Ikea Research Paper

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IKEA – Research Essay

The purpose of this research essay is to update IKEA’s company status for the last six years, i.e. 2003 to 2009/2010. The IKEA vision “to create a better everyday life for the many people” is at the heart of its business, in collaboration with the IKEA business Idea “to offer a wide range of well designed, functional products at low prices.” IKEA, a Swedish home furnishings retailer, is known today as the world’s largest designer and retailer of inexpensive, functional furniture. The company’s core competence involves manufacture and distribution wherein they sell their products, through catalogues and websites in addition to in-store retailing. It is important to note that IKEA ensures the development of proper strategies to ensure its survival in the industry.

Figure 2 below shows IKEA’s business has shown a gradual increase in annual sales from 1999 to 2010. In 2005, sales accelerated due to their new strategy to expand its edge to kitchen solutions, when compared to the previous years. In 2006, their strategies for expansion into the Japanese market lead to an acceleration in their sales value into 2006, after its previous exploration in the 1970’s. Figure 1 below shows in 2008, IKEA’s annual value sales reached 21.2 billion showing an increase of 7% compared to 2009’s 1% and 23.1 billion in 2010 which showed an increase of 8%, because of their pricing strategy, long opening hours, and ability to globally source supplies and reduce cost of sales leading to enhanced profits. The largest sales countries were Europe with 79%, North American with 15%, and Asia and Australia both with 6%. Figure 3 below shows IKEA also experienced fluctuations in its sales growth since 2005. Sales grew by 7.7% - 8% in Financial Year 2010 compared to Financial Year 2009, to reach a value of 23.1 Billion Euro.(IKEA,2010a).In 2010, IKEA opened 12 new stores in 7 countries as part of its strategy for sales and company growth.

Figure 1, 2 and 3 below shows IKEA’s Annual Sales and % Growth 1999-2010 Year| $ Billion Euro| % Growth|
1999| 7.6| |
2005| 14.8| 94|
2006| 17.3| 17|
2007| 19.8| 14|
2008| 21.2| 7|
2009| 21.4| 1|
2010| 23.1| 8|
Figure 2

Source: IKEA (2010c)
Figure 3

By 1999, the IKEA brand was now in 158 stores in 29 countries. Profitability improved significantly in 2005 as a result of IKEA’s strategy to give priority to markets delivering margin opportunity over volume expansion.

IKEA’s high sales growth in business is expected to continue through 2010 into 2011. Especially, by IKEA’s continuation to develop its market share in North America which continues to grow, whilst also further strengthening its global penetration of deliveries to homes especially in Europe where its sales value is the highest.

Normean and Ramirez (1993), states that IKEA is more than a link on a value chain; it is the centre of consolation of services, goods and design. IKEA sets out to reinvent value and the business system that it delivers. IKEA has proven to have a sound value chain to achieve a competitive advantage. For example, services offered those activities to enhance or maintain the value of their products and transportation to name a few.

(Griffith et al, 2005:606) quotes that an external analysis highlight’s the general environment influences that an organisation must cope with, which is known as a PESTEL analysis. This analysis must be conducted examining the external influences that can affect and that are currently affecting IKEA. Consumer spending may fluctuate in different countries due to the global financial crisis; it is of IKEA’s best interest to keep their prices low when the economy is depressed for consumers with limited financial resources. IKEA has the competitive advantage because of their high barriers to entry for smaller firms new to the market. IKEA improved its service by allowing consumers to conveniently use their...
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