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Posted: April 13th, 2023
Case Study
1. List IKEA’s external and internal challenges. Looking at IKEA’s challenges, which ones do you think pose the greatest threat? Why? How would you address the challenges?
2. What can IKEA do to continue to drive growth globally, especially given its strategic intent to double annual store openings?
3. Assume you are hired to consult IKEA on the topic of corporate social responsibility (see the discussion in Chapter 2). Which areas would you recommend the company be most sensitive to, and how should these be addressed?
Sweden’s IKEA: The World’s Most Profitable Retailer
THE WORLD’S MOST profitable global retailer is not Walmart or the UK-based Tesco, but IKEA—a privately owned home-furnishings company hailing from Sweden. In 2017, IKEA owned more than 400 stores in various formats worldwide in 28 countries, employed over 160,000 people, and earned revenues of more than 35 billion euros. Exhibit 10.1 shows IKEA’s growth in the number of stores and revenues worldwide.
EXHIBIT 10.1 /
IKEA Stores and Revenues, 1974–2016
SOURCE: Depiction of data from IKEA Yearly Summaries (www.ikea.com), various years.
Known today for its iconic blue-and-yellow big-box retail stores, focusing on flat-pack furniture boxes combined with a large do-it-yourself component, IKEA started as a small retail outlet in 1943 by then-17-year-old Ingvar Kamprad. Though IKEA has become a global phenomenon, it was initially slow to internationalize. It took 20 years before the company expanded beyond Sweden to its neighbor Norway. After honing and refining its core competencies—designing and offering modern, and functional home furnishings in a unique retail experience resulting in a low cost structure—in its home market, IKEA followed an international strategy, expanding first to Europe and then beyond. Under this strategy, IKEA can
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sell the same types of home furnishings across the globe with little adaptation, although it does make some allowances for country preferences. IKEA is present across all major markets today, having entered India and Serbia in 2017.
Sweden’s IKEA is growing quickly in both developed countries, such as the United States and Australia, and also in emerging economies such as China.
©testing/Shutterstock.com RF
In recent years IKEA’s strategy has evolved. To keep costs low, it shifted from an international strategy to a global-standardization strategy, in which it attempts to achieve economies of scale through effectively managing a global supply chain. Although Asia accounts currently for only 9 percent of its sales, IKEA sources 35 percent of its inputs from this region. To pare costs further, IKEA has begun to implement production techniques from auto and electronics industries, using cutting-edge technologies to address complexity while achieving flexibility and low cost. IKEA’s revenues by geographic region are mainly from Europe (69 percent), with the rest from North America (18 percent), Asia and Australia (9 percent), and Russia (4 percent); see Exhibit 10.2. Although IKEA’s largest market is in Germany (14 percent of total sales), it is seeing strong growth in China, Canada, Poland, and Australia.
EXHIBIT 10.2 /
IKEA Sales by Geographic Region (2016)
SOURCE: Depiction of data from IKEA Yearly Summaries (www.ikea.com)
The privately held company has also successfully reinvented itself with changing consumer demands: newer formats such as smaller stores in city centers, click-and-collect locations (small stores for retrieval of online purchases), and more customized furniture solutions to meet the needs of an increasingly urban population. In addition, IKEA is investing heavily in its online presence, enabling consumers to do all their purchasing online, and then schedule delivery, and even installation of furniture. Busy urban professionals are less inclined to spend the well-known frustrating and long hours putting IKEA furniture together (“easy assembly”) with the included low-quality tool and minimal instructions. IKEA’s functional website (ikea.com) now garners more than 2 billion hits a year. In the meantime, IKEA’s big-box stores remain attractive destinations, with over 1 billion visits a year, up from some 750 million just a few years earlier.1
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