IKEA SWOT Analysis

Done by:

Strength- Haya AlDineh (GBBRYL)

Weaknesses- Shah Neel Mineshbhai (NDQJX1)

Opportunities- Wafa Mezzi (CGOGHD)

Threats- Rayan Kazi (QQGYC5)

Submitted on Tuesday 9/10/2019

Strengths:
Successful Strategy and Unique Competitive advantages:

1. IKEA is a world’s largest furniture retailer and it is on its way to achieve its
target of EUR 50 billion annual sales by 2020. As of November 2018, IKEA has
424 stores in 52 countries. With 22 2.5 billion IKEA web visits and 957 million
IKEA store visits, IKEA achieved 38.8 billion Euros in retailer sales in 2018.

2. IKEA is known for modernist design of various types of appliances and

furniture, and its interior design work is often associated with an eco-friendly
simplicity. It has developed the notion of “democratic design”, which implies
achieving an attractive form, quality, function and sustainability at a low
price. On implementation of the notion is the way furniture is assembled,
rather than selling products pre-assembled, much of IKEA’s furniture is
designed to be assembled by the customer. This helps reduce costs and use
of packaging by not shipping air. This is also more practical for customers
using public transport, because flat packs can be more easily carried. The
firm’s attention to cost control, operational details, and continuous product
development, allowed IKEA to lower its prices by an average of two or three
percent over the decade to 2010 during a period of global expansion.

3. IKEA product portfolio is efficiently focused. Specifically, the company offers

a wide range of furniture and home appliances products that share the
common set of features such as innovative design, low price and a high level
of practicality. Moreover, IKEA stays up-to-date with changes in customer
needs and preferences.

4. IKEAs attention for cost included choosing locations for its stores, the vast
majority of the stores are located outside the city center, mainly because of
land cost and traffic access. IKEA buys the land where it opens new stores,
and builds all new stores from the ground up, thereby eliminating leasing or
rent fees. This approach is financially wise in the long run. Most stores follow
the layout of having the showroom upstairs with the marketplace and self-
service warehouse downstairs. Some stores are single level, while others
have separate warehouses to allow more stock to be kept on-site. Single level
stores are found predominantly in areas where the cost of land would be less
than the cost of building a 2-level store. Most IKEA stores offer an “as-is” area
at the end of the warehouse, just before the cash registers. Returned,
damaged and formerly showcased products are displayed here and sold with
a significant discount, but also with a no return policy.
 5. Not only does IKEA provide customers with hands-on furniture shopping
experience, it also offers a cross cultural food in its restaurants all over the
world. Every store includes a restaurant serving traditional Swedish food as
well as local cuisine food and beverages. The food menu is adjusted to suit
the requirements of the country. for example, In Kuala Lumpur, Malaysia, the
usual boiled or mashed potatoes have been replaced with French fries;
meanwhile in Indonesia, the usual Swedish meatballs recipe is changed to
accommodate Halal requirements. In many locations, the IKEA restaurants
open daily before the rest of the store and serve an inexpensive breakfast

6. Most IKEA stores have a play area called Smaland (small land in Swedish) for
children aged 3 to 10 years old. The service is offered completely free of
charge. Parents drop off their children at a gate to the playground and pick
them up after they arrive at another entrance. The area mostly features
things such as slides, seesaws, cartoons, a ball pit, etc.

7. IKEA household products and furniture are designed in Sweden but largely
manufactured in developing countries to keep costs down. And for most of
its products, the final assembly in done by the customer.

Financial Strategy:

1. IKEA has a complex corporate structure, which was allegedly designed to

avoid over €1billion in tax payments over 2004-2014 period. It is
controlled by several foundations based in the Netherlands and
Liechtenstein.
2. INGKA holding is owned by nonprofit INGKA Foundation, which allows its
profit to not be taxed. At the same time, the Kamprad family cannot reap
these profits directly, but the Kamprads do collect a portion of IKEA sales
profits through the franchising relationship between INGKA Holding and
Inter IKEA Systems. This tax avoidance strategy helped IKEA reduce the
amount of taxes on a €553m profit to just €19m.
3. In financial year of 2016, IKEA Group generated sales of EUR 34.2 billion.
Together with the rental income from the shopping center business (IKEA
Centers), total revenue increased by 7.4 per cent to EUR 35.1 billion. The
company’s net profit for the same period amounted to EUR 4.2 billion.
Thanks to its solid financial position, the company is able to commit to
considerable R&D expenses to further strengthen its presence in the
global marketplace. Moreover, IKEA’s financial strengths can play an
important role of cushion in times of recessions and decline in demand.
Human Resources:

1. During 1980s, IKEA lowered its costs by using production facilities in

East Germany.
2. IKEA investment is not in products innovation only, but also in its
employees. IKEA was named one of the 100 Best Companies for
Working Mothers in 2004 and 2005 by Working Mothers magazine. It
ranked 80 in Fortune’s 200 Best Companies to Work For in 2006 and in
October 2008, IKEA Canada LP was named one of “Canada’s Top 100
Employers” by MediaCorp Canada Inc.

Environmental Performance:

In 1990, IKEA adopted the Natural Step framework as the basis for its
environmental plan. This led to development of an environmental action
plan, which was adopted in 1992. The plan focused on structural changes,
allowing IKEA to maximize the impact of resources invested and reduce
the energy necessary to address isolated issues. Here are some of the
environmental measurements taken in the action plan:
1. Replacing polyvinylchloride (PVC) in wallpapers, home textiles, shower
curtains, etc.
2. Minimizing the use of formaldehyde in its products.
3. Eliminating the acid-curing lacquers
4. Producing a model of chair (OGLA) made from 100% post-consumer plastic
waste.
5. Reducing the use of chromium for metal surface treatment
6. Increasing use of renewable materials – IKEA improved its overall use from
71% in 2007 to 75% in 2009.
7. ‘Smarter’ use of raw materials – IKEA increased the use of recycled or
reclaimed waste products in energy production across all stores from 84%
in 2007 to 90% in 2009.
Weaknesses
1. Opened a store in Konstanz instead of Koblenz –bad management role

2. Collection of directed to collect from external warehouse –Insufficient

Technology, lack of skilled workers

3. Having 590 million operating charges –bad management role

4. Portion of workers were political prisoners – lack of skilled workers and bad
management role

5. 3 people killed in Jeddah for $150 vouchers at store opening- lack of efficient
strategy

6. Demolished historic buildings –Insufficient technology

7. Archaeologists not able collect the artifacts form a tomb in china – Bad
management

8. Bad pricing Policy across the world- low level of financial background

9. Bad advertising –Lack of efficient strategy

10. Child Deaths – Unsuccessful R&D and Insufficient technology

OPPURTUNITIES
Market-growth:

Since its inception in 1943, the demand for IKEA's products has been steadily
increasing because of the high quality of its products and their reasonable prices,
which means that the size of the market has grown as well, for example IKEA
subsidiary wildwood had grown between 20-30% per year since 1991.

Entrance of new markets:

Although it started as a mostly mail- order sales business, Ingvar Kamprad has
succeeded in making IKEA a multinational group. After opening his first store in
älmhult småland in 1958, the company entered many other European countries
in the following years such as Germany, Switzerland, France Belgium… than it
expanded and opened stores in Latin America, the united states, Canada and
many others places all over the world. In addition, the firm decided to develop its
 business by entering new markets like the restaurant and food markets and
establishing children play areas in every store they have.

Product-improvement:

The company started to sell furniture that can be assembled by the consumers
instead of selling normal furniture that has high cost of transportation and can’t
be easily shipped these products had positive feedbacks because they are
practical for consumers. It also expanded its products to include flat-pack houses
and apartments.

New technology implementation:

New methods and technics have been applied by the company in response to the
increasing rate of consumption and the explosion of human population for
instance to limit costs and resource use the company uses extensively the
medium-density Fireboard in manufacturing various products that have been
sold for millions of dollars.

Target market mapping:

To match the consumer’s needs the company tries for example to sell food in its
restaurants in different countries that respects the people’s traditions and
beliefs, they also provide play areas for children because many of its customers
are parents.

Changing of suppliers:

The company has only one supplier which is Hultsfred a factory in southern
Sweden.

Increasing level of organizational culture:

In 2019 the IKEA has 423 stores in 52 countries, and it has a website contains
about 12.000 products and is the closest representation of the entire IKEA range
to manage a such company it has to be a high level of organization and
coordination between the different organizations.

New structure of organization:

The IKEA has complex corporate structure, which members from the European
parliament have alleged was designed to tax avoidance.
Threats
Appearance of new competitors:

Threats to IKEA’s sales can be due to its competitors. IKEA is a furniture company
that designs and sells many kinds of ready to assemble furniture, home
accessories and kitchen appliances. But of late, there have been other’s such as
Walmart, SEARS and Amazon entering the low price household and furnishings
markets. IKEA needs to reinforce its unique qualities to compete with these new
players.

Slowdown of market growth:

IKEA’s low prices are what create appeal amongst its customers in tough financial
times. IKEA’s pricing strategy targets customers with limited financial resources.
It is vital to keep prices as low as possible when the overall economy is down.
The company must ensure that it is always recognized as having the lowest prices
on the market in the future.

Appearance of substitutes:

As furniture is an essential household item, there is little threat to retail furniture

demand in terms of substitutes. However, the threat of substituting wood and
timber as the major raw material may impact the future of the industry,
especially if resources are not handled in a sustainable manner.

Composition of population:

A region with an increasing aging population will be less inclined to purchase

IKEA goods due to lack of need in such items, unless they are supporting a
younger generation.

Increasing bargaining power of suppliers :

The major raw material used by most furniture manufacturers is timber. Since
the timber industry is exposed to multiple external factors, the prevailing
condition of end markets and demand will dictate the price of timber.

Buyer’s needs and requirements are changing:

IKEA must keep in touch with the ever changing environment and fast paced
growth of the 21st century. Consumers needs change every day, requiring more
comfort and compactness. IKEA’s R&D division work in conjunction with its
marketing/sales division on growing needs of the buyer.
Government policy:

Protectionist laws in regional markets, such as India and China, include legal
rulings associated with the protection of intellectual property and import tariffs,
which generate significant barriers for major furniture manufacturers like IKEA.