IKEA

WHAT IS IKEA/MEANING OF IKEA

IKEA is named after the initials of founder Ingvar Kamprad, Elmtaryd, the farm on which he
grew up, and Agunnaryd, the nearby villageIngvar Kamprad founded IKEA in 1943 at the age of
17, selling household goods like pens, wallets and picture frames. Smaland, the landscape
where Ingvar grew up, was stony and rugged. Back then, many of the inhabitants had to get by
with small means, making as much as possible with next to nothing. Because of this,
Smalanders are said to be thrifty and innovative, with a “no-nonsense” approach to everyday
problem solving. This heritage is one explanation to the IKEA way of doing things and to our
success.

HISTORY OF IKEA
IKEA was founded in 1943 on a vision of offering “a wide range of well-designed, functional
home furnishing products at 180 prices so low that as many people as possible will be able to
afford them.”
In 1956, the stores introduced furniture through the “flat packing” method: furniture was sold in
pieces and customers assembled it at home. By reducing transportation, assembly, and
inventory costs, IKEA was able to scale aggressively, locating wherever it had willing customers.
IKEA’s ability to leverage the work done by its customers enabled it to grow to 433 stores in 49
global markets, serving more than 957 million customers for a retail revenue of €41.3 billion in
2019.

IKEA BUSINESS MODEL

In 1956, IKEA introduced “flat packing” and turned customers into a free workforce that
takes over part of the traditional furniture manufacturing value chain. Customers buy
furniture in pieces in stores and assemble it in a DiY fashion at home.
They follow the price-leadership model. Low prices are the cornerstone of the IKEA vision,
business idea, and concept. IKEA furniture is named after Swedish towns such as Aneboda,
Akurum, and Anordna. Customers, however, are less concerned with the names and more
concerned with the price. Ikea furniture is a beacon for bargain hunters. Its entire business
model revolves around selling their product at the lowest possible price. IKEA's business model
revolves around their vision of providing a wide range of well-designed, functional home
furnishing products at such low prices that as many people as possible will be able to afford
them. Anyone can produce a high-quality product at a high cost or a low-quality product at a low
cost. IKEA takes a different approach, developing methods that are both cost-effective and
innovative. They decide on the price before designing the product. Their designers start with the
product design while keeping the price in mind. The IKEA Group operates 31 distribution
centres in 16 countries that supply goods to IKEA stores. It has 45 trading service offices spread
across 31 countries. They maintain close working relationships with their 1,350 suppliers in 50
countries.

FINANCIAL FACTS OF IKEA

IKEA generates revenue from two sources: an offline franchise-driven model and an online
direct-to-consumer model. In the franchise setting, IKEA charges franchisees an annual fee of
3% of net sales. Aside from franchise fees, IKEA earns money from wholesale sales of IKEA
products to franchisees and other sources. The other income consists primarily of revenue
generated by the IKEA catalogue and other marketing materials created for IKEA retailers.
IKEA franchisees operated 458 traditional IKEA stores in 61 markets, as well as several test
locations, as of FY21. IKEA franchisees will open three new stores in FY22.
Puerto Rico, the Philippines, and Oman are among the new markets. In the Netherlands, IKEA
owns and operates only one store (non-franchise).
IKEA's revenue from franchise fees, sales of goods, and other income increased to EUR 25.6
billion in FY21, up from EUR 23.6 billion in FY20. Here is a revenue breakdown by segment.
However, when the income from IKEA's online division and customer services are factored in,
total sales in FY21 totaled EUR 41.9 million. IKEA's total revenue in FY20 and FY19 was EUR
39.6 million and EUR 41.3 million, respectively.
In FY20, e-commerce accounted for more than 16% of total retail sales, up from 10% in FY19.
This sharp increase in online sales was primarily due to the coronavirus, but IKEA had already
included the online channel in its sales mix prior to the pandemic. In fiscal year 2021, the online
segment accounted for 26% of IKEA sales.

UNKNOWN FACTS ABOUT IKEA

1. Ikea is the third-largest wood consumer on the planet. Being the leading furniture
company it should not be shocking.
2. IKEA is claimed to print more copies of its annual catalogue each year than the bible.
3. IKEA has very good food sales. Being known for its furniture has a very good taste when
it comes to their restaurant. This can be a great contribution to their revenue as they
have an approximate sale of 2 billion annually.
4. As in 2014, they have 716 million visitors to their store. This is a very huge number.
5. The first IKEA restaurant was launched in 1956 to feed its customers that would feel
hungry after spending the whole day shopping.