reported a sharp fall in profits for its financial year to August 2018 as a result of investments in ecommerce and smaller city centre outlets. Declared retail sales were €38.8bn, up around 4.5% on the year before in comparable terms, but below the rate needed to reach the group's previously stated target of €50bn by 2020. Direct comparisons were complicated by a restructuring of the group over the past year, but parent company Ingka Group said full-year profits had fallen by 40% to €1.47bn as a result of an investment of almost €3bn in stores, distribution and customer fulfilment networks.

In 1980, to resolve the question of succession among his three young sons, founder Ingvar Kamprad transferred control of Ikea's business operations into a charitable foundation based in the Netherlands. Its main company is Ingka Holding, which in turn owns Ikea Group, which designs and markets the group's product range. The Ikea concept and copyright is owned and franchised by a separate Dutch-based company, Inter Ikea Systems, which receives a royalty of around 3% of sales from the group's commercial operations and is itself privately owned by the Kamprad family.

Unlike many other large private companies, the structure is designed not to mask the group's financial performance, but to enhance it, encouraging the highest possible level of competition within the system. For example, Ikea Group has first rights to develop stores in new territories, but only if it can do so more efficiently than the franchisees. An unconnected third company, Ikano Group, jointly owned by the founder's three sons, Peter, Jonas and Matthias, develops real estate and operates various financial services businesses in Europe and Asia, mainly in the form of store cards or consumer finance. It also operates five Ikea stores in Southeast Asia. It was at one time the majority shareholder in rival furniture retailer Habitat, which now has around 70 stores, mostly in Europe. That business was sold to a management buyout at the end of 2009.

Ikea founder Ingvar Kamprad left Sweden in the 1970s to live in Denmark and Switzerland, but returned to his native country again in 2014. He was listed among the world's top ten billionaires for several years (he was for a while the world's richest in 2004), but most of his wealth is now held by charitable foundations. In December 2013, he resigned as a director but remained an informal advisor to the group until his death at the beginning of 2018. His three sons, now in their late 40s and early 50s, have held management positions at various times within the various outposts of the group. The eldest, Peter Kamprad, is chairman of Ikano. Mathias became chairman of Inter Ikea in 2013; Jonas sits on the supervisory board of Ingka Holding.

Background

Ikea was founded in 1943 by 17-year-old entrepreneur Ingvar Kamprad. As a child he earned pocket money by buying matches cheaply in bulk and selling them door to door. Later he expanded his range to include fresh fish, Christmas trees, pens and pencils, and in 1943 his father set up a company for him to manage his expanding business, run from "Elmtaryd", the family farm in the village of Agunnaryd, southern Sweden. The Ikea name was formed from the initials of his postal address (Ingvar Kamprad, Elmtaryd, Agunnaryd). He sold whatever he would make a profit, and the range quickly stretched to wallets, picture frames, table runners, watches, jewellery, even nylon stockings. By 1945 the business had grown too big to be handled door-to-door. Kamprad began a mail order operation, advertising in local newspapers and delivering goods via the county milk van.

The key development in the growth of the company came in 1947 when Kamprad began selling a small range of furniture produced by local craftsmen. This proved enormously popular with customers, and in 1951 Ikea suspended all of its other product lines to concentrate on furniture alone. The first Ikea catalogue was published the same year. Two years later the company opened its first showroom in the town of Almhult, southern Sweden. But while Ikea's new customers liked the shop, its competitors were very unhappy about this brash young upstart. They began putting pressure on suppliers to boycott the new business. In 1955 Ikea got around the problem by recruiting its own in-house team of furniture designers. Another brainwave inspired one employee to remove the legs from a table so that it would fit in his car. In 1956 the company began adapting all of its designs so that they could be packed flat for shipment, saving space, labour costs and transport damage. It also allowed the company to greatly increase the number of products it could sell, and in 1958 Ikea opened its first superstore in Almhult, at the time the biggest furniture retail space in all of Scandinavia.

In 1963 the company opened its first foreign store, in Oslo, Norway, followed by a massive new flagship store in Stockholm in 1965, containing almost 46,000 square metres of selling space. Because of the huge number of customers the store could serve, it was virtually impossible to use traditional selling methods. Instead, Ikea borrowed a technique from American-style supermarkets and encouraged customers to serve themselves from a huge open warehouse adjoining the display showroom. Meanwhile international expansion continued as Ikea made inroads into Denmark (1969), Switzerland (1973), Germany (1974) Australia (1975), Canada (1976), Austria (1977) and The Netherlands (1979).

In the 1980s, France, the USA (1985), the UK (1987) and Italy all became part of the Ikea family, until the company had stretched across 25 countries by 1993. In 1986 Kamprad himself stepped down as chief executive, to be replaced by Anders Moberg, who had previously launched several of the company's international operations. However Ikea was also beginning to experience problems. By 1991, despite almost six years of operations, the US business was still losing money. The store was always busy, but sales were low because many customers left empty-handed. To fix this, Ikea had to abandon one of its core practices, that of selling the same merchandise the same way in every store worldwide. Although this had proved successful in Europe, Americans were confused by the Swedish branding, the European styling, and especially the metric measurements. They hated the queues and couldn't understand the non-delivery policy. As a result, the US operations were adapted, sourcing over half of their goods from local suppliers and designed to comply with local taste. Within three years, US sales had tripled in response.

In 1992, Kamprad oversaw the acquisition of home furnishing chain Habitat from troubled British retail group Storehouse for around £50m. Founded in the 1960s by design guru Sir Terence Conran, Habitat introduced Britain to simple but stylish home furnishings, just as Ikea was making its first forays into other Scandinavian countries. Habitat style had a distinctive French flavour and revolutionised home decor in the UK. However, the company's launch into the French market proved even more profitable, effectively re-introducing urban French consumers to a provincial style they had previously abandoned. By the early 1990s, the 36 French stores were Habitat's most profitable, while the British outlets merely broke even. Kamprad set about boosting the performance of the British chain, already the closest high street competitor to Ikea's suburban warehouses.

In 1994 Kamprad publicly apologised for having associated with pro-Nazi groups in Sweden during the 1940s and 1950s. The resulting media circus led to the group taking steps to open its first store in Israel (albeit via a franchise). The company moved into China in the late 1990s, and opened its first store in Russia in 2000. This has proved to be one of the group's most successful international operations, as well as the busiest, generating sales of over $100m in its first year. In a country where customers were already used to queuing, some Russians were occasionally prepared to stand in line for up to 12 hours to get into Ikea. There are similar reactions in other countries, sometimes with tragic results. In 2004, three shoppers were trampled to death and 16 injured in a stampede to claim discount vouchers at the opening of the first store in Jeddah, Saudi Arabia. A year later the opening of a new store in Edmonton, a deprived suburb of London, led to a near-riot after more than 6,000 people tried to enter the store as it opened. Fights broke out inside the store and six people were hospitalized. The group was subsequently criticized for its marketing tactics which included huge promotional discounts on some items for the launch.

Last full revision 19th August 2017

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