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Case History
IKEA’s Global Strategy: Furnishing the World

IKEA is a furniture manufacturer and retailer, well known throughout the world
for its knockdown furniture. Its large retail stores in the blue-and-yellow colors
of the Swedish flag are located on the outskirts of major cities. attracting
shoppers who are looking for modern designs at good value. The low-cost
operation relies on buyers with automobiles to carry the disassembled furniture
in packaged kits and assemble the pieces at home.
The IKEA case is interesting because it shows how even retailers can go global
once the key competitive advantages of the offering are standardized. The case
focuses on the American entry, which posed barriers IKEA had not encountered
before and which forced adaptation of some features.
IKEA, the Swedish furniture store chain virtually unknown outside of
Scandinavia 25 years ago, has drawn large opening crowds to its stores as it
has pushed into Europe, Asia, and North America. Along the way it has built
something of a cult following, especially among young and price-conscious
consumers. But the expansion was not always smooth and easy, for example,
in Germany and Canada, and particularly difficult in the United States.

Company Background
IKEA was founded in 1943 by Ingvar Kamprad to serve price-conscious neighbors in
the province of Smaland in southern Sweden. Early on, the young entrepreneur hit
upon a winning formula, contracting with independent furniture makers and suppliers
to design furniture that could be sold as a kit and assembled in the consumer's home.
In return for favorable and guaranteed orders from IKEA. the suppliers were prohibited
from selling to other stores. Developing innovative modular designs whose components
could be mass produced and venturing early into eastern Europe to build a dedicated
supplier network. IKEA could offer quality furniture in modern Scandinavian designs at
very low prices. By investing profits in new stores, the company expanded throughout
Scandinavia in the 1950s.
Throughout the following years, the IKEA store design and layout remained the
same; IKEA was basically a warehouse store. Because the ready-to-assemble
"knockdown" kits could be stacked conveniently on racks, inventory was always
large, and instead of waiting for the store to deliver the furniture, IKEA's
customers could pick it up themselves. Stores were therefore located outside of
the big cities. with ample parking space for automobiles. Inside. an assembled
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version of the furniture was displayed in settings along with other IKEA
furniture. The purchaser could decide on what to buy. obtain the inventory tag
number. and then either find the kit on the rack, or, in the case of larger
pieces, have the kit delivered through the back door to the waiting car.
This simple formula meant that there were relatively few sales clerks on the
floor to help customers sort through the more than 10.000 products stocked.rhc
sales job consisted mainly of making sure that the assembled pieces were
attractively displayed. that clear instructions were given as to where the kits
could be found. and that customers did not have to wait too long at the
checkout lines. IKEA's was a classic "cash-and-carry" approach. except that
credit cards were accepted.
This approach, which trims costs to a minimum. dependent on IKEA's global
sourcing network of more than 2.300 suppliers in 67 countries. Because IKEA's
designers work closely with suppliers, sayings are built into all its products from
the outset. Also since the same furniture is sold all around the world, IKEA
reaps huge economies of scale from the size of its stores and the big production
runs necessary to stock them. Therefore, IKEA is able to match rivals on quality
while undercutting them up to 30 percent on price.
To draw the customers to the distant stores, the company relies on word-of-
mouth, limited advertising. and its catalogues. These catalogues are delivered
free of charge in the mailboxes of potential customers living in the towns and
cities within reach of a store, The catalogues depict the merchandise not only
as independent pieces of furniture but also together in actual settings of a living
room, bedroom. children's room. and so on. This enables the company to
demonstrate its philosophy of creating a "living space", not just selling
furniture. It also helps the potential buyer visualize a complete room and
simplifies the planning of furnishing a home. It also shows how IKEA's various
components are stylistically integrated into a complete and beautiful whole.
Even though furniture is hardly high-tech, the philosophy is reminiscent of the
way high-tech producers. such as mobile phone makers. attempt to develop
add-on features that fit their particular brand and not others.
As the company has grown. the catalogue has increased in volume and in
circulation. By 2003, the worldwide circulation of the 360-page catalogue
reached over 130 million, making it the world's largest printed publication
distributed for free, In 2003 the catalogue was distributed in 36 countries and
28 languages, showing more than 3.000 items from storage solutions and
kitchen renovation ideas to office furniture and bedroom furnishings.
Sales totaled about 12.2 billion U.S. dollars in 2003 with a net profit margin
around 6-7 percent. Of this, Europe accounted for over 80 percent of revenues,

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with Asia accollnting for 3 percent. and North America 15 percent. The huge
stores are relatively few in number - only 175 worldwide but growing rapidly -
and the company employs about 76.000 people around the world. Many of the
stores have only one expatriate Swedish manager at the top. sufficient to instill
the lean Ingvar Kamprad and I KEA ethos in the local organization.
Although the firm remains private, it continues to innovate and reorganize itself.
For instance, fast decision making is aided by a management structure that is
as flat as the finn's knockdown furniture kits, with only four layers separating
IKEA's chief executive from its checkout workers. In 1992 IKEA abolished
internal budgets and now each region must merely keep below a fixed ratio of
costs to turnover.

European Expansion
In the 1960s and 70s, as modern Scandinavian design became increasingly
popular. expansion into Europe became a logical next step. The company first
entered the German-speaking regions of Switzerland, thereby testing itself in a
small region similar to Scandinavia. Yet expansion so far away from Sweden
made it necessary to develop new suppliers. which meant that Kamprad
traveled extensively. Visiting potential suppliers and convincing them to become
exclusive IKEA suppliers. Once the supply chain was established, the formula of
consumer-assembled furniture could be used. After some resistance from
independent furniture retailers who claimed that the furniture was not really
"Swedish" since much of it came from other countries. IKEA’s quality/price
advantage proved irresistible even to fastidious Swiss consumers.
The next logical target was Germany, much bigger than Switzerland, but also
culturally close to IKEA's roots. I n Germany, well-established and large
furniture chains were formidable foes opposed to the competitive entry and
there were several regulatory obstacles. The opening birthday celebration of
the first store in 1974 outside Cologne was criticized because in German culture
birthdays should be celebrated only every 25 years. The use of the Swedish flag
and the blue-yellow colors was challenged because the IKEA subsidiary was an
incorporated German company (IKEA GmbH). The celebratory breakfast was
mistitled because no eggs were served. Despite these rearguard actions from
the established German retailers, IKEA GmbH became very successful, and was
thus accepted, being voted German marketer of the year in 1979. The
acceptance of IKEA's way of doing business was helped by the fact that IKEA
had enlarged the entire market by its low prices, and some of the established
retailers adopted the same formula in their own operations.

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To get the stores abroad started, Kamprad usually sent a team of three or four
managers who could speak the local language and had experience in an
existing IKEA store. This team hired and trained the sales employees. organized
the store layout, and established the sales and ordering routines. Although the
tasks were relatively simple and straightforward. IKEA's lean organizational
strategies meant that individual employees were assigned greater
responsibilities and more freedom than usual in more traditional retail stores,
Although this was not a problem in Europe and Japan (where its Japanese-
sounding name also was an advantage), it was a problem in the United States.

Canadian Entry
To prepare for eventual entry into the United States, IKEA first expanded into
Canada. The Canadian market was close to the U.S. market. and creating the
supply network for Canada would lay the foundation for what was needed for
the much larger US. market. Drawing upon a successful advertising campaign
and positive word-of-mouth, and by combining newly recruited local suppliers
with imports from existing European suppliers, the Canadian entry was soon a
success. The advertising campaign was centered around the slogan. "IKEA: The
impossible furniture store from Sweden," which was supported by a cartoon
drawing of a moose's head, complete with antlers. The moose symbol had
played very well in Germany, creating natural associations ''with the north" and
also creating an image of fun and games that played well in the younger
segments the company targeted. The Canadians responded equally well to the
slogan and the moose, as well as to IKEA's humorous cartoonlike ads poking
fun at its Swedish heritage (“How many Swedes does it take to screw in a
lightbulb? Two-one to screw in the lightbulb, and one to park the Volvo") which
became often-heard jokes.
The United States presented a much different challenge, as it offered a much
larger market with its population dispersed, great cultural diversity, and strong
domestic competition. The initial problems centered around which part of the
United States to attack first. While the east coast seemed more natural, with its
closer ties to Europe, the California market on the west coast was
demographically more attractive. But trafficking supplies to California would be
a headache, and competition seemed stronger there. with the presence of
established retailers of Scandinavian designs.
Then, there was the issue of managing the stores. In Canada, the European
management style had been severely tested. The unusually great independence
and authority of each individual employee in the IKEA system had been
welcomed, but the individuals often asked for more direction and specific

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guidance, for example. the Swedish start-up team would say to an employee.
"You are in charge of the layout of the office furniture section of the store" and
consider this a perfectly actionable and complete job description. This seemed
to go against the training and predisposition of some employees, who came
back with questions such as, "How should this piece of furniture be displayed?”
IKEA's expansion team suspected that the situation would be possibly even
more difficult in the United States. The team also wondered if the same slogan
and the moose symbol would be as effective in the United States as it had been
in Germany and Canada.

Entry Hurdles in the United States

From the outset IKEA had succeeded despite breaking many of the standard
rules of international retailing: enter a market only after exhaustive study: cater
to local tastes as much as possible; and tap into local expertise through
acquisitions, joint ventures, or franchising. Although breaking these rules had
not hurt IKEA in Europe. the firm got into some trouble in America with its
initial seven stores; six on the east coast and one in California. Many people
visited the stores, looked at the furniture, and left empty-handed, citing long
queues and not available stock as chief complaints.
IKEA managers believed that their most pressing problem in entering the U.S.
market was the creation of a stable supply chain. By taking an incremental
approach, starting with a few stores on the east coast including an initial one
outside Philadelphia, IKEA managers believed that they had ensured a smooth
transition from the eastern United States, with its relative proximity to European
suppliers, and its Canadian beachhead. Although the store in southern
California was much farther away, its large market and customer demographics
- young and active - favored IKEA's modern designs and assemble-it-yourself
strategy. The California entry was also precipitated by the emergence of a local
imitator, “Stor" which had opened ahead of IKEA. capitalizing on the word-of-
mouth generated by IKEA'S new concept.
IKEA's early effort had problems because of less adaptation to the American
market than customers desired. For example, IKEA decided not to reconfigure
its bedroom furniture to the different dimensions used in the American market.
As a result, the European-style beds sold by IKEA were slightly narrower and
longer than standard American beds, and customers' existing mattresses and
sheets did not fit the beds. Even though IKEA stocked European-sized sheets in
the stores, bed sales remained very slow. IKEA ended up redesigning about a
fifth of its American product range and sales immediately increased by around
30-40 percent.

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The American suppliers, whom IKEA gradually recruited to reduce the
dependence on imports, also proved in need of upgrading and instruction in
IKEA's way of producing furniture. IKEA sent its people to the suppliers' plants,
providing technical tips about more efficient methods and helping the suppliers
shop around for better-quality or lower-price materials. Now IKEA produces
about 45 percent of the furniture sold in its American stores locally, up from 15
percent just a few years earlier. In turn this has helped the firm cut prices in its
American stores for three years running. The American difficulties also
highlighted how growth could lead to quality problems in managing its
increasingly complex global supply chain, so IKEA began conducting random
checks.
Other adaptations to the American market proved just as successful. For
instance, new cash registers were installed to speed throughput by 20 percent,
with the goal of eliminating long checkout lines. Store layout was altered to
conform more with American aesthetics and shopping styles. A more generous
return policy than in Europe was instituted and a next-day delivery service was
implemented.

Promotion
While some managers helped establish the supply side of the stores, IKEA's
marketing staff was busy with the promotional side of the business. Store
locations had generally disadvantaged IKEA relative to competitors. Because of
the huge size of the stores (typically around 200,000 square feet), the need to
keep a large inventory so that customers could get the purchased furniture
immediately, and the amount of land needed for parking around each store,
most stores were located in out-of-the way places next to the airport in New
Jersey in one case and in a shopping mall 20 miles south of Washington, DC, in
another. Thus, advertising was needed to make potential customers aware of
store locations. It was thought that lower prices and selection would do the rest
positive word-of-mouth had proven the best advertising in most other markets,
But in the United States' competitive retail climate IKEA found that more
focused media advertising was needed. As one manager stated: "In Europe you
advertise to gain business; in the United States you advertise to stay in
business." The diversity of the consumers made word-of-mouth less powerful
than in ethnically more homogeneous countries. Management decided that a
strong slogan and unique advertising message were going to be necessary to
really bring awareness close to the levels in other countries.
The Moose symbol of IKEA, although successful in Germany and Canada was
considered strange and too provincial for the US. market and would project the

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wrong image especially in California. Instead IKEA, in collaboration with its New
York-based advertising agency Deutsch. developed a striking slogan that
combined the down-home touch of the company philosophy with the humorous
touch of the Moose: “It's a big country. Someone's got to furnish it".
Following the success of this advertising strategy, the company ventured
further to establish itself as a pioneering store and to attract new kinds of
customers. IKEA and Deutsch developed a series of eight TV advertising spots
that featured people at different transitional stages in their lives, when they
were most likely to be in the market for furniture. One spot featured a young
family who had just bought a new house. another a couple whose children had
just left home, and so on. IKEA even developed one spot that featured a
homosexual couple, two men talking about furnishing their home. It was a
daring step, applauded by most advertising experts and impartial observers.
The campaign had a positive impact on IKEA’s image-and on IKEA's sales. The
company has continued the trend. One 30-second TV spot showed a divorced
woman buying furniture for the first time on her own.
The privately held company won't reveal income figures, but it is successful in
each of the market areas where it has located its US. stores. It is credited with
being partly responsible for a shift in furniture buying behavior in the United
States. Choosing furniture has become a matter of personality. lifestyle, and
emotions in addition to functionality. IKEA’s managers like that - they want
IKEA to be associated with the "warmest. most emotional furniture in the
world".

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