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Assignment on IKEA

Business Analysis  (Canterbury Christ Church University)

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IKEA
Introduction
Ikea is a worldwide recognized home furnishing seller. The
organisation has been in business since 1943 and developed
quickly. The company built a great reputation and recognition,
over the time. This could be supported by the fact that the
company is currently the world’s leading furniture retailer and
performs trades and sales in the EU (Statista, 2018). Most of the
products sold within the company are influenced by the stakeholders, particularly the customers, so that it
meets everyone’s requirements. There is currently over 9,500 products on the companies market, these
consist of;
 Home & office furnishing.
 Equipment
 Lighting
 Accessories
There are 18 outlets in the UK, the first one was launched in 1987. Over 60 years, IKEA grown from
entrepreneur into a cluster of companies with 76 thousand associates. The foundation of IKEA and where it
came from was Sweden. The company’s product are derived from different parts of the world – making it one
of the most diversified and progressive organisations.

P4.
The internal, external and competitive environment in IKEA.

Internal
The internal culture of IKEA is very friendly. IKEA is a Swedish company which bring the stereotypical
perspective of citizens of Sweden as friendly and hard working. People enjoy helping out each other and living
in close contact with the nature around them. These particular aspects based on IKEA creates the basics of
IKEA’s internal culture.

(IKEA) states that the firm has multiple key values which the company and the employees within it, follow.
These consist of;
Togetherness
“Togetherness is at the heart of the IKEA culture. We are strong when we trust each other, pull in the same direction and
have fun together.” – meaning that team work is one of the main factors, while working within the industry of IKEA
Caring for people and planet
“We want to be a force for positive change. We have the possibility to make a significant and lasting impact - today and for
the generations to come.” – Changes such as renewable energy replacement, and making the firm more eco-friendly.
Cost – Consciousness
“As many people as possible should be able to afford a beautiful and functional home. We constantly challenge ourselves
and others to make more from less without compromising on quality.” – IKEA tries to make their products cheaper and
affordable for every person. The low prices lets the company have a bigger group of customers.
Simplicity
“A simple, straightforward and down-to-earth way of being is part of our Småland heritage. It is about being ourselves and
staying close to reality. We are informal, pragmatic and see bureaucracy as our biggest enemy.” – This shows that the
communication between employees is informal and mostly conclude of simple tasks. Also suggesting that people working
at IKEA have more of an open mind and are able to structure and schedule their work themselves.
Renew and improve
“We are constantly looking for new and better ways forward. Whatever we are doing today, we can do better tomorrow.
Finding solutions to almost impossible challenges is part of our success and a source of inspiration to move on to the next
challenge.” - IKEA is trying to improve and change their company each day. This will allow lower prices to be put on the
market for their products, and attract more customers because of the affordable price.
Different with a meaning
“IKEA is not like other companies and we don’t want to be. We like to question existing solutions, think in unconventional
ways, experiment and dare to make mistakes - always for a good reason.” – This point links to the social external factor of
IKEA, where they removed same-sex-couple to get a better response from the Russians, but ended up backfiring, by people
discriminating this decision. Which counts as a mistake on IKEA’s end.

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Give and take responsibility

“We believe in empowering people. Giving and taking responsibility are ways to grow and develop as individuals. Trusting
each other, being positive and forward-looking inspire everyone to contribute to development.” – This shows that the trust
factor within the company is high and everyone is truthful and have responsibility over their own decisions.
Lead by example
“We see leadership as an action, not a position. We look for people’s values before competence and experience. People who
‘walk the talk’ and lead by example. It is about being our best self and bringing out the best in each other.” – Meaning that
people can go up in ranks in the organisational structure (greater responsibility and power over others) but at the same
time everyone is treated equally.

Corporate Social Responsibility of IKEA

For many years, IKEA has focused on economising with resources. As the business is running, the company is
constantly upgrading and changing ideas of products to use less resources and materials such as wood to make
it cheaper and better for the environment (less deforestation). Such as; turning waste into resources, sourcing
energy and materials in a responsible way and protecting natural resources. IKEA wants to create a better life
for the future generation and communities touched by their business. They support education of children, help
refugees and participate in different supporting programs via IKEA Foundation and in cooperation with
UNICEF.

In IKEA you can find lots of money-saving products and solutions in IKEA range to help people save energy and
water, and reduce waste.

IKEA focuses on three areas, which consist of;

 Healthy & sustainable living – IKEA is looking into enabling people to generate renewable energy and
reduce their home energy and water consumption, which would have a great impact. Water, food and
air quality is also a big factor for people around the world. The impact of pollution and waste is
already visible in everyday life for many people. IKEA is looking into making more sustainable, life
affordable and appealing products. New ideas, solutions and innovations ways of making a better
living for their customers. IKEA itself, provides healthy and nutritious food. The company does not
only provide sustainable products, healthy food, solutions and services but supports their customers
and give advice on how to make positive changes in their lifestyles. IKEA states “until now our focus
has been on helping customers to become energy and resource efficient and reduce waste.” this
shows that the company is helping the world to have a better environment and promoting a new
mind-set for healthy and sustainable living.
 Circular & climate positive – The global resource scarcity is already impacting IKEA’s business and,
more important, the lives of people. IKEA is looking into develop responsible sourcing programmes,
continue to improve resource utilisation and dramatically reduce greenhouse gases in absolute terms,
independent of how much we grow the IKEA business. IKEA turns waste into resources, therefore zero
waste goes to landfill. Making renewable and recycled materials with a positive environmental
impact. IKEA reduced absolute green-house gas emissions to contribute to limiting global
temperature which is currently increasing, instead the firm is aiming to only use renewable electricity
and heat in IKEA operations and stores. Lastly, the organisation is forest positive, meaning that the
company only takes materials, such as; wood from sustainable sources, to eliminate forest
degradation and deforestation.
 Fair and equal - IKEA has always been focusing on children and families. When making changes the
organisation always keep children in mind, in their opinion doing this will create positive change and
opportunities for families and communities. IKEA has gained the ability to directly support gender
equality as well as rights and opportunities for elderly people, people with disabilities and other. As
IKEA is a global industry, it can provide opportunities for migrant workers, refugees, and other groups
who are moving away from their home by choice, necessity or force. The company provides
emergency support, training and employment and work with others to create a change in the system
that put people at risk.

The company operates 340 stores in 28 markets around the world. The home improvement and furnishing
chain aims to cause positive impact on local communities, where its stores are located. (Save the Children)
IKEA organizes a packaging event in all of their stores in Sweden where customers and representatives from
‘Save the Children’ to produce more than 37,000 welcome backpacks filled with toys and other products for

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children. Furthermore, in the UK, IKEA has planted one million trees in communities across the country and in
Australia, IKEA Perth and IKEA Adelaide employees help to improve the environment of which children live and
develop.

Energy Consumption by IKEA:

 Products sold by IKEA are 50% more efficient on average, compared to 2008.
 Buildings owned by IKEA increased 15% in efficiency in 2015 (Fiscal Year) compared to 2010 (Fiscal
Year). The organisation also has over 700,000 solar panels installed on their buildings.
 The company owns and operates 327 wind turbines around the world and have invested in 730,000
solar panels on it buildings worldwide.
 Since 2009, the firm has invested 1.5 billion EUR into renewable energy and in 2015 the furniture
seller committed another 600 million EUR for investments in wind and solar energy.
 In 2016 the company produced renewable energy equivalent to 71 per cent of the energy it uses in its
operations.

Sustainable Sourcing:
 All cotton used by IKEA comes from sustainable sources.
 61% of wood came from more sustainable sources in 2016. IKEA aims to source wood from 100 per
cent sustainable sources by 2020.
 All fish and seafood sold by IKEA is bought from fisheries and farms certified by the ‘Marine
Stewardship Council’ and the ‘Aqua culture Stewardship Council’.
 IKEA serves more than 100 million cups of coffee each year. The coffee range is certified by ‘UTZ’ as
well as ‘EU Organic’.

(Wikipedia, 2018, https://en.wikipedia.org/wiki/IKEA - Accessed 21st November 2018)

PESTLE
M3 – Effects of business environment on IKEA
D2 – Situational Structure on IKEA (PESTLE)

External

Political – The Company operates in more than 41 countries, therefore the company must abide by the
regulations of each. Some countries may have similar influences on the business but that not always the case.
Political stability within a business is particularly important as without it, the economic stability is impossible.
This means that the organisation would lose profits in one location over another, this is dependent on who is
in charge and what role they have within the business.

Furthermore, unfriendly government can make importing and exporting foreign products (goods) inconvenient
for the business and make it a hassle. IKEA is dependent on relationships with the government. Good
relationships will make the company remain stable therefore the revenue of the business is secure and is not
at stake. Asian countries, such as; India and China have become more open to international companies, this
creates an opportunity for the organisation to move into the Asian markets and expand their business.

Many policies may differ from other countries but as stated (Europa) 85% of the product rules are harmonised
in the EU, which means that the same rules apply in all European countries. For example, the European Union
VAT, is value added tax on goods and services within the EU. Different countries have different amount of VAT,
in Luxembourg it is currently 17%, while in Hungary it is 27%, meaning that wherever IKEA operates in, it has to
follow particular product instructions in each individual country, such as VAT.

Economical – Ikea is influenced by the worldwide economy, like every other organisation. Some big companies
are still suffering from the 2007 recession. Thousands of people lost their jobs. This responded with consumers
making conscious buying decisions. Items which were bought were based on the need rather than luxury.

As IKEA is a company which sells furniture and other accessories which are not essential or mandatory. Which
means that at the time many people did not spend money in their store. This put the company in crisis as there

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weren’t as many purchases, therefore the organisation had to get rid of employees to pay the bills and other
necessary financial spending. To get purchases and be able to run their business, IKEA priced their wares
conservatively. From then onwards the prices of the furniture became cheaper and made the company the
most popular globally. The inexpensive furnishing has been continued ever since.

On the business side, IKEA is influenced by a strong and weak dollar. If the stronger the dollar gets, the more
US brands can lose money, but now the economy has strengthened – while still recovering. This made more
jobs for people and sales are rising again.

Social – This is one of the rules businesses should follow. This will allow the organisation to suit the needs of
the customers and will avoid offending any social values. IKEA is one the companies that keep this rule close,
every product is affected by. However, the following effort is not always well-received.

As an example, IKEA removed a same-sex couple from a Russian magazine. This change was applied because
homosexuality is still considered shameful and dishonourable in the country. Therefore this was done to suit
the general thinking and interpretations of the Russian culture. Whereas, in other countries homosexuality is
more widely accepted and appeared to be a problem within IKEA’s business and reputation. Removing the
couple from the magazine put IKEA in a bad position and lowered their reputation from the hate from the
citizens. Another example, the organisation removed women from a Saudi Arabian catalogue, which had the
same, negative impact on IKEA’s business, and once again put the company in a hot seat.

Ikea monitors what is appropriate for a particular location, based on the countries’ culture and society. If the
organisation would have printed the same magazine worldwide, it most likely face a bigger retaliation and
backlash from each country. Which would end up with the business losing profits. Which is the main aim and
objective of IKEA, like any other big company.

One of the negatives on the company is the amount of one-star reviews on their products and the business
itself. One of the biggest customer service review websites (TrustPilot) shows that the company’s rating is very
low and is even below 2/10 stars. This could make the company lose customers therefore less profits and
turnovers. The reviews mostly consist of products not being received, appalling customer service, or when
products are delayed. Some of these problems could be the delivery driver or the delivering company itself
which is used by IKEA but as IKEA’s name is on the package received by the customer, they’ll always be the one
receiving the bad press

Technological – In real time, internet is one the main things in the world and most shopping is done online.
IKEA still to this day offers paper catalogues as well as an electronic one. This helps the business to keep
people who are computer illiterate updated with offers, prices and new products. While also having a web
copy of the catalogue, customers can access it at any time. Seeing live offers and other deals. Also any updates
could be emailed to registered users of the website so customers are constantly up to date with new products
and other important notices.

Having a website for IKEA is highly important as most of the customers will be shopping online and would want
to view the company on the internet, this will allow the shareholders to see the main factors of the company,
the reviews on purchases, description and any other important information. People are able to view the
closest IKEA store to them by allowing locations or typing their address. Their website has many useful factors,
such as; searing products by a certain room (bathroom, bedroom, kitchen, etc...). Other searching filters could
also be applied, an example would be, buying products below £10, which is achieved by changing the product’s
price range. Online, IKEA aims to provide the best experience of viewing products for their customers. If
people are unable to attend to their store, they can still experience similar observation online.

Moreover, IKEA puts in effort to get the ideal customer satisfaction as it gains many benefits if the people are
pleased with their purchases and the product quality. This leads to new positive reviews, customers may refer
the store to other people, and finally brand loyalty, which is one of the most important factors in an
organisation. The company puts in a big amount of effort into knowing their consumer base which is why IKEA
is the biggest furnishing company to this day.

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Legal – Like all businesses, IKEA is required to follow laws and regulations of every government. As IKEA is a
worldwide company which trades globally it is essential to obey the rules within each, particular country,
otherwise it could possibly cause problems for the organisation which can end up with fines, restrainment, and
restrictions on the business or even banned from exporting or importing products to the country. Also, as IKEA
is a physical store, staying-up-to-date with labour laws is essential.

Example, IKEA was in the news because of poor product quality. (TheInteriorDesignAdvocate) Furniture and
products provided by IKEA have fallen or tipped over, this ended up injuring people or children and has even
ended up in fatal accidents. These situations ensured the organisation to carefully check and ensure that their
products are totally safe. Otherwise, this may have a massive negative impact on their reputation which they
may not recover from and also monetarily, which are affected by lawsuits.

Environmental – IKEA is an eco-friendly company, which invests in it.

(The Guardian) The organisation has gave over $1 billion towards renewable energy in poorer nations. IKEA’s
aim is to have fully renewable energy in their store. This could be completed by investing in solar and wind
panels. Another objective of IKEA is to use more sustainable sources for materials such as wood and cotton.

Competitive Environment of IKEA

There is more competitive pressure if there are more rivals in the industry. In Europe IKEA does not have many
number of rivals, which is where major revenue is generated from the business. This is achieved through IKEA’s
unique cost leadership and product differentiation. Currently, IKEA is facing competition from B&Q, which is
the largest DIY retailer in Europe and third biggest in the world. Also, in china; its biggest worry is that it is
facing competition from many international and Chinese chains who are copying its products. Multiple stores
in china have IKEA’s catalogue in their stores and tell their customers that they’re able to reproduce the same
products and furniture at a lower price. IKEA’s online catalogue makes it easy to view and copy. Other IKEA’s
competitors consist of;
 Walmart
 Amazon
 Wayfair
 Sears
 Tesco
 American Woodmark
 Pepperfry (India)
 Private label brands

IKEA could be facing a substitute of their products, but it’s highly unlikely. Furniture made with wood can only
be substituted by plastic furniture, but wood is bio degradable which is the reason wood is preferred over
plastic.

(Simplicity Sofas) states that “IKEA was the first company to unify manufacturing, distribution and retailing on
a global scale”. One of IKEA’s innovations is, redefining home furnishing as a “lifestyle”, which is included in
their catalogues as sections, rather than just individual products. The product mix expanded into furniture and
other accessories or products, provided by the company, from the “lifestyle” approach.

(Statista, 2018, https://www.statista.com/topics/1961/ikea/ - Accessed 21st November 2018)

(Wikipedia, 2018, https://en.wikipedia.org/wiki/IKEA - Accessed 21st November 2018)
(Pestle Analysis, 2018, https://pestleanalysis.com/pestle-analysis-of-ikea/ - Accessed 22nd November 2018)
(The Guardian, 2012, https://www.theguardian.com/world/2012/oct/02/ikea-apologises-removing-women-
saudi-arabia-catalogue - Accessed 25th November 2018)
(Independent, 2013, https://www.independent.co.uk/news/world/europe/ikea-faces-boycott-after-it-removes-
lesbian-couple-from-russian-magazine-to-comply-with-putin-laws-8955178.html - Accessed 25th November
2018)
(Trust Pilot, 2018, https://uk.trustpilot.com/review/ikea.co.uk - Accessed 26th November 2018)
(The Interior Design Advocate, 2016, https://theinteriordesignadvocate.com/warning-ikea-recalls-furniture-
blamed-childrens-injury-death/ - Accessed 29th November 2018)

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(The Guardian, 2015, https://www.theguardian.com/environment/2015/jun/04/ikea-pledges-1bn-on-

renewable-energy-and-climate-change-efforts - Accessed 30th November 2018)
(Simplicity Sofas, 2018, https://furnitureblog.simplicitysofas.com/blog/who-are-ikeas-competitors/ - Accessed
– 30th November 2018)
(IKEA, 2018, https://ikea.jobs.cz/en/vision-culture-and-values/ - Accessed 4th December 2018)
(IKEA, 2017,
https://www.ikea.com/ms/en_US/pdf/people_planet_positive/IKEA_Sustainability_Strategy_People_Planet_P
ositive_v3.pdf - Accessed 13th December 2018)
(Save the Children, 2018, https://www.savethechildren.org/us/about-us/become-a-partner/corporations/ikea -
Accessed 13th December 2018)
(Research-Methodology, 2017, https://research-methodology.net/ikea-corporate-social-responsibility/ -
Accessed 13th December 2018)
(Europa, 2018, https://europa.eu/youreurope/business/product/product-rules-specifications/index_en.htm -
Accessed 13th December 2018)

P5.
Situational Analysis

A situational analysis is a type of an analytical method. It is used to analyse an organization’s competitive,

internal and external environment to understand the structure of the firm and its factors, these consist of,
strengths, weaknesses, capabilities and competitive threats.

In my report I will be using ‘SWOT’ analysis, which stands for strengths, weaknesses, opportunities and threats.
It is appropriate for my report as it asses the business and what factors could affect the company and its
market.

Furthermore, I will include ‘PESTLE’ in my report, which presents the external factors which affects the
business, positively or negatively. ‘PESTLE’ is six external factors which play an important play in the firm’s
business, but some of them aren’t as crucial as others and many businesses don’t follow them. ‘PESTLE’ stands
for political, economic, social, technological, legal and environmental.

I will also include, the 5C’s analysis, to evaluate the company itself, which is the product, branding, technology,
aims and vision. Collaborators, which is the suppliers and distributes of the company. Customers,
demographically (age), pricing, frequency and quantity of purchase. Competitors, the current and potential,
market share, strengths and weaknesses. And finally, the climate which is the Political, Economic, Social and
Technological factors.

Lastly I will add the Porter’s 5 Forces analysis, it is the

intensity of rivalry within the industry. Which link to the
threat of substitute products, bargain power of buyers
(customers), threat of new entrants and bargain power of
suppliers.

(Wikipedia, 2018,
https://en.wikipedia.org/wiki/Situation_analysis - Accessed
4th December 2018)
(Wikipedia, 2018, https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis – Accessed 13th December
2018)
(Wikipedia, 2018, https://en.wikipedia.org/wiki/PEST_analysis – Accessed 13th December 2018)
(Wikipedia, 2018, https://en.wikipedia.org/wiki/SWOT_analysis – Accessed 13th December 2018)

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(Smstudy, 2016, http://www.smstudy.com/article/5c-analysis – Accessed 13th December 2018)

P6.
Market Structure
IKEA is considered as a monopolistic competition, as there is a large amount of similar stores that sell and
provide furniture for their customers, just like IKEA. Which provides competition for the particular market.
Monopolistic competition is a type of imperfect competition as there are quite a large amount of firms, but it
isn’t as large as perfect competition. Although there are many firms in the industry, there is only one firm in a
particular location. For example, there might be multiple furniture shops in London, but only IKEA located in
the street. One of the positive factors IKEA has is, its product differentiation from its rivals, therefore the
organisation has market power over the prices of their products, meaning it doesn’t compete with other
companies for furniture prices and has bigger amounts of profits and turnovers. Doing this will not result with
the firm losing its customers as it’s different in quality, brand, type, there is customer loyalty and etc. IKEA also
differentiates their products by selling eco-friendly and self-assemble furnishing products, while having a low
price for more customers be able to afford.
Reference:
https://www.slideshare.net/damhuybinh/furniture-
industry-vietnam-summary-global-market-outlook

This is a table,
which shows an
analysis of total
revenue of top
11 furniture
manufacturing
companies. This
clearly shows
that IKEA is
totally ahead in
business than
any other
furnishing
organisation, as
its total sales
revenue is 27.5
Million dollars
in 2012.
Other big, worldwide furniture manufacturing companies, in competition with IKEA are;
 Williams-Sonoma
 Rooms To Go
 TJX
 Okamura
 9to5 Seating

There are a few barriers for new businesses to enter and exit. It is obviously difficult for new entrants with
unknown products to win viable market share as customer loyalty with the existing firm, in this case: IKEA. The
organisation has many customers which has been built up by huge and continuous investment in making its
products, which are better and cheaper. Therefore, IKEA makes impossible for new entrants to win a viable
share of the market with the unknown products, no reputation or reviews on the new business. An
organisation needs get its marketing mix which includes product, price, place and promotion right to get the
response it want from the targeted market.

The demand for IKEA’s products

IKEA is a very large and reputed furniture manufacturing organisation. It’s been in business for over 75 years
and has gained a great reputation ever since. A big quantity of loyal customers, which often buy products in

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the IKEA store. It attracts many customers to IKEA stores, from the low prices of products and great quality
which gives an ability for people who earn less money, to be able to afford the furniture and accessories. It
clearly shows that the firm has lots of customers, much more than any other, and no other company is
nowhere near earing as much sales revenue and turnovers.

 Factors that affect the demand of IKEA’s product, could be based on the amount of products sold. As
the sales go up, the company may understand that more profit could be gained by setting higher
prices for the particular product. But as the same time affordability matters to the company as that is
one of the main factors that makes IKEA worldwide best furniture manufacturing company, because
everyone is able to shop there while getting great quality products and customer satisfaction. If a
product gains great popularity, the company will obviously try to upgrade the product to better
quality and better price for customers. An example could be the sales which are boosted from the
global demand for flat pack furniture.

 Another reason that could affect the demand on the organisation’s product is competition. Even
though, IKEA prices their products cheap, if other companies decide to compete it will force IKEA to
bring prices on their products down, as IKEA wants remain their customer loyalty and the reputation
of cheap products, because this helps the company produce a large amount of profit. But there are
not many competitors that IKEA needs to compete with because of its unique low prices,
companies refuse to price their products that low, as its higher quality and are cautious about
entering the cheap market because of IKEA’s high market share.

 Furthermore, the level of GPD of a particular location would affect the price of the products, if
people’s wages are increasing and the economy is doing well the prices on the products will go up in
sync with the increase of GPD. But in urban areas and even less developed countries, where
employment is low, wages are low, economy isn’t great and the place is poorer, this will force the
prices to go down so that customers would be able to afford IKEA’s products.

 Also depending on the delivery prices IKEA is offered by companies, could affect the products prices
(mostly the ones bought online), logically if the delivery prices are high so will be the product, for the
company to gain profit from the sale. This leads to revenue. If the company does not meet the
required amount of profit on a particular product the price will increase to increase the profitability.

Influences on the supply for a product may affect the demand, which also links to the competition for raw
materials. As there is many companies who sell furniture, all of them, including IKEA will need raw materials.
They would mostly consist of wood and similar material to produce furniture and other accessories, therefore
this may affect prices of the material and the amount the supplies sell it for, which leads to change in prices of
the products, this will take place because IKEA is unable to choose or discuss the price with the supplier as
its limited materials and there are not many suppliers and price ranges, as IKEA is dependent on the
particular materials, such as; wood. If there isn’t many trees in a particular country or area, such as the UK,
the company will need to trade outside the country and will have to import and export the materials which
costs money. Therefore, it makes IKEA’s product price elastic, meaning major price changes could take places if
material demand is high. But currently the organisation is trying to keep the products price inelastic, because
as I pointed out above, the company does not want to lose its cheap reputation.

(Wikipedia, 2018, https://en.wikipedia.org/wiki/IKEA - Accessed 3rd December 2018)

M4 and D3
M4 - How IKEA has responded to changes in the market.

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D3 - How changes in the market have impacted IKEA and how the organisation may react to future
changes.

There could be multiple changes in the market, for many reasons. There are numerous trends in the current
generation.

Trend number one is that more people are starting to rent, therefore the furniture is already provided for
them, this decreases the sales revenue of IKEA and other furniture manufacturing companies. Over the last
five years, there has been a 28.3% growth in the UK private rented sector. On average a typical owner occupier
stays in their property for 13 years, compared to a private renter who stays for 17 months. It follows that
people with long-term view of their housing are more likely to invest in higher value items than those who
move property every few years. This why IKEA, prices their products at a low prices so that people who move
often is able to afford cheap furniture.

Trend number two, is one or two person households. The past years it has been increasing rapidly. Therefore
that means that there is more demand for smaller and easily portable furniture. 20 percent of the 20.2 million
UK households were single occupancy in 1981. While in 2016 there were 27 million households in the UK, and
28% consisted of just one person. IKEA’s products vary, from big to small products. So in the future IKEA will
have to continue to sell or even expand on small furniture section so that it meets the customer requirements.
Also there are many products, which meet any customer requirements, and at the same time have a
reasonable price.

The third trend, is the change in style – different generations have different lifestyles. So in the future things
will change all the time, furniture changes style and people have different tastes. IKEA has to use different
materials to meet customer satisfaction. This is where competitors and new entrants have an opportunity in
gaining a better reputation and bigger organisation recognition and sales. New and futuristic furniture designs
are the new trend, not only around young adults, but middle aged people are starting to upgrade their items
to fit in with the generation. But IKEA, always updates their products and stays on track with new generation
trends, as well as having old style furniture. Both at cheap prices and that is how it remains stable as the top
furniture manufacturing company. If the IKEA remains to do so, it won’t affect its sales.

Another trend is luxury furniture market. The global market for luxury furniture is expected to grow at over 4%
until 2019 and according to (Market Research), Europe is biggest market for luxury furniture. IKEA does not fall
into this section as it tends sell its products for a cheap price, so that most customers are able to afford their
products and that’s how sales revenue is gained by the organisation. If this keeps increasing as a trend, IKEA
will most likely be adding expensive furniture to their catalogue in the future, to increase their market share
and customer range.

Another factor is Brexit, this will lead into changes of trades, importing and exporting products will be much
more complicated for IKEA, and may have a financial impact on the company within the UK grounds. This also
means that the property market will be slowed down, so in the future IKEA will have to import and export
materials or products through the other countries they operate in. But as, IKEA operates in many more
countries all over the world, the change won’t have much impact on the company.

Another major change may occur in the upcoming years. Automation could take effect on business all over the
world. Having robots instead of human workers, is not only more efficient for companies but, saves more
money. The automated machines may take over the whole of IKEA’s business and lots of people will lose their
jobs. This could have a massive, negative response from the employees of IKEA and other workers of the
furniture manufacturing industry. Therefore the hate may bring the reputation of IKEA down, meaning
customers will be lost and less customer loyalty, the only way of avoiding this situation would be for IKEA to
not trade their workers for automated robots.

There is constant demographic changes, the population is increasing, and many people will be living in flats,
because there won’t many houses built, as UK is an island where the space is limited, and immigration of
people from other countries is constant with a rate of “2.5 migrants/1000 population”, and the birth rate is
“12.1 births/1000 populations” and the death rate is “9.4 deaths/1000 population” meaning the population
growth rate is “0.52%”, which denotes the obvious increase in population. So people will demand for

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housing meaning, the most efficient way of providing this is through creating blocks of flats for more space.
Also many people who migrant won’t be able to afford a house straight away, denoting that they will
probably be renting a flat, where there is less room for furniture. Therefore there would be a big demand for
small, compact products from furniture manufacturing companies such as IKEA, and as it sells cheap
products that where many customers are going to go.

(CMTC, 2017, https://www.cmtc.com/blog/furniture-manufacturing-challenges-trends-2016 - Accessed 13th

December 2018)
(Market Research, 2018, https://www.marketresearch.com/seek/Furniture-Manufacturing-Europe/
1107/1275/1.html - Accessed 13th December 2018)
(Robots, 2018, https://www.robots.com/articles/automating-furniture-production - Accessed 13th December
2018)
(Index Mundi, 2017, https://www.indexmundi.com/united_kingdom/demographics_profile.html - Accessed
15th December 2018)

D2.
To which extent does business environment affect IKEA.
Situational Analysis

SWOT:

Strengths – IKEA is able to maximize productivity and minimize waste generations as maintains complete
control over production process. All the steps in the production process from forestry saw milling and board
manufacturing to furniture is handled by the industrial group of IKEA which is called Swedwood. IKEA’s own
design group makes sure that their products match the trend of the market and customer requirements and
satisfaction. The design group also co-ordinates with the industrial group and vice versa to effectively convert
the design into furniture’s. By fulfilling its corporate social responsibility and repeated customer satisfaction,
IKEA has been able to build a strong brand image and thus enjoys enhances customer loyalty all over the
world.

Another key strength is the self-assembling of products, it has clear, easy tutorials and isn’t complicated at all.
This allows cost reductions, for customers and the company itself. Small factors like this led IKEA to be the
leading retailer of furniture in the world. Finally, IKEA has a smarter use of raw materials, establishing and
maintaining long-term relationships with suppliers and leveraging and efficiencies and synergies from the
economies of scale.

Weaknesses – IKEA has to depend on sub contracted manufacturers as it has limited manufacturing
capabilities, which makes it difficult for IKEA to coordinate and control quality standards in some regions. IKEA
may also face competition from the subcontractors as they may manufacture their own line of products. IKEA
products are also easy to replicate which the reason it is facing competition in China from the local suppliers.
These suppliers in China are able to copy the IKEA products and sell at a cheaper cost.

Another weakness is that IKEA always want to have cheap cost on their products, therefore this brings down
the quality of the products, even though IKEA’s products are great quality most of the time. This is also
affected by the ascending prices of raw materials which has impacted the profitability of the company. It is
difficult for IKEA to have low prices, while pricing on materials are increasing and need to replicate standards
across its locations worldwide.

Opportunities – Asia accounts for small part of IKEA’s business with only 3% of its sales generated from there.
IKEA sense an opportunity to make its mark in Asia. IKEA plans to cut prices in China considerably and open
new stores. IKEA can also expand by using e-commerce to its advantage. By using innovative technology IKEA
can reach customer in parts of the world where does not have a store.

The biggest opportunity for IKEA is that the company has is its cost leadership. Meaning a single-minded focus
on cost at the expense of everything else. As the low prices on the products may bring the quality of the
product down, the customers do not mind it, as they’re getting their money’s worth and customer satisfaction.

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Another opportunity, could be expanding their markets to more countries. The organisation is already planning
on joining the Indian and Chinese markets. Having more stores in different countries will increase customer
count, therefore the company will gain more sales revenue and turnovers.

Threats – The major threat to IKEA is distinct demand in different regions. In a vast country as china, IKEA has
to adjust to the living style and culture which differ from one part to the other. IKEA plans to expand despite
the business being hit by the global recession. IKEA will have to be cautious of the decisions it takes for its
future in these difficult times.

IKEA’s products have been copied by its rivals, meaning that the company needs to constantly innovate if it has
to stay ahead of the competition, which is vital for the firm. Just like I stated before Chinese industries are
copying IKEA’s catalogue and are implying that they can re-create the same products for better quality and
cheaper price to their customers.

Porter’s Five Forces

Rivalry within the industry - Industries that held high-profit margin will attract other firms to enter its
market. Therefore in the short run, the new entrant that cannot stand the rivalry will leave and the profit
margin of the industry remains unchanged. However, in the long-run, the new entrant will take part of the
profit margin share; hence reduce the other firms’ profit to break-even (total revenue equal total cost).

The competition in the furniture industry is moderate. However, there are a lot of major companies.
Furthermore, there are a handful of retailers in the economy, selling furniture at low cost and providing the
discount as well like IKEA. Some of those retailers are Walmart, Argos, Galiform, and others. Also, many other
retailers import and sell furniture it in the market at a low price like IKEA. Nevertheless, IKEA still remains the
leader in consumer discount and low-cost

Bargaining power of suppliers

 Suppliers are few in number
 Suitable substitute products are not available
 Supplier’s goods are critical to buyers’ marketplace success
 Suppliers’ products create high switched costs.

Suppliers have high control over raw materials, the firm they will “rule” the company indirectly, charge a high
price to raw material and sometimes they will not design as the organisation requested. The company, the firm
will be left with no other choice but to increase the price of its output in other to increase your revenue.
However, when the price of the company’s product increases, its demand will reduce therefore leaving the
company in a dilemma.

In the case of IKEA, power of the supplier is low. The company is having a well-established relationship
between each of its suppliers around the world. IKEA had about 1380 suppliers until 2008 in 54 countries with
21% of them in China. In addition, IKEA owns a manufacturing company: “Swedwood Manufacturer”. By
having its own manufacturer, it is obvious that the corporation threats the suppliers by entering their industry.
Furthermore, with the advantage of having its manufacturing firm, the company can produce at low cost and
sell at low prices.

Bargaining power of buyers – Buyers power over price is determined by a number of buyers, how important
is each buyer of the firm, the cost to the customer to switch from your product/services and chose your
competitors’ products/services.

Many retailers in the industry are involved in competition between prices. They are mostly importers who get
their inventory from China as well with a direct competition in the market. By having all these other retailers in
the market, the consumers have a choice between lots of firms/manufacturers. With all so many opportunities
open to them, the buyers’ power is moderate to high in this industry. However, most of the consumers will go

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to IKEA because of the company’s brand, its convenience, and also its main feature low-cost product along
with consumer’s discount.

Threats of new entrants – The new entrants affect the power in the industry. If the requirements to enter
the industry and compete efficiently is low/short (time and money), and if the firm has not achieved economy
of scale, the new entrants will rapidly take down such a firm. However, if the business is strong or the barrier
to entry is high, then it can conserve its position and advantages in the market.

The barriers to entries are relatively low. However, the intensity of the rivalry in the industry may fright off
new entrants. The beginning capital required is too high. Anyone can start a retail shop with a small capital.
But if someone wants a company to have a major strength in the industry, then they need to get more capital
in the firm, have a reliable warehouse, and establish a good relationship with its supplier. It will take a lot of
time, high investment in order for the new entrant to acquire all the necessity to become a major organisation
in the industry; otherwise, the firm will compete on the side. Therefore this denotes, new entrants is not a
threat to IKEA.

On the other hand, those small retailers will become high threats as competitors for the company. Therefore
this factor has an average impact on IKEA.

Threats of Substitutes – The threat increases when:

 Buyers face few switching costs
 The substitute product’s price is lower
 Substitutes product’s quality and performance are equal to or greater than the existing product
o Differentiated industry products that are valued by customers reduce this threat

This force has a low influence on the company. This is because, there are no substitute products which for
furniture, home applicant and other products supplied by the company. Furthermore, The Company is
specialized in manufacturing, good quality, and low-cost furniture. Even though customer retention rate
remains best with IKEA and Argos; nevertheless, the combination of the firm’s characteristics are yet to be
matched by its competitors. IKEA brand perception ‘trendy’ also surpass Argos ‘affordability’ and John Lewis
‘quality’ due to unmatched product and service functionality.

5C’s

Company – IKEA, is a furniture manufacturing company. It is currently the leading company on the worldwide
furniture marketplace. This was achieved by the company by setting low prices while having great quality
products. Nearly everyone shops at IKEA, and most customers have positive reviews on it. One of IKEA’s
strengths is the unique cheap pricing on their products, and one of the weaknesses is the replication of their
products by other small companies, which makes IKEA lose customers as the organisations state that they’re
able to re-create the same product for the cheaper price and better quality. IKEA, wants to operate in more
countries all over the world, particularly in Asia.

Collaborators – IKEA has great relationships with its suppliers. The organisation had over 1,300 suppliers until
2008 and continuing to make new ones, to get better price on their raw materials and more sustainable
sources. IKEA transports their products themselves, and try to use as less vehicles as possible to reduce fuel
consumption, CO2 emissions and less hassle in general. IKEA is currently partnered with Save the Children,
UNICEF, UNDP, WWF and Stakeholder dialogue. Their warehouse operations and inventory is handled by
employees within the company and do not have any external help.

Customers – Target audience of IKEA is adults in general, but most customers are aged between 21 and 40.
This denotes that people who finish education, or move out, away from their parents are most likely to buy
furniture from IKEA as its cheap and good quality. Others are just looking for low priced furniture to add to
their home. The organisation has their own design group which designs all of their products to meet all of the
customers’ requirements, and reach satisfaction so that there is customer loyalty and positive reviews. IKEA
offers products as sections and by rooms which allows people to design their house by just buying a set of

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products from the firm. The prices on products in the IKEA store are always low, therefore the company gets a
high quantity of purchases and sales revenue along with turnovers.

Competitors – IKEA doesn’t really have any competitors, as all other companies price their products high,
therefore IKEA has a lead in price, and the product’s quality is argumental. Many small companies have re-
produced the organisation’s products as it is easily re-created from their catalogue, but IKEA always updates
their products so that they’re always leading in the furniture manufacturing market. Currently there is no
companies that may outtake IKEA’s business and place. Most people shop at IKEA, unless they had some
previous problems with its products, or may want a better, or more luxurious look of the furniture.

Climate – IKEA is a friendly company, which focuses on its employees, and have a great reputation in
controlling its business and relationship with the workers. Automation may affect the industry and some
workers may lose their jobs in a few years, this could have a positive financial impact on IKEA but and on the
other hand people will lose their jobs, which may affect IKEA’s reputation negatively. The firm always stays on
track of any new laws or regulations in the works in each country it operates in, so that the company remains a
friendly relationship with the government of each country and the European Union in general. Currently, the
economic situation isn’t affecting amount of purchases as the prices of furniture sold by IKEA, is very cheap in
the first place. The company aims to make their products and accessories affordable by anyone.

(Management Study Guide, 2018, https://www.managementstudyguide.com/swot-analysis-of-ikea.htm -

Accessed 13th December 2018)
(Chesh Notes, 2016, https://www.cheshnotes.com/2016/09/ikea-swot-analysis-2016/ - Accessed 13th
December 2018)
(Chesh Notes, 2017, https://www.cheshnotes.com/2017/10/five-forces-analysis-ikea/ - Accessed 13th
December 2018)
(Research Methodology, 2017, https://research-methodology.net/ikea-porters-five-forces-analysis/ - Accessed
13th December 2018)
(Volusion, 2012, https://www.volusion.com/blog/situation-analysis-the-5-cs/ - Accessed 13th December 2018)
(IKEA, 2018, https://www.ikea.com/gb/en/this-is-ikea/people-planet/people-communities/suppliers/ -
Accessed 13th December 2018)
(IKEA, 2018, https://www.ikea.com/ms/en_JP/about_ikea/our_responsibility/climate_change/
efficient_transport_of_products.html - Accessed 13th December 2018)

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