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Project Outline: IKEA Furniture Retailer to the World

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Section 1: History, Development & Growth of IKEA Over Time

Key Points:

 Founded in 1943 by Ingvar Kamprad in Sweden.

IKEA started when Ingvar Kamprad was only 17 years old and was a small mail-order company. His

initials and the name of his farm and village create the acronym, which the company is known by: IKEA.

Kamprad started focusing on selling pens, wallets, and, you guessed it, watches, and thus established a firm

anchored on low prices and accessibility.

 Shifted to furniture sales in 1948; introduced flat-pack design in 1956.

In 1948, Kamprad started selling furniture in his catalogue, which soon became the primary activity of

IKEA. The innovative idea of the flat-pack design, an aspect where the customer assembles the furniture,

appeared in 1956. It allowed IKEA to save big during the storage and transportation and formed its identity.

 The first retail store opened in 1958; rapid international expansion began in 1973.

The initial IKEA store, opened in 1958 in the Swedish town of Almhult, was where customers could handle

products. By 1973, IKEA had started venturing into other countries, with Switzerland being the first

country to get the IKEA experience. This became the starting point of its turning into a global leader in the

furniture industry.

 Emphasis on cost leadership and customer self-service model.

IKEA's entire business model emphasizes affordability. This is done by carrying out mass buying and in-

sourcing, and motivating customers to engage themselves in the assembly and transportation of products.

The self-service warehouse format reinforces the company's low-cost philosophy.

 Recent focus on sustainability and e-commerce transformation.

Circular product design and renewable materials are some sustainability activities in which IKEA has

recently invested heavily. At the same time, it is also changing the digital backbone to adapt to changing

consumer behavior by using e-commerce platforms and home delivery.

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 Quote:

“IKEA has built a global brand around the concept of stylish, affordable furniture, leveraging economies of scale

and efficient supply chains.” (Hill & Schilling, 2023, Case 7)

Section 2: SWOT Analysis and Interpretation

SWOT:

Strengths:

 Global brand recognition.

 IKEA is one of the most recognized and trusted furniture brands globally, known for its quality,

affordability, and modern design.

 Economies of scale in sourcing and manufacturing.

 By sourcing large volumes and maintaining control over its supply chain, IKEA achieves substantial

cost efficiencies that few competitors can match.

 Cost-efficient supply chain and self-service model.

 IKEA's unique logistics and customer involvement model lowers operational costs and enhances price

competitiveness.

Weaknesses:

 Limited customization for local tastes

 Standardized product designs may not meet diverse regional markets' cultural or aesthetic preferences.

 Complex global logistics; dependence on centralized distribution

 Coordinating global supply chains remains challenging, especially during disruptions like the COVID-

19 pandemic.

 Criticisms over sustainability in the past years

 Although improvements are ongoing, IKEA has faced criticism for waste generation and sourcing

practices.

Opportunities:
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 Growth in emerging markets (India, Southeast Asia)

 Expanding the store footprint and online services in these fast-growing regions offers long-term revenue

potential.

 Expansion of e-commerce and home delivery services

 Digital retail channels can allow IKEA to reach customers without expanding physical locations.

 Sustainable product innovation

 Investment in circular and green product lines aligns with growing environmental consumer awareness.

Threats:

 Intense competition from Amazon, Wayfair, and local brands

 E-commerce furniture retailers are eroding IKEA's price and convenience advantages.

 Supply chain disruptions (e.g., post-COVID logistics)

 Shipping delays and material shortages could continue to impact inventory and customer satisfaction.

 Rising raw material and transportation costs

 Inflationary pressures may force IKEA to adjust prices, risking its low-cost image.

Interpretation:

 IKEA can use its scale and logistics strength to move into markets with underserved furniture demand.

 The company's ability to optimize supply chains and pricing provides a decisive advantage in entering

price-sensitive developing markets.

 It must address the threat of online-only retailers by continuing its digital transformation.

 Enhancing online experience and logistics can help IKEA compete effectively in a rapidly shifting retail

landscape.

Section 3: Strategy & Structure Evaluation

Corporate-Level Strategy:

 Single-business focus with vertical integration (design to sale)

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 IKEA manages everything from design and sourcing to retail, allowing tight control over cost, quality,

and brand image.

 Global presence through a franchise model

 While IKEA owns some stores, most operate through franchising, enabling global scalability while

minimizing risk.

Business-Level Strategy:

 Cost leadership through volume buying, flat-pack shipping, and self-assembly

 IKEA leverages cost efficiencies in production and logistics to offer lower prices.

 Differentiation through Scandinavian design and in-store customer experience

 The IKEA showroom and café model enhances the customer journey, creating a unique brand

experience.

Structure & Control:

 Complex legal structure (Inter IKEA Systems B.V. owns IP; franchising system used)

 IKEA's intellectual property is tightly controlled and licensed to franchisees, protecting its brand and

standards.

 Centralized control over branding, product design

 Product aesthetics and marketing remain consistent worldwide.

 Decentralized operations across regions

 Local management allows responsiveness to market needs, even within a global structure.

Strategic Fit:

 IKEA’s structure aligns with its low-cost strategy, but digital transformation may require greater agility.

 As retail moves online, faster decision-making and innovation in logistics will be essential for

continued success.

Section 4: Final Recommendations

Strategic Issues Recap:

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 Need to improve digital logistics and delivery

 Customers increasingly expect fast, reliable delivery, especially post-pandemic.

 Pressure from online competitors

 E-commerce furniture sellers are gaining traction, especially among younger consumers.

 High dependency on global supply chains

 Future disruptions could severely impact stock availability and sales.

Recommendations:

1. Invest in last-mile delivery infrastructure to compete with Amazon.

2. Enhancing local distribution centers and delivery fleets will support faster, more reliable service.

3. Increase the use of recycled and renewable materials to meet ESG goals.

4. IKEA should accelerate the transition to circular products and sustainable raw materials.

5. Expand in high-growth markets like India with local customization.

6. Adapting product offerings to cultural preferences can boost IKEA's competitiveness.

7. Simplify legal and franchising structure for faster adaptation.

8. Streamlining governance and approval processes would improve responsiveness in emerging markets.

9. Explore AI-driven customer personalization online and in-store.

10. Personalized recommendations and virtual planning tools can elevate the digital customer experience.

Financial Ratios to Analyze:

 Net Profit Margin: Measures IKEA’s profitability and ability to maintain low costs.

 Current Ratio: Assesses liquidity and ability to meet short-term obligations.

 Debt-to-Equity Ratio: Evaluates risk associated with expansion financing.

 Inventory Turnover: Indicates the efficiency of inventory management.

 Return on Assets (ROA): Shows how effectively IKEA uses assets to generate income.
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References

Harvard Business Review. (2021). How IKEA Reassembled Its Growth Strategy. https://hbr.org

Hill, C. W. L., & Schilling, M. A. (2023). Strategic management: Theory & cases: An integrated approach (14th

ed.). Cengage Learning.

Inter IKEA Group. (2023). Annual Summary & Sustainability Report. https://www.inter.ikea.com

Statista. (2024). Global Furniture Market Overview. https://www.statista.com