IKEA Can’t Stop Obsessing About Its Packaging

Retailer increasingly designs furniture with shipping costs in mind from the start

IKEA is increasingly designing its furniture with packaging and manufacturing in mind from the start. An IKEA store
in Moscow.
PHOTO:YURI KOCHETKOV/EUROPEAN PRESSPHOTO AGENCY

By SAABIRA CHAUDHURI
June 17, 2015 5:30 a.m. ET

ÄLMHULT, Sweden—A few centimeters can make a truckload of difference for IKEA.
The Swedish furniture retailer—which has for years tweaked, or sometimes overhauled, its products to
cut costs—is sharpening its attention to detail and refining an already obsessive focus on efficiency as it
looks to drive revenue growth.

“We are engineering costs out of our value chain that don’t contribute anything,” Chief Executive Peter
Agnefjäll said in an interview in this Swedish town of 16,000, home to IKEA’s first store.

The Swedish retailer’s push comes as it works to hit an ambitious target: to raise sales to €50 billion
($56.18 billion) by 2020. That translates into a 74% jump from fiscal 2014, which ended Aug. 31, or
average growth of nearly 10% a year. IKEA’s sales rose by just 3% in fiscal 2014 from a year earlier, or
5.9% once adjusted for foreign-exchange impacts.
IKEA’s plan is to open new stores—including in a new market, India—expand online and attract more
customers by creating better products at lower prices.

The company in 2011 cut the price of its Bjursta dining table to €199 from €279 after choosing to make
the legs hollow, reducing weight and raw-material costs. In 2012, IKEA lowered the price of its Textur
lamp by 34% after slimming down the number of components to nine from 33. That cut packaging
weight by 28% and allowed IKEA to fit 128 lamps on a pallet that previously took just 80.
Efficient packing—and the concomitant benefit of lower transport costs—is at the heart of IKEA’s ability
to stay affordable. “We hate air at IKEA,” said Mr. Agnefjäll, a mantra that is repeated throughout the
company.
In 2010, IKEA changed its Ektorp sofa from one solid piece into several, with detachable arm rests and
a hinged back. The move translated into a package size that is 50% smaller, removing 7,477 trucks from
the roads annually, and a price tag that is 14% lower. IKEA also changed the base of its Jules swivel
office chair: Rather than looking like a starfish out of the box, it now comes in several separate pieces.
The redesign has saved the company €1.2 million a year.
Despite the lower price tags, IKEA runs the risk of alienating customers by increasing assembly time.
The company has gained something of a reputation for being associated with fights between harried
couples who attempt to go shopping in one of its labyrinthine stores or assemble its more complicated
products.
“We have had products we have actually destroyed by doing too much knock down,” said packaging
manager Allan Dickner, referring to IKEA’s process of making something flatter for packaging. “It’s
always a balance.”

Ikea’s Global Sales Rose by just 3% in the fiscal year ended Aug. 31 from a year earlier.
PHOTO: TOMOHIRO OHSUMI/BLOOMBERG NEWS

Instead of changing products once they have hit shelves, IKEA is increasingly designing things with
packaging and manufacturing in mind from the start.
“The good designers, the experienced ones, they have this in their backbone,” said Mr. Dickner. He said
IKEA’s designers use software that calculates optimal sizes and shapes, helping the company avoid
having to tweak designs or scrap ideas entirely because they’re deemed too expensive to ship.
The company recently sent its designers to visit factories before coming up with ideas for a new
collection focused on comfort. “Understanding production and the available techniques first allows us to
develop new solutions that we can really manufacture,” said product developer James Futcher. To
encourage more regular customer visits, IKEA is increasing its limited collections to at least 10 this fiscal
year from two last year.
The company’s distaste for the excessive stems from its roots. Älmhult, where founder Ingvar
Kamprad in 1958 opened the first IKEA store, lies in an infertile part of the country with scant natural
resources. Residents say they grew up sharing with one another and making the most of the little they
had.
Mr. Kamprad’s frugality is the stuff of legend, prompting years of media stories about how he only flies
economy class, replaces minibar drinks in his hotel rooms with ones from supermarkets, and was once
denied entry to a business awards ceremony for arriving on a bus. Now 89 years old, Mr. Kamprad can
be seen in Älmhult from time to time, and occasionally advises the management board.
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“He’s a very down-to-earth man,” said IKEA’s head of food, Michael La Cour.

Over fiscal 2015, IKEA plans to open 13 new stores, adding to the 315 it had previously. It is also
working on buying land in India for its stores in the country but declined to say when its first location
would open. IKEA over the next few years will ramp up its focus on online shopping, currently available
in just 13 of its 27 markets. The company in fiscal 2014 saw 1.5 billion visits to its websites, up 200
million from the prior year, and more than double the visits seen by its physical stores.
The company is ramping up its locations for click-and-collect, where people order online and then pick
up merchandise in a store. It has also begun experimenting with more central stores, last year opening a
city-center store in Hamburg, Germany, that has a smaller range than IKEA’s out-of-town stores and
from which customers can use company bikes designed to hold cargo to take their purchases home free
of charge.
Out-of-town stores nevertheless are likely to remain IKEA’s dominant strategy. Mr. Agnefjäll said the
company is focused on opening more of these near public-transport hubs. In December, IKEA opened a
store in Seoul that is a 10-minute walk from a subway station.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
QUESTIONS: 

1. (Introductory) Describe the ways that Ikea reduces costs. How do they drive continuous
improvement and innovation?

2. (Introductory) In what ways does Ikea consider the entire supply chain when designing products?
Why do "a few centimeters" matter in terms of total cost for Ikea?

3. (Introductory) What is Ikea's concept of "efficient packaging?" Why are transportation costs such a
big part of Ikea's strategy?

4. (Advanced) Describe some of Ikea's innovations. How could your company utilize some of the same
ideas to reduce your supply chain costs?

5. (Advanced) How does your company implement "Design for Manufacturing?" Describe a defect or
struggle that your company has with a particular product. How could this product be redesigned to
make manufacturing easier? How could this reduce the overall cost of the product?
SMALL GROUP ASSIGNMENT (Recommended): 

As a small group, visit a local competitor of Ikea. As you browse the store, look at the product design.
List all the product design innovations that you notice that are created to reduce costs either in
manufacturing or transportation.

Reviewed By: Bradley Miller, University of Houston - Bauer College of Business