Kathryn England
Brenna O’Regan
John Hudson
IKEA’s Global Strategy: Furnishing the World
IKEA is a privately-owned international furniture manufacturer known for its low
prices and unique style. The company’s vision is to create a better everyday life for its
customers by offering a great selection of well-designed, practical home furnishings.
Since IKEA has chosen this sort of affordable and distinctive marketing strategy, the
company has been very successful in its expansion throughout the world.
In 1943, Ingvar Kamprad founded what is now known as IKEA in Almhult,
Smaland, Sweden (Johansson, J.K. (2006) p. 85). Initially, the company sold such items
as pens, wallets, picture frames, table runners, jewelry, etc., anything that Kamprad
thought there was a need for (“IKEA” n.d.). Then, in 1947, furniture was added to their
product selection, followed by personally designed pieces in the year of 1955 (“IKEA”
n.d.). IKEA is also greatly known for its concept of selling disassembled furniture.
Using this sort of strategy, in turn, has considerably reduced costs and their use of
packaging, creating another great advantage for the company (“IKEA” n.d.).
IKEA continues to use the same warehouse store design and layout as it has in the
past. This design consists of “knockdown” inventory kits being stacked on large racks
throughout the store, with an assembled version available for display (Johansson, J.K.
(2006) p.85). Having their items packaged and stored in such a manner allows customers
to immediately take their purchases with them, eliminating any delivery costs. IKEA’s
product line is quite extensive, including every possible item necessary for the home.
These items include such things as upholstered furniture, coffee tables, dining tables,
beds, wardrobes, chairs, curtain accessories, wall decorations, bookcases, lighting, garden
furniture, bathroom articles, and kitchen utensils, to name a few (“IKEA” n.d.).
Since IKEA offers such a wide range of household products and furnishings,
interest, as well as demand for the business has grown throughout the world. This has
created a unique opportunity for the company, which has allowed it to continue its
development throughout the world. After opening its first store in Sweden, the company
has expanded to other countries such as Canada in 1976, Spain in 1980, the United States
in 1985, Russia in 2000, Japan in 2006, and finally, in 2007, Romania, to name a few
(“Facts and Figures” 2007). In total, IKEA operates 253 stores in 35 countries, with the
majority being in Europe, the United States, Asia, Canada, and Australia (“IKEA” n.d.).
Therefore, with there being almost 200 countries in the world today, IKEA has the
potential to increase its number of locations substantially in the future (“How Many
Countries in the World?” n.d.).
IKEA is constantly seeking expansion; therefore, the company must use a very
proactive marketing scheme. The most widely used form of marketing for IKEA is the
catalogue, consuming 70% of the company’s annual marketing budget (“IKEA” n.d.).
The first catalogue was published in 1951 in Sweden, and currently offers 55 different
editions, in 27 languages for 35 countries (“IKEA” n.d.). The catalogue itself does not
display every product IKEA offers in its stores, but it does provide prices and pictures for
a great deal of those items (“The IKEA Catalogue” 2007). Currently, this sort of
advertisement reaches over 100 million households around the world every year (“The
IKEA Catalogue” 2007).
Though IKEA is a quite successful global business, it has encountered numerous
challenges and issues along the way. The company has had to deal with extensive entry
hurdles and promotional challenges concerning foreign expansion and acceptance. After
successes in the Sweden, Switzerland, Denmark, and Norway markets, IKEA entered the
German market in 1974, which brought about several issues. First, the store underwent
rigorous regulatory obstacles, followed by its first store being criticized because its
opening birthday celebration went against German tradition in which birthdays should
only be celebrated every 25 years. The store also donned the Swedish flag, Germans
opposed the colors because the subsidiary was German- owned (Johansson, J.K. (2006)
p.87). Despite these problems, IKEA became very successful in Germany, which is
currently their largest market, totaling 41 stores. After the success IKEA experienced in
the European markets, the company decided it was time to expand into the United States.
To prepare for the cultural challenges it would face, IKEA decided to expand into Canada
first so that it would be well established before tackling the much larger U.S. market.
Soon after, IKEA was accepted and did well in the Canadian market, and therefore began
its entry into the U.S. As it turned out, Canadian success was not a good indicator of
American success. As a result, IKEA was not prepared for the entry and many problems
arose. There were issues with the supply chain, management styles, competitive
imitators such as Stǿr, furniture that was not adaptable to the American lifestyle, and a
slogan that did not appeal to the U.S. consumer. IKEA, realizing the changes that needed
to be made, immediately began implementing the necessary steps to become a successful
competitor in the American market. One of the major adjustments that IKEA had to
perform in the U.S. was in the media advertising and promotional department. IKEA had
to transform its slogan into an advertising message that would appeal to its U.S.
consumer base. The traditional moose and slogan, “IKEA: The impossible furniture store
from Sweden,” that had done so well in Canada and Europe, was projecting the wrong
image and was unappealing to Americans. A new marketing strategy was created and a
slogan was introduced: “It’s a big country. Someone’s got to furnish it.” IKEA then
followed it up with advertising that depicted people at different transitional stages in their
lives, all of which being those who would be in the market for furniture. IKEA’s
marketing change was a success and there has been substantial expansion throughout the
U.S. market since then, in addition to this, all other problems encountered during entry
were rectified. (Johansson, J.K. (2006) pp. 88-89)
IKEA has been performing very well and although it is a privately owned
company and does not reveal many income figures, it is known that the revenue for the
fiscal year ending 2004 was $15, 425 billion (in U.S. dollars), which is an increase of
24% from the previous year. It is expanding its presence deeper into the countries that it
already occupies and has plans to enter markets in which it does not yet have locations.
Currently, there are 253 stores worldwide, with the exact locations depicted in the chart
on the following page.
LOCATIONS
Europe
Belgium (6),Czech Republic(4), Denmark(4), Germany(41), Spain(11), Greece(3),
France(20), Iceland(1), Italy(14), Hungary(2), The Netherlands(12), Norway(5),
Austria(6), Russia(8), Poland(7), Portugal(1), Romania(1), Switzerland(7),
Slovakia(1), Finland(3), Sweden(16), Turkey(2), United Kingdom(15)
North America
Canada(11), United States(29): Arizona(1), California(8), Connecticut(1),
Illinois(2), Georgia(1), Massachusetts(1), Maryland(2), Michigan(1), Minnesota(1),
New Jersey(2), New York(1), Pennsylvania(3), Texas(3), Virginia(1),
Washington(1)
Middle East
Kuwait(1), Israel(1), Saudi Arabia(2), United Arab Emirates(1)
Asia-Pacific
Australia(5), China(4), Hong Kong(1), Japan(2), Malaysia(1), Taiwan(1),
Singapore(2)
With its ever-expanding philosophy, IKEA already has plans for further
development. Per U.S. expansion, there are to be 2 more locations in Florida, 1 in New
York, 1 in Oregon, 1 in Ohio and 1 in Utah (“Welcome to IKEA.com: Official Website”
2006). In regards to further global expansion, IKEA is planning to enter the Cyprus
market in summer 2007, Northern Ireland in November 2007, Ukraine in the first quarter
of 2008, and there are tentative plans to open locations in the Republic of Ireland and
New Zealand, but those dates have yet to be announced (“IKEA” n.d.). In conjunction
with the increase in locations worldwide, the number of employees has increased as well.
IKEA, as of 2006, employed approximately 104,000 people throughout the world
(“IKEA” n.d.).
IKEA is in the retail industry, specifically the specialty retail segment. Because
the specialty retail industry is quite large, IKEA’s place has been further defined as a
“lifestyle” furniture store. This sort of furniture store contains a merchandise mix that
defies easy classification. Because IKEA not only sells furniture and bedding, but also
offers an assortment of merchandise, such as decorative accessories, textiles, home
accents, lighting, appliances, house-wares, and tabletops, it has earned the description of
a “lifestyle” furniture store (Anderson, Kay. August 21, 2006). IKEA is also a part of the
group known simply as “big furniture stores,” in which most of its competitors lie, such
as Pottery Barn, Pier 1 Imports, Crate & Barrel, and Restoration Hardware (Anderson,
Kay. August 21, 2006). As a whole, these larger furniture stores, including IKEA, gained
two points of market share in the specialty retail industry between 2002 and 2005,
capturing a 34% percent market share (Anderson, Kay. August 21, 2006).
IKEA’s product line is expanding at an increasing rate. It is obvious how far
IKEA has come from its humble beginnings in Sweden, offering only pens, jewelry,
picture frames and other such knick-knacks. Today, IKEA offers twenty-one different
lines which are Bathroom, Beds and Mattresses, Bookcases and Storage, Chairs and
Tables, Children’s IKEA, Clothes Storage, Cookware, Decoration, Floors, For the Pets,
Furniture Care, Hall and Entrance, Kitchen, Lighting, Secondary Storage, Sofas and
Armchairs, Tableware, Textiles, TV and Media Solutions, Work Area, and Seasonal lines
(“Welcome to IKEA.com: Official Website” 2006). Each grouping contains an
assortment of accessories and merchandise which complete the line. There is also a
seasonal line which varies, and will offer different products that cater to the specific time
of year. Overall, IKEA offers a very extensive product line aimed at providing its
consumers with everything they could possibly need in the way of home furnishings.
IKEA positions itself in the eye of the consumer, but as of recent times, has been
trying to target the small-business market. IKEA is hoping to offer planning tools to
small businesses to help them to design their space. IKEA has already begun displaying
furnishings geared towards small businesses in their stores, and plans to launch several
different services specifically for these small businesses this spring. Their goal is to
target firms of all kinds, ranging from businesses such as service providers working out
of small offices, beauty salons, bookstores, and dance studios. IKEA’s aim is to provide
everything that these small businesses would need, which would include accessories,
decorating assistance, storage and furniture for not only work areas, but also meeting
areas and break rooms. With the rise of small businesses, IKEA hopes to capture a new
market segment and capitalize on the furnishing needs that these rising businesses desire.
(Anderson, Kay. August 21, 2006)
Current issues regarding IKEA have created some criticisms regarding the way
that it operates. One such criticism is an issue stemming from their product assembly
instructions. Apparently, to some customers, these instructions are difficult to interpret,
due its lack of written directions. The instruction packets rely on pictures only; therefore,
it is understandable why this could potentially cause problems when assembling
merchandise. This, however, is a great money- saving tactic employed by IKEA as a
means to avoid costs incurred from having to print out words in multiple translations. As
a result, this strategy has not been abandoned, even after complaints (“IKEA” n.d.).
Another criticism is IKEA’s tax avoidance strategy. IKEA has an extensive corporate
structure and is actually owned by a complicated assortment of not-for-profit and forprofit organizations. By guiding profits through a not-for-profit organization as well as
through corporations in tax havens, IKEA drastically reduces its taxes (“IKEA” n.d.). If
it had a more straightforward corporate structure, this would not be the case. It is
assumed that such an intricate arrangement is utilized solely for this tax avoidance
purpose. The Berne Declaration, a not-for-profit organization in Switzerland that
promotes corporate responsibility, has formally criticized IKEA for its tax avoidance.
This organization nominated IKEA for one of its Public Eye “awards,” which highlights
corporate irresponsibility. Their decision will be announced later this year at the World
Economics Forum in Davos, Switzerland (“IKEA” n.d.). Another criticism is that despite
the enormity of the funds in the Ingka Foundation, IKEA’s charitable organization that
aims at promoting innovations in architecture and design, the foundation does very little
charitable giving (“IKEA” n.d.). IKEA is a very involved in charitable organizations,
with approximately $36 billion dollars in donations; yet, in 2005, they only gave about
$1.7 million in gifts (“IKEA” n.d.). This is a very low percentage of their funds and has
been construed as yet another tax avoidance strategy employed by IKEA.
IKEA is already a very well known retail furniture store throughout the world.
However, focusing on expansion to the countries they are not yet located in should be
their number one goal. Understanding the barriers of entry, in addition to the other
requirements involved must also be properly researched before any actions are taken.
Therefore, IKEA must be aware of local competition and understand market preferences
before taking their operations further abroad.
Expanding current product lines and adding more products could also increase the
depth of their company. IKEA has twenty-one different product lines and plans to
increase their offerings in the future. All of their products should maintain a level of
quality that is represented by the IKEA name.
IKEA has been working at creating speedier check-outs, but it is still experiencing
problems with long lines and wait times. Many customers leave empty-handed because
they refuse to spend time in the check-out lines. VISA has introduced a payment
scenario in which employees walk around the store and use mobile checkout devices so
that card-carrying customers can easily checkout and pay for their merchandise. This
innovative feature has been very successful in reducing time spent in checkout lines.
These advances are high-quality and it is suggested that IKEA continue to find ways to
improve customer satisfaction through technology. The next step for IKEA could
possibly be to create mobile devices in which the actual customer can use themselves to
perform self check-out without the assistance of employees. (“Executive Perspective. The
Merchant Landscape: Interview with Lory Yeakle” 2006.)
As previously mentioned, 70% of IKEA’s marketing budget is spent on their
catalogue (“IKEA” n.d.). However, this catalogue obviously does not show every
product available. Therefore, IKEA should concentrate more on expanding the
merchandise included; this could in turn attract more customers to their stores. Since
their annual catalogue has gained a loyal customer base, IKEA should take advantage of
this by offering incentives to catalogue shoppers or place discount coupons in the
catalogue to get more customers to shop in their stores. This would save on shipping
costs and promote their retail super stores, especially in the United States.
In regards to what should be taken and learned from this case study it is important
to take note of the following lesson. IKEA on the onset had disregarded the importance
of the standard rules of international expansion. These included entering a market only
after exhaustive study, being sure to cater to local tastes as much as possible, and to tap
into local expertise to better understand the local market through acquisitions, joint
ventures, or franchising (Johansson, J.K. (2006) p. 88). IKEA had never played by those
rules, and before entering the American market, it had gotten away with it. Therefore,
the company underestimated the tastes and preferences of American consumers due to a
lack of market research and study. As a result of this, its initial entry was marred with
many obstacles that had to be overcome, most of which could have been prevented if
sufficient research on the U.S. market had been done. For example, had IKEA known
more about existing American bedding and mattresses, the company never would have
run into the problem of its beds being too narrow and would not have had to redesign its
entire Beds and Mattresses line (Johansson, J.K. (2006) p. 88). In addition, if IKEA had
researched the competitive climate that was prevalent in the U.S., they would have
known beforehand that the moose icon and advertising slogan used in previous markets
would not be successful in the United States. If this had been recognized beforehand,
IKEA could have entered the market with a much more suitable advertising message
(Johansson, J.K. (2006) p. 89). Therefore, in conclusion, it is imperative that each
foreign entry be thoroughly researched and understood before attempting expansion into
that market.
References
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http://franchisor.ikea.com/showContent.asp?swfId=facts3
Garcia, Shelley. (January 22, 2007). “IKEA targets growth of small-business market:
retailer offering planning tools.” San Fernando Valley Business Journal.
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