IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad. The company, which initially sold pens, Christmas cards, and seeds from a shed on Kamprad’s family farm, eventually grew into a retail titan in home furnishings and a global cultural phenomenon, what BusinessWeek called a “one-stop sanctuary for coolness” and “the quintessential cult brand.” IKEA inspires remarkable levels of interest and devotion from its customers. In 2008, 500 million visitors walked through IKEA stores, which are located all over the world. When a new location debuted in London in 2005, about 6,000 people arrived before the doors opened. A contest in Atlanta crowned five winners “Ambassador of Kul” (Swedish for “fun”) who, in order to collect their prizes, had to live in the IKEA store for three full days before it opened, which they gladly did. IKEA achieved this level of success by offering a unique value proposition to consumers: leading-edge Scandinavian design at extremely low prices. The company’s fashionable bargains include products with unusual Swedish names such as Klippan loveseats for $279, BILLY bookcases for $60, and LACK side tables for $8. IKEA founder Kamprad, who was dyslexic, believed it was easier to remember product names rather than codes or numbers. The company is able to offer such low prices in part because most items come boxed and require the customer to completely assemble them at home. This strategy results in cheaper and easier transportation as well as more efficient use of store shelf space. IKEA’s vision is “to create a better everyday life for the many people.” Its mission of providing value is predicated on founder Kamprad’s statement that “People have very thin wallets. We should take care of their interests.” IKEA adheres to this philosophy by reducing prices across its products by 2 percent to 3 percent annually. Its focus on value also benefits the bottom line: IKEA enjoys 10 percent margins, higher than its competitors such as Target (7.7 percent) and Pier 1 Imports (5 percent). IKEA sources its products from multiple companies all over the world rather than a handful of suppliers as many furniture retailers do. This ensures the lowest price possible, and savings that are passed on to the consumer. Today, IKEA works with approximately 1,300 suppliers from 53 countries. IKEA’s stores are located a good distance from most city centers, which helps keep land costs down and taxes low. The average IKEA customer drives 50 miles’ roundtrip to visit an IKEA store. Many stores resemble a large box with few windows and doors and are painted bright yellow and blue—Sweden’s national colors. They save energy with low-wattage lightbulbs and have unusually long hours of operation; some are 24-hour stores. When a consumer walks through an IKEA store, it is a very different experience than most furniture retailers. The floor plan is designed in a one-way format, so the consumer experiences the entire store first, then can grab a shopping cart, visit the warehouse, and pick up the desired items in a flat box. Many IKEA products are sold uniformly throughout the world, but the company also caters to local tastes. • In China, it stocked 250,000 plastic placemats with “Year of the Rooster” themes, which quickly sold out after the holiday. • When employees realized U.S. shoppers were buying vases as drinking glasses because they considered IKEA’s regular glasses too small, the company developed larger glasses for the U.S. market. • IKEA managers visited European and U.S. consumers in their homes and learned that Europeans generally hang their clothes, whereas U.S. shoppers prefer to store them folded. Therefore, wardrobes for the U.S. market were designed with deeper drawers. • Visits to Hispanic households in California led IKEA to add seating and dining space in its California stores, brighten the color palettes, and hang more picture frames on the walls. IKEA has evolved into the largest furniture retailer in the world with approximately 300 stores in 38 countries and revenues topping €21.5 billion in 2009. Its top countries in terms of sales include Germany, 16 percent; United States, 11 percent; France, 10 percent; United Kingdom, 7 percent; and Italy, 7 percent.
1. What are some of the things IKEA is doing right to reach consumers in different markets? What else could it be doing?
2. IKEA has essentially changed the way people shop for furniture. Discuss the pros and cons of this strategy.