IKEA Case Study

IKEA (www.ikea.com) is a nearly $30 billion global furniture powerhouse based in Sweden. With more than 301 stores in 37 countries, the company's success reflects founder Ingvar Kamprad's "social ambition" of selling a wide range of stylish, functional home furnishings at prices so low that the majority of people can afford to buy them. The story of Kamprad's success is detailed in a book titled "IKEA: The Entrepreneur, the Business Concept, the Culture." The store exteriors are painted with Sweden's national colors, bright blue and yellow. Shoppers view furniture in stores of realistic settings arranged throughout the cavernous showrooms.

In a departure from standard industry practice, IKEA's furniture bears names such as "Ivar" and "Sten" as well as model numbers. At IKEA, shopping is very much a self-service activity. After browsing and writing down the names of desired items in the showroom, shoppers pick their furniture off of shelves, where they find boxes containing the furniture in kit form. One of the cornerstones of IKEA's strategy is having customers take their purchases home and assemble the furniture themselves. The typical IKEA store also contains a Swedish-cuisine restaurant, a grocery store called the Swede Shop, a supervised play area for children, and a baby-care room.

IKEA's approach to the furniture business enables it to rack up impressive growth in an industry in which overall sales are flat. Sourcing furniture from more than 1,500 suppliers in 50 countries helps the company maintain its low-cost position. IKEA has also opened stores in emerging markets, such as in Central and Eastern Europe. Because many consumers in those regions have relatively low purchasing power, the stores offer a smaller selection of goods, and some of the furniture was designed specifically for the cramped living styles typical in former Soviet block countries. Throughout Europe, IKEA benefits from the perception that Sweden is the source of high-quality products. In fact, one of the company's key selling points is its "Swedishness." IKEA also operates in emerging markets like Russia, where its core strategy and anticorruption policies have been effective.

Industry observers predict that the United States will eventually be IKEA's largest market. The company opened its first U.S. store in Philadelphia in 1985 and today has dozens of outlets that generate billions of dollars in sales annually. IKEA's competitors take the company very seriously. Jeff Young, chief operating officer of Lexington Furniture Industries, says, "IKEA is on the way to becoming the Wal-Mart Stores of the home-furnishing industry. If you're in this business, you'd better take a look." Some U.S. customers, however, are irked to find popular items sometimes out of stock. Another problem is the long lines resulting from the company's no-frills approach. Complained one shopper, "Great idea, poor execution. The quality of much of what they sell is good, but the hassles make you question whether it's worth it."

Goran Carstedt, president of IKEA North America, responds to such criticism by referring to the company's mis- sion. "If we offered more services, our prices would go up," he explains. "Our customers understand our philosophy, which calls for each of us to do a little in order to save a lot. They value our low prices. And almost all of them say they will come back again." To keep them coming back, IKEA is spending millions on advertising to get its message across. Whereas common industry practice is to rely heavily on newspaper and radio advertising, two-thirds of IKEA's North American advertising budget is allocated for TV. John Sitnik, an executive at IKEA U.S. Inc., says, "We distanced ourselves from the other furniture stores. We decided TV is something we can own."

Incredibly, IKEA has also expanded into apartment building. The retail giant has 3,500 of its prefab homes throughout Sweden, Norway, Finland, and the United Kingdom. IKEA's BoKlok (meaning "smart living" in Swedish) apartments resemble IKEA's modern furniture. The apartments are designed with open-plan living spaces with high ceilings, windows on three sides, and, of course, pre-fitted IKEA kitchens.

Thinking Globally
1. Has IKEA taken a standardization approach or an adaptation approach in its markets around the world? Do you think the company's approach is the right one for the future? Explain.
2. Which retailers are IKEA's biggest competitors in the United States? Why?
3. When company founder Kamprad decided to expand into China, his decision was not based on market research but, rather, on his own intuition. How well is IKEA doing in China? Did Kamprad's decision pay off?
4. After failing in Japan two decades earlier, IKEA returned in 2006. Conduct some research into how IKEA fared the second time around in Japan. Was IKEA able to avoid the mistakes it made in its first failed attempt?