IKEA - Case Study
IKEA Case Study 2
Synopsis of the situation
IKEA (Ingvar Kamprad Elmtaryd Agunnaryd) is a privately held, international home products company that designs and sells ready-to-assemble furniture, appliances and home accessories. The company is now the world's largest furniture retailer. IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden, named as an acronym comprising the initials of the founder's name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish. Kamprad started the company at his home as a mail order company. He sold goods which he purchased from low priced sources and then advertized in a newsletter to local shopkeepers. In 1948 he added in his catalogue furniture. Furniture was a success so he gave up the small items and focused only on furniture. In 1951 he opened the first display store in nearby Almhult where the customers could preview and inspect products and then order from the catalogue. This was also an immediate success as people travelled even from Stockholm to visit the store. This led IKEA to stop accepting mail orders. Now, the IKEA strategy is to publish a yearly catalogue, distribute it to the clients and encourage them to visit the store name (Barlett, Ghoshal, & Beamish, 2008). The sales take off in the late 50s led IKEA to look abroad for new sources of supply as the local industry could not respond to the demand. In 1961, IKEA outsourced production to furniture factories in Poland. Poland became IKEAs largest source and lowered significantly the production costs. This allowed IKEA to reduce its prices even more. The success in Poland led IKEA to adopt a general principle that it should mot own its means of production but should look for suppliers with whom it should develop close long term relationships.
Building on the first store's success, the first store in Stockholm opened in 1965. Even before that, in 1963, IKEA operated a store in Oslo. Other countries followed and today IKEA operates 313 stores in 38 countries, most of them in Europe, North America, Asia and Australia (IKEA, 2010). Some of IKEAs competitive advantages are that the brand is associated with simple, low cost,
IKEA Case Study 3
stylish products. The concept was furnishing products and house-wares that had wide appeal to a variety of markets and segments, both consumer and the business market exclusively. Both markets were looking for well styled, high quality furniture that reasonably priced and readily available. Also, IKEA developed a model for the business, where it was able to keep costs low. From the customer point of view, they were able to buy low cost furniture, even though they had to assemble and collect the flat-packed furniture from stores. IKEA to was able to reduce costs, as this costly part of the value chain was carried out by the customer.
Adding to that, IKEA promoted the Swedish lifestyle. Many people associate Sweden with a fresh, healthy way of life. This Swedish lifestyle is reflected in the IKEA product range. The freshness of the open air is reflected in the colors and materials used and the sense of space they create: blond woods, natural textiles and untreated surfaces. Also IKEA stores promote Swedish food and products. IKEAs low-priced restaurant and grocery shop have made IKEA Sweden's leading food exporter. However, global expansion was not without problems for IKEA. During the 1980's environmental problems arose with some of IKEAs products and during the 1990's IKEA was accused that its suppliers were using child labor. In the 1980's the formaldehyde regulations passed in Denmark caused problems to IKEA. After the discovery that some of its products emitted more formaldehyde than the legislation allowed the company was fined. The company responded and established stringent requirements regarding formaldehyde emissions. Even though, the problem did not vanish...