Johnson, Gerry; Scholes, Kevan & Whittington, Richard &

IKEA: how the Swedish retailer became a global cult brand

Johnson, Gerry; Scholes, Kevan & Whittington, Richard &, (2008) "IKEA: how the Swedish retailer became a global cult brand" from Johnson, Gerry; Scholes, Kevan & Whittington, Richard &, Exploring corporate strategy : text & cases pp.708-711, Harlow: Financial Times Prentice Hall

Staff and students of Edinburgh Napier University are reminded that copyright subsists in this extract and the work from which it was taken. This Digital Copy has been made under the terms of a CLA licence which allows you to: * access and download a copy; * print out a copy; Please note that this material is for use ONLY by students registered on the course of study as stated in the section below. All other staff and students are only entitled to browse the material and should not download and/or print out a copy. This Digital Copy and any digital or printed copy supplied to or made by you under the terms of this Licence are for use in connection with this Course of Study. You may retain such copies after the end of the course, but strictly for your own personal use. All copies (including electronic copies) shall include this Copyright Notice and shall be destroyed and/or deleted if and when required by Edinburgh Napier University. Except as provided for by copyright law, no further copying, storage or distribution (including by e-mail) is permitted without the consent of the copyright holder. The author (which term includes artists and other visual creators) has moral rights in the work and neither staff nor students may cause, or permit, the distortion, mutilation or other modification of the work, or any other derogatory treatment of it, which would be prejudicial to the honour or reputation of the author. This is a digital version of copyright material made under licence from the rightsholder, and its accuracy cannot be guaranteed. Please refer to the original published edition. .Licensed for use for the course: "SOP09910 - Corporate Strategy" Digitisation authorised by Catherine Campbell

‘Ikea’s operating margins of approximately 10% are among the This is an abridged version of an article from Business Week online (N.36bn).A hybrid strategy (point 3 on the strategy clock – Exhibit 6. But right now its 226 stores in Europe. ‘most people would have no access to affordable con­ temporary design. A February 2005 opening in London attracted up to 6. Germany. two people died and 16 were injured.S. Australia. analyst Mattias Karlkjell of Stockholm’s ABG Sundal Collier conservatively estimates Ikea’s pre-tax operating profits at $1.7bn (€1.2) can be very successful and difficult for competitors to imitate. Not France’s Carrefour. In the ensuing melee. The emotional response is unparalleled. to $17.’ The magazine even voted Ikea’s founder Ingvar Kamprad the most influential tastemaker in the world today. It sells a lifestyle that customers around the world embrace as a signal that they’ve arrived. that they have good taste and recognize value. Since IKEA began in 1943 it has grown into a successful global network of stores with its unique retailing concept.S. there will be a need for Ikea. As long as consumers from Moscow to Beijing and beyond keep striving to enter the middle class. . is that ‘awareness of our brand is much bigger than the size of our company.7bn (≈€14. too. Such buzz has kept Ikea’s sales growing at a healthy clip: For the fiscal year ended 31 August 2005 revenues rose 15%. says CEO Anders Dahlvig. and Japan. hosting 410 million shoppers a year. Think about it: What mass-market retailer has had more success globally? Not Wal-Mart Stores Inc. and the U. 2004. there is a danger that the organisation can drift into a ‘stuck in the middle’ position – being ‘out-flanked’ by both low-priced and differentiating competitors at the same time. An article in Business Week discussed the concept: The Ikea concept has plenty of room to run: The retailer accounts for just 5–10% of the furniture market in each country in which it operates. Ikea has had its slip-ups.000 before police were called in. Ikea maintains these profits even while it cuts prices steadily. And although privately held Ikea guards profit figures as jealously as its recipe for Swedish meatballs. which despite vast strengths has stumbled in Brazil.’ writes British design magazine Icon. (WMT). American edition) 14 November (2005) . Asia.’ That’s because Ikea is far more than a furniture merchant. However. . which has never made it in the U. are thriving. . More important. The promise of store vouchers for the first 50 shoppers drew thousands to an Ikea store in the Saudi Arabian city of Jeddah in September.2bn). ‘If it wasn’t for Ikea.

’ Karlkjell says. Examples: ‘Ikea makes me free to become what I want to be’ (from Romania). research manager at Planet Retail. an architect who frequents Ikea in Schaumburg. You proceed to the warehouse. The blue-and-yellow buildings average 300.S. Nineteen new outlets are set to open worldwide in the fiscal year ending Aug. for example. Wide aisles let you inspect merchan­ dise without holding up traffic. on average. A Furniture Dealer’s Testament.000. or the more revealing ‘it is our duty to expand’ – the pamphlet is given to all employees the day they start. Kamprad started the company in 1943 at the age of 17. and picture frames. Christmas cards. They also compare well with margins of 5% at Pier 1 Imports and 7. an enthusiasm that has inspired two case studies from Harvard Business School and endless shopper comment on the Net. ‘They have this way of making you believe nothing is expensive. The $120 Billy bookcase.7% at Target. But the converts outnumber the critics. one touch after another seduces the shopper. it’s trendy for less money’ (Germany). Wash.’ says Bryan Roberts. 79. both competitors of Ikea in the U.). clutching your dog-eared catalog (the print run for the 2006 edition was 160 million – more than the Bible. 31. Ikea is accelerating store rollouts. and furniture that’s hardly built for the ages (the running joke is that Ikea is Swedish for particle board). Right at the entrance. which not only saves Ikea mil­ lions in shipping costs from suppliers but also enables shoppers to haul their own stuff home – another sav­ ing.) Spending per customer is even similar. Ill. The bins and shelves constantly hold surprises: Ikea replaces a third of its product line every year. where the full genius of founder Kamprad is on display. outlets by 2010: Five are opening this year. to provide shoppers a breather and encourage them to keep going. an amenity that encourages more leisurely shopping. at a cost of $66m per store. prices are used throughout this story.S. up from just one in 2000. and seeds from a shed on his family’s farm in southern Sweden. Russia (Ikea is already a huge hit in Moscow). from kitchen cabinets to candlesticks – is a decisive advan­ tage. selling pens. Then there’s the stop at the restaurant. equipped with nothing but an Allen wrench and those cryptic instructions. The key to these rollouts is to preserve the strong enthusiasm Ikea evokes. he figures the field is wide open: ‘We have 25 stores in a market the size of Europe.S. That’s intentional: As one of the Harvard B-school studies states. to inspire cus­ tomers and get them to spend more.’ says Krystyna Gavora. His credo of creating ‘a better life for many’ is enshrined in his almost evangelical 1976 tract. though officially retired. Finally you have the fun (or agony) of assembling at home. the figure in Russia is $85 per store visit – exactly the same as in affluent Sweden. A vocal minority rails at Ikea for its long lines. you proceed along a marked path through the warren of showrooms. Kamprad. Ikea practices a form of ‘gentle coercion’ to keep you as long as possible.000m2].’ The global middle class that Ikea targets shares buying habits. To keep growing at that pace. I can see everything as long as I keep walking in one direction. The fanaticism stems from founder Kamprad. In the U. The settings are so lifelike that one writer is staging a play at Ikea in Renton. ‘But there’s no one else who offers the whole concept in the big shed. Wherever they are. scented candles. 2006. And for every fan who shops at Ikea. there seems to be one working at the store itself. from the paper measuring tapes and pencils to strategically placed bins with items like pink plastic watering cans. usually placed at the center of the store. Peppered with folksy tidbits – ‘divide your life into 10-minute units and sacrifice as few as possible in meaningless activity. a shopper at Ikea on the outskirts of Paris. and China (now worth $120m in sales). CEO Dahlvig is keen to boost Ikea’s profile in three of its fastestgrowing markets: the U. Nearly all the big items are flat-packed. The furniture itself is arranged in fully accessorized displays.’ ‘wasting resources is a mortal sin’ (that’s for sure: employees are the catalog models). $13 Lack side table. Or this: ‘Half my house is from Ikea – and the nearest store is six hours away’ (the U. Ikea claims). about equal to five football fields.IKEA: HOW THE SWEDISH RETAILER BECAME A GLOBAL CULT BRAND best in home furnishing. the first catalog appeared (Kamprad penned all the text himself until 1963). is still the cheerleader for the practices that define Ikea culture. ‘Others offer affordable furniture.. You set out to buy a $40 coffee table but end up dropping $500 on everything from storage units to glassware. customers tend to think of the store visit as more of an outing than a chore. where we have more than 160 stores.000 square feet in size [28. ‘Because the store is designed as a circle. a figure as important to global retailing as Wal-Mart’s Sam Walton.S. What enthrals shoppers and scholars alike is the store visit – a similar experience the world over. you can drop off your kids at the playroom. crowded parking lots.’ says Bertille Faroult.S.’ The goal is 50 U. down to the picture frames on the nightstand. In 1951. Along the way.S. . (U. According to Ikea. exasperating assembly experi­ ences. The sheer number of items – 7. Then. These are things you never knew you needed but at less than $2 each you load up on them anyway. a con­ sultancy in London. and $190 Ivar storage system are best-sellers worldwide. Or this: ‘Every time.

the boss handed him a coupon for a car rental he had ripped out from an in-flight magazine.IKEA: HOW THE SWEDISH RETAILER BECAME A GLOBAL CULT BRAND One is egalitarianism. queen. The other message that comes across loud and clear: Cut prices. learning that ‘Americans prefer to store most of their clothes folded.’ No design – no matter how inspired – finds its way into the showroom if it cannot be made affordable. Sweden. In China. Ikea works overtime to find the right manufacturer for the right product. not king. even top brass. It helps that frugality is as deeply ingrained in the corporate DNA as the obsession with design. Mats Nilsson. Stores weren’t big enough to offer the full Ikea experience. In 1999 the Klippan was $354.’ says Lennart Dahlgren.’ says Josephine Rydberg-Dumont. recalls that while flying with Kamprad once. customers. and twin. With a network of 1. country manager for Russia. during which executives work on the shop floor or tend the registers. Example: For the PS Elian.’ Another is a steely competitiveness. helps keep costs down. a tenet of Swedish design. visited people’s houses in the U. Simplicity. interior design director. ‘We look at the competition. Beds were measured in centi­ meters. a massive bulletin board tracks weekly sales growth. The results: a table fashioned from reddish-brown birch heartwood (furniture makers prefer the pale exterior wood) and a storage system made from recycled milk cartons. the least expensive pigments. the suppliers and design­ ers have to customize some Ikea products to make them sell better in local markets. Ikea regularly stages Antibureaucracy Weeks. Sweden. the Swedish norm. At the far end of the Helsingborg foyer is a row of best-selling Klippan sofas. ‘We can’t increase by more than 20 stores a year because supply is the bottleneck.S. the bedroom-line manager at Ikea of Sweden. the company’s 12 full-time design­ ers at Almhult. since it’s key to expansion – and since Ikea came close to blowing it. so it could be flat-packed and snapped together without screws. ‘I was unloading trucks and selling beds and mattresses. take their price. an inexpensive blend of wood chips and plastic resin used in highway noise barriers.300 suppliers in 53 countries. names the best-performing country markets. manager of Ikea Long Island. a trial-and-error process that can take as long as three years.S.S. It once contracted with ski makers – experts in bent wood – to manufacture its Poang armchairs. ‘We got our clocks cleaned in the early 1990s because we really didn’t listen to the consumer. displaying models from 1999 to 2006 with their euro price tags. for use in furnishings. in Hicksville. and identifies the best-selling furniture.’ The result was a wardrobe that features deeper drawers for U. Ikea realized it might not be reaching California’s Hispanics. The 50 cents Trofé mug comes only in blue and white. Steen Kanter. designer Chris Martin worked with production staff for a year and a half to adapt a wood-fiber composite. Sofas weren’t . They soon realized they had set up the store’s displays all wrong.S. Julie Desrosiers.99 dining chair that can rock back on its hind legs without tipping over. president of Ikea of Sweden. Since Russia is a source of timber. At the doorway. adding more seating and throwing in numerous picture frames. along with 80 freelancers.’ says Ikea’s U. In the spring of 2004. who left Ikea in 1994 and now heads his own retail consultancy in Philadelphia.000 plastic placemats Ikea produced to commemorate the year of the rooster sold out in just three weeks.S. Nilsson warmed up the showrooms’ colors. Large Hispanic families need dining tables and sofas that fit more than two people. a $39. This cost obsession fuses with the design culture. ‘Designing beautiful products that are inexpensive and functional is a huge challenge. In 2006 it will be $202. and Europe to peek into their closets. You get a sense of that at one of Ikea’s main offices. NY. Ikea aims to turn it into a major supplier of finished products. and then slash it in half. Martin also had to design the chair to break down into six pieces. To achieve that goal. ‘In February. Adding to the challenge. ‘Designing beautiful-but-expensive products is easy. and many were in poor locations.’ says Kanter. Prices were too high. by 2010 Ikea will need to source twice as much material as today. The montage vividly illustrates Ikea’s relentless cost-cutting. and it has tapped makers of supermarket carts to turn out durable sofas. The American market poses special challenges for Ikea because of the huge differences inside the U. Ikea is particularly concerned about the U. So its designers vis­ ited the homes of Hispanic staff. and Italians like to hang. The retailer aims to lower prices across its entire offering by an average of 2% to 3% each year. ‘It’s so easy to forget the reality of how people live. For its new PS line. It goes deeper when it wants to hit rivals in certain segments. it challenged 28 designers to find inno­ vative uses for discarded and unusual materials. the 250. If sales keep growing at their historical average. work hand in hand with in-house production teams to identify the appropriate materials and least costly suppliers. They prefer bold colors to the more subdued Scandinavian palette and display tons of pictures in elaborate frames. in Helsingborg. Managers fly economy. Kanter International.’ says Mark McCaslin. Ikea’s conservation drive extends naturally from this cost-cutting.’ says CEO Dahlvig.

head of Ikea North America. the culture may start to fade. Parts of the product line were adapted (no more metric measurements). ‘Americans want more com­ fortable sofas. author of a 1996 case study. Bartlett.S. managers are paying close atten­ tion to the tiniest details. ‘The great challenge of any organization as it becomes larger and more diverse is how to keep the core founding values alive.’ says Harvard Business School Professor Christopher A. prices slashed. Ikea is still run by managers who were trained and groomed by Kamprad himself – and who are personally devoted to the founder. Now U. the former head of Ikea North America.’ recalls Goran Carstedt. has a lock on low-cost furniture. An Ikea-like chain called Fly is popular in France. bigger glasses. more spacious entertainment units. Kmart has been collaborating with Martha Stewart on its own furniture line. curtains were too short. Can the cult keep thriving? Ikea has stumbled badly before.’ says Pernille Spiers-Lopez.S. (TGT) has recruited top designer Thomas O’Brien to develop a range of lowpriced furnishings. As the direct links with Kamprad disappear. A foray into Japan 30 years ago was a disaster (the Japanese wanted high quality and great materials. not low price and particle board).. which were launched in October 2005.IKEA: HOW THE SWEDISH RETAILER BECAME A GLOBAL CULT BRAND deep enough. and kitchens didn’t fit U. In Japan Nitori Co. In the U.-size appliances. and service improved. . ‘American customers were buying vases to drink from because the glasses were too small. who helped engineer a turnaround. Ikea is also seeing more competition than ever. Perhaps the bigger issue is what happens inside Ikea.S. new and bigger store locations chosen. higher-quality textiles. Target Corp. The com­ pany is just now gearing up for a return to Japan next year.

Sign up to vote on this title
UsefulNot useful