Ikea Designs ing room packed Emer chairs think of a jenitue retailer's jam ye. Adozen Poang arm a dentist's chair and display and allare oc- mn 4-yearold wearing: woman with her fect wp, your grandinot doing homework while his fan ly shops, and another by a young,stuclent whose smocher nags, “Ie grows on you, audits only $79.” Every ehair has a potential buyer sitting in it, oF produ it, or ciccling it ikea lion around a teth~ cred goat. hissing noise emanates from a hydrau- lically operated robot over in the corner that’s demonstrating the chairs sturdiness by pushing on the seat ofa sample movdel ever and over and over ‘again, Lkea sold million POangs last year alone. Many were purchased here at the 274,000 ‘square-foot ikea flagship in Northern California ‘When it rst opened two years ago, 20,000 shop. pecs showed vp to fill he building; sales at the store have been running ar double Ikea's initial forecasts ‘ever since. So this summer, Tkea broke ground on another store, 40 mules away in East Palo Alto. And it's building a third outlet 20 miles to the east in Dublin, just for good measure. ‘The same scene has been played our aeross North, America, where Ukea has launched 24 stores since 1988, The most powerfl furnicure recsiler on planec Earth —with I75 stores in 32 enuntries—isabour to get even bigget The Swedish invasion has only just begun. Tkea plans to apen nine more stores in North American te next year alone, By 2013, itexpects to have 50 ofthe fag, festooned big box furniture out- Jets open for business. Despite Ikeas limited prese ence, the company is already che seventh lagestfur- ituce retailer inthe United States. T#salso one of the fastest growing, enjoying 25.5 percent sales growthin 20001, even a8 ales inthe industry asa whole grew by juse LY pereeut, according to tcade magazine Fra ture Warld “Nor only does Tkea have monscer stores aud yet prices, it has also created a unique ache,” says Howard Davidowitz of Davidowicz & Associ- ates, a etal consulting fem. “Tes the quintessential power reciler in Ametica” ‘Worldwide, Thea'sinfhience ikeven mote dramatic. ‘The company is poised wo become the United King- dom leading fnrniure seller, despite operating only stoves thete—proof that Ike's unique retail orem In rears a powerfully magnetic rave The relenuless _global advance has mae Thea ase in Almbult, Swe dena finaneial powerhouse: Though the company is privately held and doesn’ release profit igutes, its world sales have grown by an estimated 20 per-Beis scl ig Ge eon ELE ee ee ee oats Mela ad poised to conquer North Se orem ee = Keep making furniture Smeg aking it cheap. > Se a Lets Lae a‘cent ayeac for the past five yeas, andits 200 reverves topped $9.6 billion. Interbrand, a marketing researc firm, recently ranked Ikea 44th ons listo he top 100 most valuable global binds, ahead of psi, Haskey-Davidson, and Apple So what’ ite scene? Nich hasbeen said about the quiks that make shopping ac Ikea such a penliar experience the cay ‘xeon outlets the conspicuously alvent salespeople; the cafes that serve Swedish meatballs and lingpaherry juice; the heavy ‘boxes thar eustomersare expected cowrestl ff toweringrarks; the complex furniture that they must assemble themselves, But above all else, one factor accounts for Tkea's 00d quality a low price. Tkea sells furniture thats cheap bu not cheapo, at prices that typically run 30 to $0 percent below the competitions While the price of ocher companies’ prod ets fends crise overtime, Tkea sys it ha reduced es retail peices bya ror ofabour 20 percent during the past four years. ‘Ac kes the process of driving down costs starts the moment a ‘nesw item isconceived and continues relentlessly throvghoutts production ren. The price ofa basie Péang chair, for example, ‘nas fallen from S149 ia 2000 co $99 in 200 to $79 tok Tea expects the most recent price cut to increase Poangsales by 30 1050 percent. Thea's corpocate mantra is “Low price with meaning.” The gual is to make things less expensive without ever making cus tomers eel cheap, Striking that balance demands special kind of design, manufacturing, and disebution expertise. Bue Tket polls coffin ts own distinctive way: tastefully, methodically, even cheerfully and yet samchow differently than any other ‘company anywhere, Heve'sastep-by-step guide to how Tkea de. lds, and disteibures the furnicute that the entice world wanes co bay. signs, Step 1. Pick a Price @& Most suixOWacTORRRs nPSIGN A PRODUCT THEN THY TO Figure out how ro make it for a taxget price. At Thea, the price literallycomes first. Every product’ sale prices set by aprod- uct developer like Per Carlsson, a large, bearded man who sponds his days ereating Volwo-style kitchens at Yogo prices “Out goal” he says, "is to solve problems.” ‘Tpieally those “problems” are fits identified in what Tkes calls its producestrategy couneil~a group of globe-troting senior execurives that suonitors consumer tends andestalish- es peorities for Tkea’s produet lineup. Think of the product- strategy vouncilas a kind of central nervous system: Tesenses changes in the environment and relays thean to subordinates such as Carlsson, the lead developer in the company's kitchen department. ‘One *protslem’ recently identified by the councik Around the world, che kielen has slowly replaced the living pom a the social and entertaining center of the burn, Titut means oday’s kiteliens need to project comfort and cleanliness to vests while als reflecting the gourmet aspirations ofthe host. But how do you do that globally? Comfort in Asia might be ex- ‘peossed in smal, cozy appliances ad spaces, wile in North ‘Asnerica, consumers aspire to own supersize glases and yiae refrigerators with names like Viking Carlsson jab iseven more diffiealt when the council hands down divectives that are Droauh or even cryptic. He's gotten instructions to "make more forniare foe smal spaces” and o “ik cubic.” Aver receiving 3 new set of instructions, Carlsson strolls ‘up tothe showroom on the third floor of Tkea’s headquarters, where cach of the company’s Icitchen items is masked with 2 lange red-and yellow price rg. Then he applies what Hkeans refer as “the matrix” Ter’ product managers wu pice matixto identify holes inthe company’s product lineup—and how much ro charge fora new product. Demonstatiog how the matrix works, Carlsson draws te-tae-toe grid on apiece of paper explain- ing that he can plot the price and style of any Tk item with ‘init. Thea has eee base price ranges—high, medium, and Jow—and four basi styles: Seandinnvnn eck woot), mod- cen (minimalist, county (neo-Uaaliionab, and young Swede (ase bones) To identity market opportunities, Carlsson takes 4 product council dectve, plots his existing product liseup on the pid, andl looks for empcy spaces, Sartng with the councils suallspaces directive, for example, Carlson found plenty of standalone kitchen island a¢ Ikea higher price pois, but he noticed that he was missing am inexpen sve kitchen uni suitable for we in sto apartments or of fices. Cason surveys the competition to figure out how much the new product should cost, targets a price 30 t0 50 percent lower than the rival and voi: An Thea price pon is bor. hisis the method Carsson used to establish the target price fora low end Tea kitchen—conmplete with cabinets, sik, cove and sefeigerator—a $650,Step 2. Choose a Manufacturer Tena was roUNDRD 1» 1943 ny INGvaK KAMA, AN ENTER prising lad who gor his startin business selling matches at the age of 5. When he was 17, his father gave hian some money, ‘while used co create Tkea—a local retail business thar spe alized in selling hasie howcholdl goods at discoune prices. (Cae name comes from is initials, plus che frst Terers of the names of the family fm and the village where he grew up) Dy the eatly 19306, Kamprad ua expanded his product line roiincude furniture. He opened! Tkea's Firs store i 1953, and by the 1960s his low-price strategy had proved so succussful that Tea's Swedish competitors pressured the nation's fuenitane sturers to stop supplying theic cheaper rival Forced 1 lok elsewhere for production capacity, Kamprad established relationships with some unlikely contractors: Polish furniture ‘makers working on the oher side ofthe Iron Custain, But the ‘odd arrangement proved horh inexpensive and effective, a6 Tea eventually succeeded in getting the conumunist facocies to retool co meet its unique production requirements ‘The push to discover evercheaper lbor in ever-cheaper markets has been one of Ikea’ signarure strarepis. After so tling om a target price for a product, Ikea determines what ‘materials will be used and whe manufacturer will do the as sembly work even hofore the nesw iter i aetually designed Tea now buys fiom about 14800 suppliers in 55 countries. [In che past five years, it has increased its buying in developi ‘countries from 32 0.48 percent, To manage relationships with facflung suppliers, Ure company operates 43 local trading of fices in 33 countries, including China, India, Indonesia, Tie ‘wan, Thailand, and (of course) Poland.The local offices moni tor produce quality andl enforee Tkea's global standards for wages and safety but the company aso fosters competition ‘among them to keep prodiucrion casts down, When Carlsson puts out a description of the target cost and basic specications of new kitchen produce, che trading offices vie to offer the most attractive production package, Including macerials (cheap hardwood or Indonesian rubber, for example) and a factory where craftspeople have te necessary skills to produce unique items in sufficient volume. Volume nurtuses efliceney, and effcieney equals lower prices, so Carlsson always tees to establish pro- duction runs chia will keep three shifts busy ata factory dedicated ex clusively co Lkeas product ing, kn che case ofthe $680 kitchen unit, for ex: ample, the Italian ollice proposed a group of fucories that could produce steel sinks, fiucets, eustomemolded plastic doors, sroves, and reftigera tors, andl assemble the whole lt for the taget price. “High volume is the trick!" Carlsson laughs gleefully: ‘Yet even as Ikea fosters competi m among suppliers, it also treats them as long term business partnees—another legacy of the ‘company’ early experience in Poland. One afternoon in Swe den, Carlsson puts.on his coat and heads clown the oad to visit a supplier of cabinet dots. The supplies is actualy owned by ‘Ikea, asa subsidiary called Swedwood, yet it must compete for Tkea’s business lke an independent contractor—by oflering low prices and good servve. In recur, the supplier receives a {guarantee of high volume that eneoniages investment in cost- ‘ving technology and equipment, Swedood is already highly auromared, bur the company’s now spray room-—which uses a set of elaborately choreographed robotic nuzdles tv apply high loss lacquer o eabiner doors is even more space-age than the restofthe plant. 4 justify ce investmenc in che advanced spray room, Sweekwood plant manager Peter Beckert put his faith in the strength of his elatioaship wich Carson, “I had to trust that these items will be big sellers for more than a year” Beckert ‘ays. Ultimately, the new spray room reduced the cust of Swedwoud shiny eabiner doors by 30 percent. Carlsson is happy as he leaves the factory: Through deals like this, he's managed co lower Lhea's uverage kitehien produce prices for five years running, ‘cTORER 7009 ausINYEE3@ 108Wirt 4 eRice voir ann 8 manufaceurer in place, Thea ‘once again vses internal com petition to find a designer and sleet design for produetion. Carlsson begins his kitchen design process by writing a brie that explains the prod vet's price, is funetion, the materials to be used, and the fabricator’ capabilities. He then sends the brief eo Tkea’s pool of nine staff designers ‘nnd 80 freclancers, and re + promising designs until fis Ihe settes on dhe one he wants toproduee. (Carkson wants his kitchens to he a hitele like Swiss Army nives—to get_ maximum functionality our of limiced space, every piece shoud have multiple uses. His eabinets, for example, can sit vertically v0 horizontally on the floor. ‘on using materials as efficient= Jy as possible, analyzing the Function of every furnicure surface to determine which materials, finishes, and com struction techniques wll work best for the least amoune of ‘money On the low end, Thea pioneered a method ofp ing finishes directly onto fiberboard and particle hhoard—n technique that's ‘most appropriate For lows stress surfaces on cheaper proces, Yet even atthe high ced, costs and supplies ate op- timized. Vides kitchen com: Step 3. ‘Vide, a freestanding kcchen sees, isa good seller—not only because ofits rugged wood ane-stee! construction butako be ‘eause people often buy the pieces for use in their hedooms ‘Bur appearance and utity are only part of Thea's design ethos To reduce costs, Ikea designers and engineers also Focus The Ikea Touch Design the Product re pile with bodies that refilled with lags, a collage of pictures foFher co-workers’ heads, and a carpet with the continents of the world cearranged to:make neighhors of the United Seates and the Middle Bast, Her new designs began shelves this fll poncars incarparate five di pats of the tee, with the mast expensive wood used fon cutting surfaces and the lease expensive inside the drawers. Money saved on wood goes roward high qual ‘yy hinges andl denwer pulls, re inforcing de customer's sense that Vide fsa classy The designers themselves tend to be people like Maria ‘Vinka,a staff designer at com: pany headquarvers who rides her hike to work every da, pedaling past Almhule’ crees and ltee stone houses. Like most Ikea designers, Vinka tends to take a humanistic view of her job. “We dont use ‘customer profiles,” she says “My customer is me.” When asked to design fab- ries last winter, Vinka ereated them based on what 98 07 7: peace. She designed yingerbread peo- This kitchen unit sells for around $1,000 in Europe. What's the secret? A sexy price is more than skin-deep. Higher quality cute of wood are used in high-tess high lb parts of kitchen systems, such 98 countertops. Lower grade wood or particleboard is used in areas such ae the insides of drawers or eabinets, where suldom see it, customers ‘and to find out where material costs can be cut By placing weights on shelves in a ab for example, 1hea'senginoers try to Balance con-culting with sturdiness. tha often transfers technology from one production arena to another, For example after Ikea founder Ingvar Kamprad visited a manufacturer of plastic snk drains, he decided to start making a popular chair using 9 similar process, 3 Thea tests products both to ensure that theyre safeStep 4, shipit Ax, Tina pronneren tHe coxcrer or rit: Tar company’s eureka moment occucred in 19596, when one of Ikea's first designers watched a censtomerteying ta fit a table inte his ear There Ceres tana was only one way to do itz Remove the legs. QTY From that day forward, most Thea products hhave been designed co ship disassembled, lar enough vo be slipped into the eazgo hatch of astation wagon or safely tied down on an auto’ roof rack In Tkea's innately frag corporate culeure, where waste has been declared 2 “deadly sn,” the flat package is also an execl- lene way to lower sh space inside shipping containers. The company’ estimates ping costs by maximizing the use of ‘ansport volume would be six times greater iis items weve shipped assembled. From the design studio to the warehouse oor, Thea employees’ mantra is always the same: "We don't yc0 ship ai.” ‘Making things flat isan Thea obsession, Haw many times ‘can you redesign «simple fireclay coffee mug? Thea’ Bang sug; been designed three times so far—simply to maxi> snlze Ue numberof hes that cau be sted ou pallet, Orige inally only 864 mugs would ft. redesign adcedta rim such as you'd Find on a flowerpot, so that each pallet could hold 1,280 rugs. Last year yer anocher redesign created a shoreer mug with a new handle, allowing 2,024 to squeeze onto a pallet. While dhe mug’ sales price fas remained at 50 cents, ship ping eastshave been reduced by 60 percent, which isa signif. ‘cant savings, given that Ikea sells about 25 million of the _mugs each year. Even better, the cost of production at Tea's Romanian Factory has also fallen because the more compact mugs require fess space inthe kiln. faye to err When you ship 25 milion cubic meters of goods all over the globe, flee pack frugality adds up. Tkea now uses. 65 per cent average filrate target forall the containers it ships, andit hopes to increase thar to 75 percent by 2006, Meeting, that goal will require Further design changes (as with the Bang mug) and sometimes even sucking the air out of items (ike Tkea's shrinkeserapped pillows, which look like sla crackers on store shelves). And of course, flac packing 5 the cost of pradhet assembly’ to the customer, saving pero the Far East, shipping time and costs have become an even more ‘rtical concern. Last year China tied Sweden arop Teas lst ‘of supplier conntrics. The compnny has responded by excate ing a global wecwurk of disribusion eencers, most of which ‘As Ikea has shifted more of ies buying from aro near container ports and major truck and rail routes There are 18 Lkea distibution centers workdwide—which sande about 70 percene of Tkea’s total product line and ‘more are under construction, The other 30 percent of Ikea's products cavel directly from supplier eo store. Sometimes, hewever, product components actually come ogerhier for the frst time in the store. In the ease oF the riang ehais, the eushion comes fram Poland and the feame from China. The ewo pieces are united only when dhe cus omer pulls each one off the shelf thekon tiin esb 5 inner nova awe antes age be le tn stp o ‘See nes one ony patios Kitchens ave sold disassemble to reduce shipping cots hea cnalngare videotape construction sessions with ‘consumers to ensure that assembly Instructions arent too dificult. Te called “Stine tenting, because thea used to try out furniture desis on the Mutalect man in Alesha allway signalman named Stine.Welcome to “The Swealsh town whore Ikea was bors is an unlikely place from Which to run a worldwide empira. But en's distinctive product line and quirky re: tall formula flow directly from the towa's unique sensibilities. “We work with the local experienes and dletribute it alabally/ says hea product steategit Lars Danas Almhult resembles a medal railay village, with two streets of neatly painted shops and a few quaint houses. The aea ls Inhab- Ited by 18.000 people and rowahly a zilion trees, ‘ustc that chain sais area big sller atthe sporting goods shop, and the local police head home promptly each day at 5 pm. ‘Almhult and its aye were the Insplration for loal-boy-made> ‘eed Ingvar Kamprad, who is now the world's 1éth-vichest per fs. town 20 on, worth an estimated $134 billion. From Almhult’s tres, Kan customers want to buy, Step 5. SRLLING EXPENSIVE FURSIC ture is relatively easy: Pur a piece ina lush setting let the customer fall prey co aspire tional visions oF wealth and confor, then offer plenty of cay credit. Tnditional furni ture sales have gotten their ‘oomph from consumers’ do- mestic Fantasies and the partons ep these ‘olesman’s pashan experience chac makes buying a most as stcesfal as buying anew. Ber keep pees ow, Thea needs el unite wit salespeople or conspicuous price reductions. The company asks customers to aseuble dei furntue dheccoes And Ticadoest wnt 0 shite yoni which maybe wy he coups oieevie lovey website make it 0 treo for shoppers complete purehiss. By any conventional mare, theseare formidable haces to overcome. Yet they eplin shy Thea has worked so hard reeves wl imide is tres kind of theme park masquerading a8 Sre outlet whee normal rules al expectations dou aps ‘When yon wale thro the done oF an Thea sore, you ener a nniculoly constructed viral Sweden. The Best thing you encounter is a company sponsored chik-care fa tity, Hungry? Have some of those Swedish meatballs nad lngonberres. The kyoto a hea store guides shoppe in a predetermined path past sever elite model homes, which convey an erly livedin impression but are open for enstomers ost in, Informason Kiosks provide alice ‘hom decoc Colorcoorinated cards offer plenty of sup eit the Global Village prad developed tken's distinctive bland-waod style. From Ite tony folds and conturles of frugality, he engineered en's costconsciois ethos. Most important, Almhult's residents tken’s products are designed to address, Almhults dark wintore ‘encourage the vee of itl lamps, ten lights, indoor plants, and ‘uty conforters—items that are malnctays of tkoa's home acces 5017 lineup, While working on catalog shoot young Ikea deco rater explains that she used her fiends” homes in Almull as mode ‘ah. “They're the second generation inthe home. a young couple ‘witha baby, and now al ther relatives ae coming for Christmas," she says. "So where wll they eat? Where will they pu thelr coats? Whare will they sleep” By paying close attention to ximple ques ‘one ike those, Ikea has learned how to ereate the products that sya lifestyle that across the globe. Sell It seston on ofbeat utes for products Buc che emphasis is always on price, Lowpriced products that Tks cals TT Cbreathtaking items" are often perched ‘on ier, rane by a huge yellow price tag, Neaby shoppers wl ind other preuets—prieier, more design oriented —as substitutes forthe BTL “The move! homes suggest clierl young people owing dinner parties in hallways, using, mismatched office chairs and narsow side ables. ‘These aen the asptational images youll ind at Portery Barn or Crate & Barrel. These ae peo pile who are living well in modest cicumstances— frugal folks who know the value of eomforcabl place to sit. hea says its bigest sling pone ithe price tg ut it ean Jnure har gering through one of The huge tore akes alo of time. The layout is blatantly manipulative—though in a fiend, knowing wa noc wake at Disneyland —but when costomer nally nerve a che checkout counter, they've ad plenty of ime to flly consider thei purses Tea products broadcast an ethos for living in che modem ‘wodd: Dont buy an ualy pitcher i you can get sylish one forthe same pice. Lryou organize your plastic bags youlleel snore in canal oyour lie e's lefe-brain lage applied ro the righcbrain art uf ving well Andi happiness involves drage sing a cumbersome fa package ofthe shelf standingin line 1 ce ciechout hauling the box home, and spending hours assembling a kitchen enbinet, well 260 milion customers a year are willing to make tha rade-off ‘Anu of course, next year it wil be even cheaper. Lita Margo ssnar gotta) i retake based Sen Ponca, | {