Ikea Operations Management

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Profile: ikea
IKEA is the world’s most successful mass-market retailer, selling Scandinavian-style home furnishings and other house goods in 230 stores in 33 countries and hosting 410 million shoppers per year. An acronym for founder Ingvar Kamprad and his boyhood home of Elmtaryd, Agunnaryd, IKEA began operating in Sweden in 1943 and continues its original ethos based upon cost obsession fused with design culture. No design, no matter how inspired, finds its way into the catalogue if it cannot be made affordable. 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. Yet, unlike some peers, IKEA has sustainability at heart and, through an internal mantra of ‘low price but not at any price’ is a leading example of sustainable innovation and business growth.The company designs its own furniture, which is made by about 1,500 suppliers in more than 50 countries. It also sells online and by mail order with the print run for the 2006 catalogue hitting 160 million - more than the Bible, so IKEA claims. Finding the right manufacturer for the right product is a key component of the company’s success. It once contracted with ski makers - experts in bent wood - to manufacture its Poang armchairs, and has tapped makers of supermarket carts to turn out durable sofas. Simplicity, a tenet of Scandinavian design, also helps keep costs down. For example, the 50 cents Trofé mug comes only in blue and white - the least expensive pigments. IKEA’s conservation drive extends naturally from this cost-cutting. Adding to the challenge, the suppliers and designers work to customize some Ikea products to make them sell better in local markets. That said, the global middle class, that IKEA targets, shares buying habits: The $120 Billy bookcase, $13 Lack side table, and $190 Ivar storage system are its best-sellers worldwide and average spending per customer globally is even similar: According to IKEA, the figure in Russia is $85 per store visit - exactly the same as in statistically more affluent Sweden. IKEA operates approx 25 US stores, which account for 11% of the company's sales and Germany is its biggest market, accounting for nearly one-fifth of revenue. Sales have been growing steadily each year thanks both to expansion of its store network and the ongoing price cuts - 18 new stores were opened in 2005 and the retailer reduced prices by 3%. Such expansion has kept IKEA’s turnover rising – in 2005 by 17.3% to $18.8 billion from $16.0 billion in 2004. And, although being privately held IKEA’s profit figures are not published, conservative estimates put pretax operating profits at around $1.7 billion. IKEA maintains these profits even while it cuts prices steadily with operating margins of approximately 10% being among the best in home furnishing. To keep growing, IKEA is accelerating store rollouts in both large outlet and new high-street formats. Nineteen new large outlets are set to open worldwide in 2006, at an average cost of $66 million per store. The firm plans to boost their profile in three of its fastest-growing markets: In Russia, where it is already a huge success in Moscow, in China, where is has a strong footprint, and in the US, where the goal is to have 50 outlets by 2010. IKEA demonstrates that, when underpinned by strategic partnerships with manufacturers and suppliers, providing access to affordable contemporary design, in an exciting, yet simple format can be a winning formula. Where and when did IKEA start? What does IKEA stand for? Who founded IKEA? Find out all about the history of IKEA and the timeline of the store's development in this article. IKEA founder, Ingvar KampradIngvar Kamprad

The founder of IKEA, Ingvar Kamprad, began his business career as a young boy selling matches purchased in bulk...
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