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Executive Summary Since 1997, Ikea Has Increased

Executive Summary Since 1997, Ikea Has Increased

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Published by: firestar76 on Mar 09, 2010
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01/16/2013

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Executive Summary
Since 1997, Ikea has increased its number of stores by 51. The companycomprised 165 stores as of August 2003, and there are plans to open a further 16 new stores in both fiscal 2004 and 2005. However, although the companyopened 14 new stores in fiscal 2003, sales growth was only 2.7%, largely as aresult of the depressed economic conditions across Europe, the company’s corebusiness region. Thus, it is clear that, in order to improve performance at asignificant level, merely opening new stores is not enough. Instead, Ikea mustassess its external and competitive environment, determine the key opportunitiesand threats which face it, and align its strengths and weaknesses to best counter the weak consumer market, and thus generate the strong growth it needs toremain a strong brand and presence in its chosen markets.This paper will assess the external environment IKEA is operating in using thePESTEL analysis to determine the political, economical, social andenvironmental outlook as well as the industrial environment using the Portal’s fiveforces model to analyse the industry IKEA is operating in. knowing the externalenvironment is insufficient if the company’s internal strengths and weakness arenot fully exploited and the SWOT analysis is used to analyse the company’sinternal performance and determine the opportunities and threats facing it.After determining the firm’s environment, a review of the processes and optionsavailable to IKEA to promote growth will be given followed by recommendationson the steps IKEA can take to grow in this economic downturn. An assessment of the usefulness of the various models used in this paper will also be provided.
 
1 Introduction
An international retailer of home products, IKEA is a privately held retailer chainthat sells flat pack furniture, bathroom and kitchen accessories all over theworld. Founded in 1943, IKEA is an acronym. The name IKEA is derived from theinitials of its founder Ingvar Kamprad, the farm where Ingvar grew up and thehome country of Ingvar. IKEA is however owned by a foundation which is Dutch-registered and is owned by the Kamprad family.Since 1943, Ikea has expanded its operations steadily in many countries withmost of the stores of the company concentrated in Europe, USA, Canada, Asiaand Australia. The IKEA group also has existence in Israel and Middle East.IKEA originally started by selling picture frames, wallets, pens, watches, tablerunners, jewelry, and nylon stockings etc. Furniture was first added in the year 1948 and IKEA started manufacturing its own furniture since 1955, providingfurniture that could be self assembled at relatively low cost. Since then, the namehas been synonymous with self-assembled furniture.Using the current socio-political-economic outlook, I will examine Ikea’sexternalgeneral and industry environments, internal analysis of the company as well asprovide an assessment of the performance of the company in terms of thecompany in terms of efficiency, effectiveness and returns to investors. 
2.1 External general and industry environment
2.1 Political FactorsIncreasing globalization and protectionism, presents a challenge as well as anopportunity to IKEA. The challenge will be to compete against unknown forcesand to source the best quality/financially viable products from world over. IKEAcan enter the markets of emerging companies through joint ventures or partnerships to explore these new markets. At the same time, however, thecompany has to be wary of protectionist policies of many host countries itoperates in since there is a real risk that countries may impose high tariffs ongoods imported in an attempt to spur domestic production.However, IKEA may stand to lower its costs as governments begin to lower taxesor provide subsidies to help businesses stay afloat in this economic crisis.
 
2.2 Economic factorsThe fluctuating commodity and raw material prices all over the world result inrising purchasing costs for IKEA. This will have an impact on the margins of theorganisation and might lead to passing over the cost to consumers by increasingprices of most things in the supermarket. Furthermore, rising fuel costs will haveimplications right throughout the supply chain of IKEA leading to an overallsituation of increasing prices, resulting in decreased competitiveness.The credit crunch can impact IKEA negatively as it might decrease thepurchasing power of consumers and though they will still buy the essentials theymay be more cautious. Furthermore, furniture, unlike fast moving consumegoods, are durable and can last for several years and in such economicuncertainty. Consumers may be reluctant to change what they perceive to be stillserviceable sets. They may also spend less on luxury items, something that hasa greater profit margin for IKEA. All this may result in lowered sales and thus,reduced margins for the firm.At the same time, IKEA may also face stiffer competition from local small retailerswho offer furniture at more affordable prices- something which will appeal to costconscious consumers. This may cause IKEA to reduce its margins, affectingprofitability.2.3 Social FactorsAs Ikea forays into the lesser tap markets of China and India, social factors mayalso come into play. Asian societies are generally more savers than spendersand in such economic certainty, Asian consumers may be unwilling to spend onnew furniture, preferring to save for a rainy day. At the same time, the moreaffluent consumers who are able to spend may be unwilling to buy products fromIkea which has a reputation of requiring self-assembly.2.4 Technological FactorsRFID (Radio Frequency Identification Device) technology can be used for significant benefits to the supply chain of IKEA. If adopted, this technology willlead to less inventory for the supermarket firms resulting in lower cost for thecompany which could translate into cheaper prices.

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