IKEA: Managing Global Expansion

Abstract

In 2002, IKEA was one of the leading furniture retailers in the world. IKEA offered a range of items - furniture, cookware, tableware, kitchen utensils, gadgets, textiles, bedding, cushions, shower curtains and paint. IKEA had emerged as a global player in one of the most highly fragmented industries in the world. In 2002, Interbrand ranked IKEA 44th on its list of the top 100 global brands, ahead of Pepsi and Harley Davidson. IKEA''s business formula had been built around high-quality, Scandinavian design, global sourcing of components and knock-down furniture kits that customers transported and assembled themselves. IKEA's cost leadership strategy had enabled it to pass on to customers lower prices, anywhere from 25% to 50% below those of its competitors. The case explains how a new business model can change the rules of the game even in a traditional industry.

The IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. And still have money left! Most of the time, beautifully designed home furnishings are created for a small part of the population - the few who can afford them. From the beginning, IKEA has taken a different path. We have decided to side with the many.

-- IKEA Website

In 2002, IKEA was one of the leading furniture retailers in the world. IKEA offered a range of items - furniture, cookware, tableware, kitchen utensils, gadgets, textiles, bedding, cushions, shower curtains and paint. It had more than 160 stores spread over 30 countries. IKEA had emerged as a global player in one of the most highly fragmented industries in the world. In 2002, Interbrand ranked Ikea 44 on its list of the top 100 global brands, ahead of Pepsi and Harley Davidson.

As one writer put it , "Ikea's corporate mantra is low price with meaning. The goal is to make things less expensive without ever making customers feel cheap. Striking that balance demands a special kind of design, manufacturing and distribution expertise. But Ikea pulls it off in its own distinctive way: tastefully, methodically, even cheerfully and yet somehow differently than any other company elsewhere."

Background Note

IKEA (an acronym for the initials of the founder, Ingvar Kamprad, his farm Elmtaryd, and his country, Agunnaryd, in Smaland, South Sweden.) was the brain child of Ingvar Kamprad who began his entrepreneurial career in 1943 by selling fish, Christmas magazines, and seeds. Within a few years, Kamprad had established a mail-order business featuring products as diverse as ballpoint pens and furniture. But Kamprad quickly realised that his best opportunity lay in furniture.

Even as the pent-up wartime demand created a post-war boom, the traditional Swedish practice of handling down custom-made furniture through generations began to give way to young couples looking for new, yet inexpensive, furniture. Yet, cartels and agreements between Swedish manufacturers and retailers kept both prices and entry barriers high. As a result, between 1935 and 1946, furniture prices rose 41% faster than prices of other household goods. Kamprad felt that he could take full advantage of this situation.

In 1953, Kamprad converted a discarded factory in Almhult into a warehouse cum showroom. His sales grew from SKr 3 million in 1953 to SKr 6 million in 1955. By 1961, IKEA's turnover was over SKr 40 million - 80 times larger than the turnover of an average furniture store. Of a total SKr 16.8 million furniture mail-order business in Sweden, IKEA accounted for SKr 16 million.

 

More...

        Case Code   BSTA068
   Case Length    15 Pages
              Period    2003
 Organization     IKEA
        Pub Date     2003
Teaching Note    Not Available
     Countries    Scandinavia
      Industry    Consumer Durables

Issues

Case study of IKEA; Furniture retailer; Low cost leadership; Furniture at IKEA; Cookware at IKEA; Kitchen utensils at IKEA; Textiles at IKEA; Case study of leadership; Management; Furniture hall; Ingvar Kamprad; Furniture information; Fragmented industry