To: Carol George
From: Fangyi Shao
Subject: IKEA case study
Date: 24. Apr. 2009
IKEA is the world’s largest furniture manufacturer who offers a wide range of well-designed, functional home furnishing products at a low price that many people can afford it. IKEA’s mission statement describes the purpose and distinctive advantages of the company clearly. (See appendices Ⅰ) It can also motivate management by saying ‘create a better everyday life for people’ because employees need work together to achieve this goal.
2.0 SWOT analysis (See appendicesⅡ)
Ikea was ranked 35th among the best global brands around the world in 2008 with a brand value of $10,913 million. (Interbrand, online, 2009) IKEA is far more than furniture merchant, it sells a lifestyle. Strong brands enhance customer loyalty and lead to repeat purchases. Additionally, the group can leverage its brand strength to expand into new lines.
IKEA design the price tag first and then develop the product suit that price. They identify the appropriate materials and least costly suppliers to maintain the low price. In return for high sales volume, IKEA accepts low profit margin. Meanwhile, IKEA’s stylish home furnishing makes it a favourite.
The organisation is structured by employees who serve customers and managers trained by Kamprad himself and quite likely to switch between functions and countries. There are no directors and formal titles. IKEA culture is egalitarianism and frugality. (Thompson, 2001)
Because of the large land requirement, most of IKEA stores are located in suburb outside big cities where is not convenient to go without a car. The lack of stores in downtown and middle/small cities becomes a barrier of the expansion of IKEA in UK.
IKEA’s products are facing the challenge of quality now. The company has been involved in many product recalls in recent times. These issues affect group’s brand image and sales which in turn have a negative impact on group’s revenues and group ends up paying heavy settlement costs.
Although the company promotes low prices it has been identified a low level of customer service. The competitors may provide better service to take those customers who desire good service but less sensitive with price from IKEA. Thus, there is a need to work on service to ensure a complete shopping experience and ensure repeat business within the existing customer base. (businessteacher, online, 2009)
IKEA has 1350 suppliers in 50 countries (ikea-group, online, 2009); many of them are from low labour cost countries such as China. This would reduce its cost and enable the group to concentrate on increasing its market share through offering competitive priced products.
Recession in UK is now the biggest threat to IKEA. The negative economic growth reduces consumer’s purchasing power. Consumers are not willing to spend money durable goods like furniture and may buy furniture from places such as second hand market and charity shop where the price is lower. All of these would adversely affect IKEA’s sales and revenues. Moreover, IKEA may cut its budget or delay the plan of opening new stores.
The biggest problem faced by IKEA in UK is planting permission. Although there is a large market, it is hard to get permission for land from government where they can build store.
3.0 PESTLE analysis (See appendices Ⅲ)
The corporation tax was cut from 30% to 28% by UK government in April 2008 which saves big companies like IKEA large sum of money. (news.bbc, online, 2009)
According to statistics, the unemployment rate of UK has increased by 0.5% to 6.5% for the three months to January 2009. (Statistics, online, 2009) This will affect IKEA’s sale because people’s spending power will fall and they will have no spare money to shop in IKEA. However, there are also some positive aspects. If IKEA has any vacancy, the...