Ikea Case Study

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Case Study
IKEA is one of the world's most successful global retailers. In 2007, IKEA had 300 home furnishing superstores in 35 and was visited by some 583 million shoppers. IKEA's low-priced, elegantly designed merchandise, displayed in large warehouse stores, generated sales of €21.2 billion in 2008, up from €4.4 billion in 1994. Although the privately held company refuses to publish figures on profitability, its net profit margins were rumoured to be approximately 10%, high for a retailer. The founder, Ingvar Kamprad, now in his 80s but still an active "advisor" to the company, is rumoured to be one of the world's richest men. COMPANY BACKGROUND

IKEA was established by Ingvar Kamprad in Sweden in 1943 when he was just 17 years old. The fledgling company sold fish, Christmas magazines, and seeds from his family farm. His first business had been selling matches; the enterprising Kamprad purchased them wholesale in 100-box lots (with help from his grandmother who financed the enterprise) and then resold individually at a higher markup. The name IKEA was an acronym: I and K his initials; E stood for Elmtaryd, the name of the family farm; and A stood for Agunnaryd, the name of the village in southern Sweden where the farm was located. Before long, Kamprad had added ballpoint pens to his list and was selling his products via mail order. His warehouse was a shed on the family farm. The customer fulfilment system used the local milk truck, which picked up goods daily and took them to the train station. In 1948, Kamprad added furniture to his product line; in 1949, he published his first catalogue, distributed then as now, for free. In 1953, Kamprad was struggling with a problem: the milk truck had changed its route, and he could no longer use it to take goods to the train station. His solution was to buy an idle factory in nearby Almhult and convert it into a warehouse. With business now growing rapidly, Kamprad hired a 22-year-old designer, Gillis Lundgren. Lundgren originally helped Kamprad do photo shoots for the early IKEA catalogues, but he started to design more and more furniture for IKEA, eventually designing as many as 400 pieces, including many best sellers. IKEA's goal over time was to provide stylish functional designs with minimalist lines that could be cost-efficiently manufactured under contract by suppliers and priced low enough to allow most people to afford them. Kamprad's theory was that “good furniture could be priced so that the man with a flat wallet would make a place for it in his spending and could afford it.” Kamprad was struck by the fact that furniture in Sweden was expensive at the time, something that he attributed to a fragmented industry dominated by small retailers. Furniture was also often considered family heirlooms, passed down across the generations. He wanted to change this: to make it possible for people of modest means to buy their own furniture. Ultimately, this led to the concept of what IKEA calls "democratic design" – a design that, according to Kamprad, “was not just good, but also from the start adapted to machine production and thus cheap to assemble.” Gillis Lundgren was instrumental in the implementation of this concept. Time and time again, he would find ways to alter the design of furniture to save on manufacturing costs. Gillis Lundgren also stumbled on what was to become a key feature of IKEA furniture: self-assembly. Trying to efficiently pack and ship a long legged table, he hit upon the idea of taking the legs off and mailing them packed flat under the tabletop. Kamprad quickly realized that flat-packed furniture reduced transport and warehouse costs, and damage (IKEA had been having a lot of problems with furniture damaged during the shipping process). Moreover, customers seemed willing to take on the task of assembly in return for lower prices. By 1956, self-assembly was integral to the IKEA concept. In 1957, IKEA...
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