Founded in 1943 by Ingvar Kamprad, IKEA generated the sales of 23.1 billion Euros in 2010 through its operations in more than 38 different countries with 27 distribution centres. The IKEA Group has 280 stores in 26 countries and the remaining of the stores are run by franchisees (Berger, 2011). The business concept of IKEA involves selling high volume of mostly furniture products in low prices. Moreover, “with an aim of lowering prices across its entire offering by an average of 2% to 3% each year, its signature feature is the flat packed product that customers assemble at home, thus reducing transportation costs” The vision of the company reflects this strategy in an effective manner. “The IKEA vision is to create a better everyday life for many people. We make this possible by offering 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” As one of the leading retailers in a global scale IKEA is engaged in systematic environmental monitoring and analysis which serves to be an effective source of information for decision-making. Internal benchmarking is one of the main methods of environmental monitoring and analysis engaged in by IKEA. Benchmarking is “method of improving business performance by learning from other companies how to do things better in order to be the ‘best in the class’. The Internal benchmarking practice engaged in by IKEA involves comparing different divisions and subsidiaries of the company and thus establishing the best practice and aspiring to it for the remaining divisions and subsidiaries of the company. Moreover, IKEA is engaged in extensive market research both in global and local levels that is conducted by marketers employed by the company, as well as, independent market research companies.
IKEA Financial Analysis
During the financial year of 2009 15 new IKEA stores have been opened and the total revenue of the group has grown to 21.8 billion EURO (1.4% growth). During the same time operating income has increased by 4.4% to reach 2.8 billion EURO (Welcome Inside, 2010, online). Although it is a modest growth for IKEA considering its size and resources, it has to be noted that during the same period of time high number of business of various sizes along a wide range of industries have experienced losses caused by the global financial crisis of 2007-2010 that reached its peak during the same financial year. There was a fluctuation of net income between 10% and 13% of revenue during the past ten years and fixed assets have increased by 527 million EURO to reach 16.8 billion EURO in total caused by net investments in property and investment (Welcome Inside, 2011, online). Moreover, “IKEA generates 79% of its sales in 2010 in Europe. 15% of sales IKEA generated in North America and only 6% came from Asia/Australia. The main three financial principles of IKEA are financial stability, independence and flexibility”.
Complexity of the Market Environment and the Key Business Challenges for IKEA IKEA has an effective business strategy that has been effectively implemented and this has ensured global leadership position for the company. This strategy consists of finding an effective combination of quality and prices for the products and thus appealing to a wide range of customers who mainly represent middle class in society. However, the current position of IKEA should not be taken for granted and there are specific set of challenges that need to be addressed by the company in an effective manner in order to remain competitive in the future and achieve long-term growth. The key business challenges faced by IKEA can be summarised into the following four points: 1. Keeping costs down. One of the major challenges faced by IKEA relates to the necessity of keeping costs down on the face of increasing prices of raw materials. Raw materials used by IKEA contractors for the majority products of the company...
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