Ikea:: A Furniture Dealer

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IKEA:
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This case was written by Lisa Duke, Researcher, under the supervision of Quy Nguyen Huy, the Solvay Chaired
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In October 2017, IKEA decided to experiment with a radical change in sales strategy in the face
of online competitors, launching a market test to sell its flat-pack furniture through big
ecommerce websites, which could include Amazon and Alibaba. This announcement came
amid unprecedented disruption in retailing. Malls across the US suffered drops in sales as
shoppers moved on line. Amazon recently moved into groceries with its $13.7bn acquisition of
Whole Foods. IKEA was also experimenting with new formats including city-centre pickup
points and smaller shops with fewer parking space and less inventory. IKEA also recently
agreed to buy Task-Rabbit, which could help the company offer assistance with furniture
assembly to its customers. 1
Compared to other retailers such as Sears and Toys“R”Us pushed into bankruptcy, IKEA did
fairly well. In December 2016, IKEA Group, the Swedish furniture chain, reported a 20 per
cent rise in profit in 2016, driven by strong sales growth in China. Net profit increased to €4.2
billion, with sales growing in 27 out of 28 of its markets. Revenue grew 7.4 per cent to reach a
record of €35.1 billion over the same period. Growth was fastest in China, Australia, Canada,
and Poland. Peter Agnefjäll, IKEA Group’s president and CEO, said simply: “We are in a good
place … Growth and profitability give us … the independence to think and invest long term.” 2
IKEA’s unabated growth in sales and profits for nearly 70 years seems nothing short of
extraordinary, especially in a difficult retail market that appears to be seriously disrupted by
formidable online digital players such as Amazon.com in the U.S. and Alibaba.com in China,
to name a few. IKEA has responded to this threat by leveraging on its time-honoured tradition
of conducting small-scale experiments to learn from new technologies and markets. The
company departed from its traditional strategic emphasis on big out-of-town warehouses and
has opened limited online services and opened 12 new smaller stores and 19 pickup points.
The multi-billion dollar question on many analysts’ minds is whether IKEA should invest more
aggressively in the digital online business to safeguard its future, thereby investing less in
opening new big stores, or to continue investing more in its current strategy that has proven
highly profitable, even if intensely competitive markets such as China. But what is exactly
IKEA’s strategy? Many analysts have found articulating IKEA’s strategy very difficult, given
the fact that the company has remained private and does not have to disclose its financial figures
let alone explain its strategy to outsiders.
IKEA was one of the 20th century’s success stories. Started in 1943, it had turned its founder
Ingvar Kamprad (1926-2018) into one of the richest men on the planet. In 2010, Forbes ranked
him the 11th richest man, with an estimated fortune of US$23 billion. 3 Notwithstanding,
Kamprad preferred to live a simple life, driving an ancient Volvo and living modestly in a house
in Switzerland4 furnished with 1980s IKEA furniture.
The cornerstone of the product offering was flat-pack furniture with strange Swedish names
that the customer took home from the store and assembled him/herself. The concept of self-
1 Financial Times, October 10, 2017, Ard Milne

2 Financial Times, December 7, 2016 Hanna Murphy
3 Wrappers come off IKEA structure, Andrew Ward, FT.com, January 26 2011
4 He is the world’s 4th richest man, Dennis Ellam, Sunday Mirror, April 13 2008
Copyrig ht © INSEAD 1
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service, flat-pack furniture was unique when introduced by IKEA and had been synonymous
with the company ever since.
IKEA, with its blue and yellow colours, after its home nation of Sweden, had become the
world’s largest furniture retailer. It operated 280 warehouse-sized stores in 26 countries, with
trading offices, production and distribution in 41 countries. Illustrative of the strength of its
success, 12 of those 280 stores were opened in the difficult economic environment of 2010.This
growth was founded on a highly sophisticated integrated model of supply chain management,
including in-house design, a strong concept and positioning, and a supportive culture based on
deeply shared values. The secretive nature of the company made it difficult for outsiders to
understand exactly how it operated, but it was a seemingly well-oiled machine, extracting
timber and turning it into moderately priced, good quality, stylish furniture, available at its
many stores.
But there were challenges ahead. The company had been an early adopter of globalizat ion,
opening its characteristic IKEA stores across the globe. But success in the past did not guarantee
success in the future. Its growth plans were ambitious, but were they sustainable? As IKEA
expanded, what did this mean for its sacred store concept? Would it have to adapt as economic
circumstances changed? Then there was the issue of raw materials and the company’s insatiable
appetite for wood. Global demand for timber continued to increase year on year, resulting in
higher raw material prices and challenging IKEA’s lowest-price-guarantee strategy by

squeezing margins. Would IKEA be able to sustain its success story?
The IKEA Vision & Culture

IKEA had a simple vision: ‘To create a better everyday life for the many people’,5 explaining
the business idea as:
“To offer a wide range of well-designed, functional home furnishing products at

prices so low that as many people as possible will be able to afford them.”6
Product positioning focused on young people and young families, low and middle income
earners who wanted stylish design at low cost. As an organization, IKEA practiced extreme
cost-consciousness, which enabled savings to be passed on to customers through low prices.
Kamprad described the spirit of the company as being:
“founded on our enthusiasm, on our constant will to renew, on our cost-

consciousness, on our willingness to assume responsibility and to help, on our
humbleness before the task and on the simplicity of our behaviour.”7
In 1976, he explained his philosophy for IKEA in a book that every recruit has since received
a copy of (Exhibit1 details the key points).The IKEA ‘bible’, entitled ‘Testament of a Furniture
Dealer’, set out Kamprad’s sacred concept as a rallying cry to workers:
5 IKEA.com; our vision and business idea

6 Welcome Inside 2010, IKEA, http://www.ikea.com/ms/en_GB/pdf/Welcome_Inside_2010.pdf
7 Ingvar Kamprad and IKEA, Christopher A. Bartlett, Ashish Nanda, Harvard Business School, 9-390-132,
Rev July 22 1996
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“[It was] our duty to expand … Those who cannot or will not join us are to be pitied
… What we want to do, we can do and will do, together. A glorious future!”8
IKEA’s culture was based on Kamprad’s values of continuous renewal, cost-consciousness,

assuming responsibility and helping others, and simplicity in work behaviour. 9 As a result, the
company culture was manifested through informal dress for all employees (jeans and casual
tops/sweaters) and the use of familiar forms of address, e.g. ‘du’ in German, rather than ‘sie’,
or in French, ‘tu’ rather than ‘vous’. Everyone was a ‘co-worker’, whether they worked in a
store or in the corporate head office, signalling lack of hierarchy and a promoting team spirit.
Simplicity rather than bureaucracy was another tenet, which translated into managers spending
at least a week each year working in stores and warehouses. Co-workers were invited to the
Swedish headquarters for training and to absorb the strong cultural values of the company.
Organising for Eternity
In the 1970s, Kamprad set up an opaque structure for IKEA to ensure it would continue beyond
his lifetime. This complex set of trusts and management foundations would protect the company
and the IKEA concept from corporate raiders and political upheavals. It would also stop any
succession issues that might arise upon his death from destroying the company (Exhibit 2 shows
the IKEA ownership structure).
The holding arrangement was also used to minimise the tax that IKEA paid in each country it
operated in. Kamprad explained his views on taxation, saying that taxes were a cost like any
other and, in line with IKEA’s philosophy of a low-cost, low-price structure, should therefore
be minimised:
“We have always viewed taxes as a cost, equal to any other cost of doing business
… An optimised tax structure allows us the flexibility to use funds that have already
been taxed in one market in new markets for further business development without
the additional burden of double taxation.”10
The Store Concept – A Complete Furniture Showroom

The IKEA store concept had been in use since the early days of the company, reinforcing the
idea that attention to detail within the stores was fundamental. The concept was owned by Inter
IKEA and could only be altered by a store manager via written request. The standard concept
benefited the company in several ways as customers visiting newly opened stores had already
been ‘socialized’ as to what to expect. Store operations were often compared to best practices.
To ensure that the concept was adhered to, a Commercial Review audit team regularly
8 The miracle of Älmhult, Oliver Burkeman, The Guardian, June 17 2004

9 Ingvar Kamprad and IKEA, Christopher A. Bartlett, Ashish Nanda, Harvard Business School, 9-390-132,
Rev July 22 1996
10 ‘Probe reveals IKEA tax structure’ and ‘Wrappers come off IKEA structure’, Andrew Ward, Financial Times,
January 26 2011
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conducted checks of all the relevant parts of the store to ensure they conformed to best
practice.11
The concept dictated that stores were always on major access roads on edge-of-town suburban
sites with plenty of car parking space. There was usually a garage for petrol and a van rental
area where customers could hire large vehicles to transport their larger goods back home. At
the entrance to the store was a crèche for smaller children, allowing parents to shop in peace,
trolleys and large blue plastic bags with which to pick up smaller items as customers moved
round the store.
The furniture showroom space had a pre-set order, always starting with living rooms, then
bedrooms, kitchens, bathrooms, and children’s rooms. Furniture was showcased using actual
‘rooms’ in different dimensions and at different price points, so that customers could visualise
what their home could look like with a particular set of furniture. Customers could note down
the location of larger items within the warehouse; pencils, notebooks and paper measures were
available throughout the showroom. At the end of the furniture showroom was the children’s
room area, which included traditional toys and children’s bed linen. Located there was a
restaurant serving traditional Småland food, the region where Kamprad came from, particularly
meatballs, which IKEA had become famous for.
After the restaurant, customers were led through areas with kitchen equipment, carpets and
rugs, curtains, bed linen and towels, mirrors, art and posters, items for smaller storage, indoor
plants and vases. At this point, there was a large warehouse area with pallets and heavy loading
trolleys for customers to help themselves to their flat-pack furniture. After this came the
checkout area, and beyond that a small café serving drinks and snacks and a ‘Sweden store’
selling Swedish delicacies. This model was replicated in every store, reinforcing the brand
recognition.
The First Temptation: the IKEA Catalogue

The IKEA catalogue was the first, crucial part of the customer seduction, coupled with TV
adverts. The annual catalogue was distributed free to households in each store’s locality to
tempt visitors to the store. In 2010, the IKEA catalogue, which featured only a proportion of
the entire 9,500 items in the product range, had a print run of 198 million copies in 27 languages
for 38 countries.12
A Long and Winding Road: the Core Business of the Store

IKEA stores have been described as “the most fiendishly clever, ruthlessly targeted concept in
the whole history of selling”. 13 Each store manager had two central tasks: (1) to turn as many
visitors to the store as possible into customers, and (2) to encourage customers to purchase as
11 The truth about IKEA, Johan Stenebo, Gibson Square, 2010

12 IKEA.com, http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/faq/index.html,
accessed January 2011
13 An empire built by self-assembly, William Langley, The Sunday Telegraph, October 10 2010
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much as possible.14 Once visitors had negotiated the vast car parks and made it into the store,
the business of conversion began. The idea was that visitors must see and experience everything
on offer, following the pre-determined path through the showroom. Short cuts between these
spaces that allowed staff easy access were hidden so that visitors found it difficult to stray off
the path. On their journey, they were surrounded by smaller, easy-to-pick-up items to tempt
them – immediately converting them from visitor to customer. An urban planning specialist at
University College London (UK), Alan Penn, explained why the formula was so successful:
“Everybody I know hates it but everybody goes. It’s a form of sadomasochism. They
make it a complete nightmare. You double back on yourself, can’t see the shortcuts,
you don’t see the outside world. It’s psychologically disruptive – a kind of
brainwashing.”15
A journalist described the shopping experience:
“The stores don’t have a bed department over here, and a kitchen shop over there.
That sort of simplicity would be far too easy for the customers to suss out, and use
to their advantage. Instead IKEA takes you on a journey along a winding blue path
past lots of things that you didn’t know you needed until you saw them – towels,
saucepans, measuring spoons – all enticingly displayed in baskets and racks, at
prices so low it seems insane not to buy them. And if, in the process, you miss what
you are actually looking for, you have to follow the path again, collecting even more
stuff. And so it goes on, until you stagger out with a trolley stacked high, and you
understand why IKEA is the biggest retailer of its kind in the world.”16
The irritation did not necessarily end once the customer had driven away with their goods. The
press told stories of ‘IKEA rage’ as customers at home got frustrated trying to follow the
instructions for their flat-pack furniture, with only a small metal tool and a sheet of paper with
stick figures and pictures to assemble their furniture. Yet the success of the company was such
that it was estimated that one in 10 babies in Europe was conceived in an IKEA bed. In the UK,
almost 10% of furniture spend was on IKEA goods, and a third of the UK population purchased
something every single year from IKEA. It was also estimated that two billion meatballs were
eaten in IKEA restaurants in 2009/2010. 17
The Hot Dog Strategy and Sales Tactics

Another distinctive aspect to the IKEA offering was ‘Hot Dogs’ – products that made a minimal
amount of profit. The concept was introduced by Kamprad based on his idea that:
“Since IKEA turns to the many people who as a rule have small resources, the
company must be not just be cheap, nor just cheaper – but very much cheaper. In
short, the stores must sell things that, in the eyes of the public, are astonishingly

15 An empire built by self-assembly, William Langley, The Sunday Telegraph, October 10 2010
16 Ibid.
17 Ibid.
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cheap to buy … We don’t lose on the deal, nor do we make much profit, but at least
we make a little on each hot dog. In the end that is what matters.”18
The edible hot dogs that were available in the small bistro just after the checkout counters were
therefore sold for just 50 cents (1 Swiss Franc).Although the company made a very small profit
on each sale, they sold millions of them. While ‘Hot Dogs’ did not make up the bulk of IKEA
products, the category included items such as glasses, multi-plugs and a magazine clip called
‘Mållen’. The clip was another example of the IKEA product strategy and part of its secret of
success. Designed to hold magazines in the bathroom so they didn’t get wet, it was one of the
bestselling articles in the Mållen range. A journalist described the experience:
“It had never occurred to you, presumably, that you might want to hang up
magazines in your bathroom. But IKEA had already decided that you would. And
the brilliant but scary part is this: once you’ve seen a row of magazines hanging up
in one of IKEA’s showroom bathrooms, each neatly suspended at 45 degrees from
a Mållen clip, it takes a will of steel not to find the magazines in your own bathroom,
now you come to think of it, almost offensively disorganised. And so you think about
purchasing the Mållen clip. At which point another IKEA sales tactic kicks in: the
clips only cost 90p [British pence] for three – so cheap that it’s hardly worth not
buying them, just in case, especially if you’ve travelled a long way to get to the
store”19
It was these combined aspects of the IKEA concept and strategy that continued to ensure the
company’s continued success.
Expansion Through Organic Growth

Having consolidated its original success in Sweden, the company began to look beyond its small
home country for growth opportunities. With its complex holding structure, rather than finance
with debt or through the markets, IKEA pursued a self-funded organic growth strategy. (Exhibit
3 gives key facts and figures for IKEA and financial highlights for 2010). Kamprad explained:
“We want to grow at our pace so that we keep up, not just with what is new but also
develop what we already have. IKEA’s strategy has long been to take at least half
our resources to improve what already exists – the other half to do what is in the
future, if at a somewhat slower pace than if we had had access to u nlimited money.
IKEA cannot – as an eager member of the staff once expressed it – ‘just drive along
autobahns finding suitable sites on which to build IKEA stores.’” 20
Initially, the company focused on German-speaking countries as these amounted to the largest
furniture market in Europe. 21As it learned from the experience, it opened elsewhere in Europe
18 Leading by design: the IKEA story, Bertil Torekull, HarperBusiness, 1999

21 Ingvar Kamprad and IKEA, Christopher A Bartlett, Ashish Nanda, Harvard Business School, Case 9-390-
132, July 22 1996 (rev)
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before opening its first store outside Europe in 1975 in Australia. North America and the Far
East soon followed. Ex-CEO, Anders Dahlvig commented:
“What we learned – as we became a global company in the 1970s, before

globalization was known as a phenomenon – was how to go into different markets
… I think we can very well manage the process of starting up in a new country; we
have done it so many times… Different countries, languages, laws and all the things
you have to take into consideration. For us … that is pretty much business as
usual.”22
Although calling itself a global company, IKEA’s footprint was still very European focused. Its
overseas expansion was not without teething problems. In 2006, a store opened in Minneapolis ,
which happened to be where US-retailer Target was headquartered. Staff from Target visited
the IKEA store every day, individually purchasing items. Six months later, Target launched a
range of furniture products at low price points sold online. The range was strikingly similar to
IKEA’s.23
When entering a new market, IKEA benefited from global brand recognition. In 2003, it was
ranked 44 of all globally recognized brands. 24 Its unique concept of quality furniture at the
lowest price and special promotions also helped it attract loyal customers from the moment a
store opened. In 2005, when IKEA opened a new store in Edmonton, London, there was a near
riot and the store had to be closed after only 30 minutes.25
In 2010, profits from the Group were re-invested in the business, of which €2.1 billion was used
to build new stores and develop existing ones. Ohlsson explained, “We look at results over
cycles of three to five years, not three to five quarters.”26 The forward planning horizon and
solid revenues gave the Group impetus to speed up its expansion plans. At least six store
openings were planned for 2011, in Bulgaria, Thailand, Serbia, the Ukraine, Abu Dhabi and
Denver, amongst others. Location experts began looking for appropriate sites in New Zealand
and the Philippines.
But not all of the expansion went according to plan. Having invested US$4 billion in Russia
since first opening a store there in 2000, in 2009 IKEA announced it was putting on hold all
new investment in the country. Commentators suggested that IKEA had tired of the corruption,
which created artificial obstacles and red tape. Kamprad told Swedish radio in June of that year
that IKEA had been ‘swindled’ out of US$190 million in recent years as Russian utilities had
not provided electricity as promised. 27Major setbacks also occurred in India, where, after
announcing it would open stores in 2007, IKEA management tried to persuade the Indian
government to ease foreign investment restrictions on retailers, hoping the government would
22 ‘IKEA CEO Anders Dahlvig on international growth and IKEA’s unique corporate culture and brand
identity’, Katarina Kling, Ingela Goteman, Academy of Management Executive, 2003, Vol. 17 No 1
24 ‘IKEA CEO Anders Dahlvig on international growth and IKEA’s unique corporate culture and brand
identity’, Katarina Kling, Ingela Goteman, Academy of Management Executive, 2003, Vol. 17 No 1
25 Crush chaos at Ikea store opening, BBC NewsOnline, February 10 2005,
http://news.bbc.co.uk/2/hi/uk_news/england/london/4252421.stm
26 IKEA still strong on the home front, Andrew Ward, Financial Times, January 14 2011
27 Why IKEA is fed up with Russia, Bush, Jason, Bloomberg BusinessWeek, July 2 2009
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raise the foreign ownership limit from 51% to 100%.In 2009, IKEA finally abandoned its
attempt and the planned stores never materialised. 28
So far, IKEA had simply stamped its strong store concept and culture wherever it went, but
whether adaptation was needed as the company entered new, and very different, markets
remained an open question. It had been forced to adapt when it entered the US market: stores
were not big enough, beds were measured in centimetres rather than king, queen and twin sizes,
and customers found that European drinking glasses were just too small and opted instead for
vases to drink from. 29 Furniture ranges had to be made larger to reflect US customer tastes.
Used to a more homogenous customer base in European countries, IKEA discovered that the
US had huge diversity. Realising they were missing out on the large Hispanic population,
designers visited the homes of Hispanic staff. They discovered that US Hispanics did not like
the subdued palettes of IKEA furnishings, preferring bright colours with warmer hues. They
also liked large dining tables and sofas that seated more than two people. 30
Pricing
Price and volume were the essence of the IKEA pipeline. The approach was to have the lowest
possible prices in each market it operated in. Price levels were set 30%-50% below competitors.
The pricing rule-of-thumb was one third to the suppliers, one third to the purchasing/logist ics
company IKEA of Sweden (IoS), and one third to the store. Margins and pricing were set in
advance to match catalogue advertised prices for the year ahead. This relied on a steady supply
of raw materials at fixed prices – if prices rose unexpectedly, margins could potentially be
wiped out.31
In-House Design
IKEA designed its own products using a team of in-house designers based in Sweden. On
average, IKEA products took two years to develop. Each of 11 business sections worked in
three-year cycles so that a proportion of the range was renewed every year. The cycle went as
far as determining when meetings would take place and who should attend, ensuring an efficient
and clear process. Each product was designed within a range matrix system, which was key to
IKEA’s strategic success in achieving continual renewal, as ex-employee Johan Stenebo
explained:
“Each part of the range is divided in four different groups of style and expression:
Country, which is called peasant furniture by Ingvar, Scandinavian, typically light
and Nordic home furnishing, Modern, which is perceived as attractive on the
continent, and Young Swede, which is all kinds of things in an extremely strange
28 IKEA abandons efforts to invest in India, Kazmin, Amy, Financial Times, June 11 2009
29 IKEA, how the Swedish Retailer became a global cult brand, Bloomberg BusinessWeek, November 14 2005,
http://www.businessweek.com/magazine/content/05_46/b3959001.htm
30 Ibid.
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modern form with gaudy colours. The basic idea is that the customer should be able
to mix and match from the whole range group in a particular style.”32
These four groups would be further split by price points from the ‘breath-taking items’
(extremely low-cost ‘Hot Dogs’) through low, medium, up to high price. This created the matrix
and enabled the design team to look for gaps based on price and style. It also ensured
consistency in products and a streamlined process.
The small town of Älmhult, in Southern Sweden, where IKEA began, was where the design
decisions on the entire IKEA product range of 9,500 items were made. Älmhult was not only
the spiritual heart of the company but also the powerhouse and guardian of IKEA design. Every
year in September, for one intensive week, the management of IKEA of Sweden (IoS) presented
the entire range to Kamprad, seeking his seal of approval on new items and discussing what to
design for the next cycle.
It was crucial that customers were exposed to the ‘whole’ range in each store. IKEA resisted
calls to open smaller stores. In the late 1990s/early 2000s, the UK’s Deputy Prime Minister,
John Prescott, suggested splitting up the range. He argued that creating more and more massive
out-of-town sites was destroying town centres; suggesting that IKEA open smaller shops on
high streets with a bedroom or kitchen focus instead. There was an outcry from IKEA
executives, who said he didn’t understand the IKEA concept – that IKEA was about meeting
every need, not just part of it:
“[Splitting up the IKEA stores] will never, ever happen! Never, ever. Our vision is
a better everyday life for the many people. And it is the whole life. It cannot be
separated.”33
IKEA would not be IKEA without the large blue and yellow warehouses on major roads,
offering an Aladdin’s cave of furniture and household items to its customers.
Supply Chain Management

The company had an integrated supply chain strategy, but rather than own the production it
preferred to enter into alliances with its 1,000+ suppliers. 34 When developing supplier alliances,
IKEA would often offer technical and financial support, even designing factories, buying
machinery and setting up operations.35 In this way it could ensure the quality that it promised
its customers. Swedwood, IKEA’s industrial group, was the only exception to supplier
ownership. The company was fully owned by IKEA, accounted for 10% of production and was
considered almost a stand-alone company.36 Swedwood focused on forestry and timber
32 Ibid.
34 ‘International Growth Through Cooperation: brand driven strategies, leadership and career development in
Sweden’, Rikard Larsson, Kenneth R Bronsseau, Michael J Driver, Michael Holmquist, Veronika
Tarnovskaya, Academy of Management Executive, 2003, Vol. 17 No 1
36 Swedwood, http://www.swedwood.com/, accessed January 2011
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production, through sawmills to actual furniture production. It owned or had the leasing rights
to vast forests across the world. IKEA was its sole customer.
IKEA’s supplier alliances were otherwise not ownership agreements but ‘preferred sourcing’.
The key aspect to IKEA’s purchasing strategy was to build long-term relationships with
suppliers. Usually IKEA was their main customer. With such large orders to fill, IKEA had
significant purchasing power. The company had a 90-95% service level objective on items in
the catalogue, so maintaining supplies was crucial. To ensure that supplies would be guaranteed,
IKEA looked beyond conventional suppliers, placing orders with producers who had the
capacity to produce the products, including one for cushion covers with a shirt manufacturer. 37
As one purchasing manager remarked:
“We don’t buy products, we buy production capacities.” 38
This was a unique operating model, challenging suppliers to produce goods they otherwise
wouldn’t, while at the same time IKEA would work closely with suppliers to ensure they could
produce to requirement.
Twenty-seven distribution centres served IKEA stores. These centres were highly automated,
using automated storage and retrieval systems and conveyor belts to improve efficiency. 39 Only
three sizes of standard pallet were used by suppliers to ensure they would fit in the distribution
centres and in the warehouse areas in the stores. In 2011, IKEA announced it would no longe r
use wooden pallets, moving instead to paper pallets to reduce costs.
Competition and Imitators

As IKEA’s success grew, so too did the competition. Globally, furniture retailing was highly
fragmented with no one chain recreating the IKEA formula on the same scale. Its competitors
were localized furniture retailers who could not match the footprint and expansion history of
IKEA. Wherever IKEA opened a store, however, imitators would spring up. In Denmark,
BIVA, a discount furniture chain was a close competitor.40 In the US, Target created a strikingly
similar furniture range, and Kmart collaborated with Martha Stewart to offer its own
furnishings. Stor, a US direct imitator, was later purchased by IKEA. In Japan, there was Nitori
Co. with its low-cost furniture range, while in France there was Fly. 41 Furniture 11, in the West
of China, mirrored everything from IKEA’s yellow and blue colour signage to its in-store room
displays.42 And of course, the growing dominance of online retailers worldwide.
37 Ingvar Kamprad and IKEA, Christopher A Bartlett, Ashish Nanda, Harvard Business School, 9-390-132, Rev
July 22 1996
38 Ibid.
39 IKEA’s Cost Efficient Supply Chain, ICMR, 2009
40 Shops in Denmark, fyidenmark.com
41 IKEA, Bloomberg BusinessWeek, November 14 2005,
http://www.businessweek.com/magazine/content/05_46/b3959001.htm
42 Made in China: Fake Stores, Burkitt, Laurie, Chao, Loretta, The Wall Street Journal, August 3 2011
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Future Challenges
As Peter Agnefjäll reflected on the Group’s performance to date, he was satisfied that IKEA
was in a strong position. There were key questions he needed to reflect on as he steered the
company forward. Store openings were entirely financed in-house, so were reliant on the
success of the Group’s revenues. The store model was exacting and required a specific set of
conditions – location, proximity to road transport, population, footprint size – before a store
would be considered. IKEA was a clearly success story – but could Agnefjäll continue this
strategy in the decades to come? Especially with the growing worldwide dominance of online
retailers that have disrupted the retail market in profound ways? Are there ways to achieve even
higher profitable growth by combining both digital online and offline retail?
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Exhibit 1
Testament of a Furniture Dealer: The Nine Commandments
1. The Product Range is Our Identity
IKEA offers a wide range of well-designed, functional home furnishing products at prices that are so
low that as many people as possible are able to afford them.
2. The IKEA Spirit is a Strong and Living Reality
IKEA builds on enthusiasm, a desire for renewal, thrift, responsibility, humbleness toward the task, and
simplicity. “We must look after each other and inspire. Pity the man who cannot or does not want to
partake.”
3. Profit Gives Us Resources
IKEA will achieve profit – “a wonderful word” – through the lowest prices, good quality, more
economical development of products, improved purchasing, and cost savings.
4. Reaching Good Results with Small Means

“Waste is a deadly sin.”
5. Simplicity is a Virtue
Complex regulations paralyse, “exaggerated planning is the usual cause of death to companies,” and
simplicity gives strength. IKEA people do not drive flashy cars or stay at luxury hotels.
6. Doing it a Different Way

“If from the start we had consulted experts about whether a little community like Älmhult could support
a company like IKEA, they would undoubtedly have advised against it.” IKEA goes its own way, turning
to shirt factories to make cushions and window factories to procure good frames for tables, charging
more for umbrellas when the sun is shining but selling at bargain prices when it rains.
7.Concentration is Important to Our Success

“We can never do everything everywhere, all at the same time.”
8. Taking Responsibility is a Privilege

“The fear of making mistakes is the root of bureaucracy, the enemy of development. Exercise your
privilege, your right, and your duty to make decision.”
9. Most Things Still Remain to be Done – A Glorious Future

A glorious future! “You can do so much in ten minutes.” “Let us continue to be a group of positive
fanatics who make the impossible possible.”
Copyrig ht © INSEAD
Exhibit 2
Source: Wrappers come off IKEA structure, Andrew Ward, Financial Times, January 26 2011
The Ownership Structure of the IKEA Group (as believed in January 2011)
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13
Exhibit 3
Source: ‘Welcome Inside’ – Yearly Summary FY10 IKEA Group

IKEA 2010 – Key Facts & Figures
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14
http://www.ikea.com/ms/en_GB/pdf/Welcome_Inside_2010.pdf
Source: ‘Welcome Inside’ – Yearly Summary FY10 IKEA Group,
IKEA 2010 – Key Financials (FY September 2009-2010 August)
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15

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Distributed by The Case Centre North America Rest of the world

1 Financial Times, October 10, 2017, Ard Milne

higher raw material prices and challenging IKEA’s lowest-price-guarantee strategy by

squeezing margins. Would IKEA be able to sustain its success story?

The IKEA Vision & Culture

“To offer a wide range of well-designed, functional home furnishing products at

“founded on our enthusiasm, on our constant will to renew, on our cost-

5 IKEA.com; our vision and business idea

IKEA’s culture was based on Kamprad’s values of continuous renewal, cost-consciousness,

the IKEA ownership structure).

The Store Concept – A Complete Furniture Showroom

8 The miracle of Älmhult, Oliver Burkeman, The Guardian, June 17 2004

The First Temptation: the IKEA Catalogue

A Long and Winding Road: the Core Business of the Store

11 The truth about IKEA, Johan Stenebo, Gibson Square, 2010

The Hot Dog Strategy and Sales Tactics

14 The truth about IKEA, Johan Stenebo, Gibson Square, 2010

Expansion Through Organic Growth

18 Leading by design: the IKEA story, Bertil Torekull, HarperBusiness, 1999

“What we learned – as we became a global company in the 1970s, before

riot and the store had to be closed after only 30 minutes.25

every need, not just part of it:

Supply Chain Management

Competition and Imitators

1. The Product Range is Our Identity

4. Reaching Good Results with Small Means

6. Doing it a Different Way

7.Concentration is Important to Our Success

8. Taking Responsibility is a Privilege

9. Most Things Still Remain to be Done – A Glorious Future

Source: ‘Welcome Inside’ – Yearly Summary FY10 IKEA Group

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