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IKEA
{This case study is adapted from Sharen Kindel (1997).
IKEA: furnishing a big world, Htmilphtrt s, February,
pp. 31-4, used with permission of the author; Bwintss-
wetk, 1997, IKEA's new game plan, 6 October, 99-102;
Lisa Margon elli (2002). How IKEA designs its sexy price
tags. Busint ss 2.0, October, 106-12 and the company
website www.IKEA.com); Kowin, Beth (2015). How IKEA
took over the world. FortuntMagazim.)
In 1943 a 17-year-old Swedish boy started what was
to become a multibillion euro company by selling work
pants and ot her farm supplies door-to•door. lngvar
Kamprad began selling farm implements under the name
IKEA, which is an acronym for his name and where he
wu born. Today Inter IKEA Systems BV is the owner and
franchiser of 1he IKEA concept. IKEA retailers worldwide
operate on a franchbe buis. M of2015 there were a total
of318 uores acroH the world, not including around 40
franchised stores. IKEA Group activities are coordinated
by INGKA Holding BV, which Is the parent company for
all lKEA Group companies and !s owned by a charitable
foundation in the Net herl ands. IKEA of Sweden AB is
responsible for the entire product range on behalf of Inter
IKEA Systems BV. In the year 2009 the company had a
turnover {sales volume) of euro 22.7 billion. IKEA is the
world's largest furniture and home furnishing re tail e r
as of March, 2010 (www.IKEA.com, accessed March 3,
2010).
Company history
Well into the 1950s Sweden was a fairly poor country
1hatwasstillstruggling1hroughsharpclassdifferences.
Kamprad, who grew up poor during that period, was
struck by the notion that beautiful things should not be
limited solely to the well-to-0.o, but should be available to
everyone. With that appropriately egalitarian sentiment
in mind, in 1950 he decided to add a line ofwell·designed,
functional home furnishings to his list of farm products.
They were an immediate hit. To upand the territory
he could cover, Kamprad soon added a catalog, and then
a showroom. By 1955, as Scandinavian-designed fur•
niture wu beginning to enjoy a worldwide reputation,
IKEA began designing Its own furnishings. The first IKEA
retail store opened in 1958 in Almhult, a village not far
from Kamprad's boyhood home. By 1965, whe n IKEA
opened its first store in Stockholm, a 450,000 square foot
behemoth, thousands queued for a chance to sample the
While those in the Scandinavian design community
embraced Kamprad's ideals of furniture that is aesthetl-
cally meaningful and avall11.ble to 11. wide, non-eliie mar-
ket, it was no1 until the postwar period that its members
began turning out the designs 1hat would win such pres•
tigiousinternationalcompetitions115theMilanTriennale.
The international acclaim led the Scandinavian countries
to market their home furnishin gs serious Iv to the world
 at large. By this time furniture and household decorative
arts that used simple, unadorned, geometric forms had
become known as Scandinavian design.
Company operations: tactics and strategy
The problem with Scandinavian design, however, was that
it was still too expensive for the average consumer. As a
result, several attempts to market Scandinavian furnish-
ings beyond Sweden's borders all failed. Bonniers, a Swed-
ish chain, and Design Research in the United States both
came and went in the 1960s and 1970s. But Kamprad,
convinced that there was a broad, as yet unserved middle
class tha1 would wam this beautiful furniture if it was rea-
sonably priced, set ou110 cut his costs to the bone. In 1997
a line of children's furniture and toys was added.
Price had been 1he key competitive idea behind IKEA
since its inception, but to drive prices still lower Kamprad
turned the ready-to-assemble (RTA) concept into an
art form by manufacturing pans that can be easily put
together. Even today most IKEA furniture can be assem-
bled with only one tool, an Allen wrench, which is gener-
ally included as part of the ki1.
The RTA proposition also saves money for IKEA on
shipping and storage. Most of the company's products are
packed in flat boxes, reducing transportation costs, mini•
mizing the risk of damage, and making them easy for the
customer to take home. IKEA's RTA approach works, says
Jan Kjellman, president o( IKEA North America, because
consumers realize that 'by doing half the job they will pay so
much less than they would at a traditional furniture store.'
Thus IKEA recognized that the value added in mak-
ing furniture was not necessarily in manufacturing. IKEA
designed kits that put the consumer in the middle of the
value chain, giving 1hem lots of things to do that were tra-
ditionally done by the manufacturer. This took incredible
amounts of cost out of its system.
IKEA further reduced its costs by becoming production
oriented. The company strives to carry out product develop-
ment on the shop floor. It sends its ten in-house designers into
its suppliers' factories to learn the capabilities and limitations
of their machinery so that product designs can be adapted to
the machines, instead of the other way around. 'Most design-
ers look at the fonn and the function, but ours must also look
at the price,' explains Kjelbnan. 'We don't want to make lim-
ited edition products. We want to mass produce them.'
Sometimes keeping costs down means that an IKEA
design will be made o( a lesser-quality material. For exam-
ple, the company does not hesitate to make a painted tab-
letop out of a lower grade of wood, or substitute a simpler
material for a base that is not seen. And furniture 1hat
would be too expensive to make in birch is made out of pine.
While the company aims to provide a good quality
product, price is still the main reason that people shop
at IKEA. Its furniture, toys, and housewares typically are
priced 20% to 30% below competitors.
International expansion
International expansion started in the 1960s when the
company was forced to source products outside Sweden.
Local Swedish furniture retailers felt that IKE.A's low-price
policy was unfair competition and they tried to prevent
local manufacturers from supplying them with goods.
Rather than raise prices, IKEA sourced their own designed
goods outside Sweden. Today the company sources its
products from 1,800 suppliers in more than 50 countries
and contracts for capacity rather than a set number of
items from its manufacturers. In some instances JKEA has
taken ownership positions in factories tha1 supply it with
furniture and household goods. In other cases it acts as a
financier, especially in eastern Europe. !KEA also operates
28 distribution centers worldwide.
It took IKEA 30 years to grow beyond its boundaries
as a local , seven-store chain and penetrate foreign mar-
kets. When it was time to expand , explains Kjellman, 'We
decided to go to the most conservative market we could
find and that was Switzerland.' With success there, !KEA
began a slow, steady expansion that has gradually taken it
into northern Europe , especially Germany, central Europe,
Australia, and Canada. The market expansion history indi-
cating when 1he first store was opened in a foreign country
and the number of stores in operation as o( March, 2010
are shown in Table 5.7. In addition to stores owned by the
IKF.A Group, there are stores owned by franchisees in 14
other countries/ territories as shown in Table 5.8.
During the 1980s IKEA was opening between five and
ten stores a year. But expansion slowed considerably in the
1990s as the company consolidated its holdings and worked
on increasing per-store sales and raising overall profitability.
Worldwide expansion has brought new challenges,
among them the need to gauge demand and then stock
accordingly. 'We have had a lot of shortages,' acknowl-
edged Kjellman. 'One of the biggest problems we have
faced as we have moved out of Sweden was having
enough of the righ1 product in the stores. We underesti-
mated how much we would sell when we first entered the
North American market.'
The US market
An even bigger problem that IKEA has had to overcome is
its limited name recognition. 'The first thing we did when
we entered the United States was to teach people how to
pronounce our name,' Kjellman says. To do so, IKEA ran
 Table 5.7 International expansion of IKEA Table 5.8 IKEA franchisees
Group stores
Country
Number of Cyprus
Country Year stores
Greece
Sweden 1958 17
Hong Kong
Norway 1963
Iceland
Denmark 1969
Ireland
Switzerland 1973
Israel
Germany 1974 45
Kuwait
Australia 1975
Malaysia
Canada 1976 11
Romania
Austria 1977
Saudi Arabia
The Netherlands 1978 11
Singapore
France 1981 26
Taiwan
Belgium 1984
Turkey
United States of America 1985 37
United Arab Emirates
United Kingdom 1987 18
Italy 1989 Source: www.lKEA.com 3 March. 2010.
15
Hungary 1990 2
Poland 1991
IKEA has changed its television advertising to link the
val ue of its home furnishings to easy, affordable lifestyle
Czech Republic 1991 choices. Kjellman understands that he is not just compet-
Slovakia 1995 ing with other furniture chains, but with anyone vying fo r
Finland 1996 disposable income. 'We have to convince people that they
Spain (mainland) 1996 should come to us to buy a new sofa,' he says.
11
While establishing its presence in the United States
China (PRC) 1998
has not been easy, the company has no intention of leav-
Russia 2000 12 ing. The US furniture market is enormous and highly
Portugal 2004 2 fragmented.
Japan 2006 'The United States is the toughest market in the world,
but we can lea rn a lot from it,' says Kjellman. The furni-
Source: www.tKEA.com 3 March. 201 0.
ture trends that begin in the United States, such as home
entertainment units or home office furnishings, gradually
ads featuring an eye, a key, and a plus sign followed by work their way to other parts of the world. By being where
the word 'ah.' After this initial campaign the compa ny those trends are starting, IKEA can develop new designs
began advertising its value proposition of well-designed to meet those trends and then amortize its costs by selling
home fu rnishing at affordable prices in ads that featured them into other parts of the world.
the tag line : 'It's a big country. Someone's got to furnish IKEA's appe a l is that it s furniture is accessible,
it.' In 1990 IKEA expanded by acquiring five stores owned approachable, and economical. 'We have met a need chat
by Stor Furnishings International in California. nobody bothered about,' Kamprad says. 'And the response
During the period 1985- 2002, sales in the United has been fantastic.'
States grew from US$50 million for one store to USSl.3
billion for 17 stores . Its first profit was not earned until Questions
1993. A major reason for this growt h is that US consum- 1. Evaluate the market expansion approach taken
ers view low prices as a given. by IKEA.
Realizing that the United States is a highly mobile soci-
2. Is it better for IKEA to own its factories or to
ety with a large rate of household formation and change,
contract for its products?