Ikea Case Study & Analysis
Ikea Case Study & Analysis
Ikea Case Study & Analysis
Management
(BUS
411)
By
Osama
Albarrak
osabbr@gmail.com
28/12/2011
Supervised by
Introduction:
In
this
case,
I've
studied
the
internationally
known
home
furnishing
retailer,
which
is
(IKEA)
the
largest
furniture
retailer
in
the
world.
The
purpose
of
the
case
study
is
to
analyze
the
objectives
and
strategies
used
by
IKEA,
analyze
the
company
financially,
SWOT
analyzing
and
discuss
major
issue
that
the
company
faced.
About:
IKEA
is
a
privately-held,
international
home
products
retailer
that
sells
flat
pack
furniture,
accessories,
and
bathroom
and
kitchen
items
in
their
retail
stores
around
the
world.
The
company,
which
pioneered
flat-pack
design
furniture
at
affordable
prices,
is
now
the
world's
largest
furniture
retailer.
IKEA
was
founded
in
1943
by
17-year-old
Ingvar
Kamprad
in
Sweden
and
it
is
owned
by
a
Dutchregistered
foundation
controlled
by
the
Kamprad
family.
The
company
that
was
originated
in
Smland,
Sweden,
distributes
its
products
through
its
retail
outlets.
As
of
August
2009,
the
chain
has
301
stores
in
37
countries,
most
of
them
in
Europe,
North
America,
Asia
and
Australia.
History:
The
IKEA
Concept
began
when
Ingvar
Kamprad,
anentrepreneur
from
the
Smland
province
in
southern
Sweden,
had
an
innovative
idea.
In
Smland,
although
the
soil
is
thin
and
poor,
the
people
have
a
reputation
for
working
hard,
living
frugally
and
making
the
most
out
of
limited
resources.
So
when
Ingvar
started
his
furniture
business
in
the
late
1940s,
he
applied
the
lessons
he
learned
in
Smland
to
the
home
furnishings
market.
Ingvar's
innovative
idea
was
to
offer
home
furnishing
products
of
good
function
and
design
at
prices
much
lower
than
competitors
by
using
simple
cost-cutting
solutions
that
did
not
affect
the
quality
of
products.
Ingvar
used
every
opportunity
to
reduce
costs,
and
he
scraped
and
saved
in
every
way
possible
-
except
on
ideas
and
quality.
The
name
IKEA
comes
from
the
initials
of
Ingvar
Kamprad,
I
and
K,
plus
the
first
letters
of
Elmtaryd
and
Agunnaryd,
which
are
the
names
of
the
farm
and
village
where
he
grew
up.
2011 by Osama Albarrak. All rights reserved
Vision:
IKEA
vision
statement
is
"To
create
a
better
everyday
life
for
the
many
people."
Mission:
IKEA
mission
statement
is
"To
offer
a
wide
range
of
well
designed,
functional
home
furnishing
products
at
prices
so
low
that
as
many
people
as
possible
will
be
able
to
afford
them."
Market
positioning:
IKEA
market
positioning
statement
is
"Your
partner
in
better
living.
We
do
our
part,
you
do
yours.
Together
we
save
money."
2011 by Osama Albarrak. All rights reserved
Objectives
of
IKEA:
-
To
produce
cheap
and
affordable
product
for
the
public/customers.
-
Better
life
for
those
who
can't
afford
expensive
products.
-
Ensure
the
customer
finds
what
they
are
looking
for
in
store.
-
Low
prices.
CEO Micheal ohlsson CFO Soren Hansen Legal Christer Thordson Asia paciQic Ian Duffy Vice President Hans Gydell Industry I & D Goran Stark
2011 by Osama Albarrak. All rights reserved
Increase of net income: 2010: (12) new stores + investments other stores. Sales increase: +2.4%. Overall sales: +7.7%.
Net income: 2009 >> 2010: + 154 m Revenue: 2009 >> 2010: + 1693 m Gross profit: 2009 >> 2010: + 1117 m (more cost in 2010)
2011 by Osama Albarrak. All rights reserved
Assets:
2009
>>
2010:
37,1
bln
>>
41,3
bln
(+
4168
mln
)
Property,
plan
and
equipment:
2009
>>
2010:
14,2
bln
>>
15,9
bln
(+
1776
mln
)
Cash
and
securities:
2009
>>
2010:
+2621
mln
Total
increase:
about
4
bln
5
Group equity: 2009 >> 2010: + 3066 mln More stores = more equity
Financial
Analysis:
FY10
was
an
unpredictable
year
with
the
effects
of
the
financial
crisis
in
2009
still
a
reality
for
many
of
our
customers.
The
conditions
in
our
markets
ranged
from
favorable
to
difficult.
FY10
turned
out
to
be
a
very
good
year
for
our
retail
operations,
with
growth
in
most
markets,
further
increasing
our
market
shares.
Increasing
sales,
gross
margin
and
improvements
in
the
cost
structure,
adjusted
for
one-off
items,
led
to
a
strong
result.
New
stores,
refurbishments
and
other
investments
were
funded
with
our
own
cash
flow.
Good
profit
level:
Sales
increased
to
23.1
billion
EURO
in
fY10,
an
increase
of
7.7%
compared
to
the
previous
year.
The
growth
came
both
from
existing
stores,
which
grew
by
2.4%
and
new
stores.
Sales
grew
in
almost
all
countries,
with
China,
Russia
and
Portugal
showing
the
strongest
increase.
Gross
margin
improved
to
46.1%
from
44.6%
in
fY09.
This
increase
was
driven
by
higher
sales
and
reduced
costs
in
our
supply
chain,
strongly
supported
by
steps
taken
together
with
our
suppliers.
As
a
franchisee
of
the
IKEA
concept,
IKEA
Group
pays
a
franchise
fee
of
3%
of
sales
to
the
concept
owner
Inter
IKEA
Systems
B.V.
Operating
cost
increased
from
7.2
billion
EURO
in
fY09
to
7.9
billion
EURO
in
fY10.
The
increase
in
expenses
is
mainly
due
to
two
one-off
items,
being
the
settlement
of
the
dispute
about
the
lease
of
diesel
generators
in
Russia
and
the
impairment
of
assets
in
our
industrial
groups.
Adjusted
for
these
one-off
effects,
expenses
as
a
percentage
of
total
revenue
decreased
by
2.3%
compared
to
fY09,
reflecting
an
improvement
in
cost
structure.
This
improved
efficiency
will
be
invested
in
lower
prices
for
our
customers.
Financial
net
decreased
due
to
lower
net
interest
income,
partly
compens- ated
by
higher
currency
results.
The
effective
tax
rate
increased
from
13.2%
in
fY09
to
17.6%
in
fY10.
The
increase
in
effective
tax
is
primarily
due
to
higher
taxable
profits
in
countries
with
higher
nominal
tax
rates.
Corporate
income
taxes
amounted
to
577
million
EURO
in
fY10.
In
addition,
property
taxes
of
150
million
EURO
were
incurred.
Net
income
increased
by
6.1%
to
2.7
billion
EURO.
Strong
financial
position:
Total
assets
increased
from
37.1
billion
EURO
to
41.3
billion
EURO,
mainly
due
to
investments
in
properties
and
a
further
increase
in
cash
and
securities.
The
increase
in
property,
plant
and
equipment
is
related
to
the
establishment
of
12
new
stores
and
additional
investments
in
IKEA
stores
and
factories.
We
have
also
invested
an
amount
of
66
million
EURO
in
wind
farms
in
accordance
with
our
strategy
on
renewable
energy.
The
total
2011 by Osama Albarrak. All rights reserved
investment in tangible fixed assets amounted to 2.1 billion EURO, staying flat compared to the previous year. Our securities portfolio grew by 2.5 billion EURO during fY10 to 15.2 billion EURO. No credit losses were incurred during this period. The assets are for a significant part funded through equity, with the equity ratio increasing to 55% by August 31, 2010. Total equity amounted to 22.8 billion EURO on August 31, 2010. No dividend was paid to the Stichting INGKA foundation during the year. We reduced our long-term debt by 213 million EURO during fY10. We are pleased that during fY10 we were able to further grow our business in accordance with our financial principles, and we have thereby strengthened our financial base for the future.
Powerful brand image. Wide range of products and styles. Hip, Swedish designs. Cheap and affordable. Furniture is easy to assemble and ship. One stop shopping. Friendly atmosphere/store layout. Facilities: restaurant/daycare center. Strong global sourcing capabilities
Weaknesses:
Assembling
furniture
yourself
may
be
unappealing
to
certain
groups
of
consumers.
Relatively
few
locations.
Store
layout
a
hassle
for
those
who
want
a
particular
item
only.
Swedish
designs
may
not
appeal
to
all
American
markets.
Advertising
doesnt
appeal
enough
to
target
market
(young
people).
Furniture
is
not
built
to
last
a
lifetime.
2011 by Osama Albarrak. All rights reserved
Opportunities:
Untapped
markets
(Midwest,
Corporateetc.).
Educate
consumers
on
IKEA
thru
advertisements.
Different
type
of
stores
such
as
outlets
or
high-end
labels.
Increase
online
sales
and
Internet
presence.
IKEA
can
expand
into
many
more
cities
in
the
world.
Use
the
popularity
among
young
people
to
expand
to
college
markets.
Existing
stores
are
few
and
large,
new
stores
could
be
many
and
smaller.
Threats:
Indirect
threats
from
Wal-Mart,
home
depot,
pier.
The
global
economic
crisis.
Social
trends
such
as
the
slowdown
in
first
time
buyers
entering
the
housing
market.
This
is
a
core
market
segment
for
IKEA
products.
Market
forces
more
competitors
entering
the
low
price
household
and
furnishings
markets.
IKEA
needs
to
reinforce
its
unique
qualities
to
compete
with
these.
Economic
factors
the
recession
slows
down
consumer
spending
and
disposable
income
reduces.
Problem #2: IKEA suffers from a lack of innovation and faces the possibility of offering a very similar product base. This is due in part to the lack of fresh blood in the organization. IKEA's policy of hiring the same genre of people leads to inhibiting diversity and innovation to meet change in new markets. Recommendation: IKEA should broaden its selection base of hiring people. Whilst not changing the core competencies required of key staff, a new emphasis should be placed on the hiring of people from a mix of backgrounds and personalities. This will promote diversity, infusion of new ideas and ensure the richness of the culture. Limitation: This diversity may however lead to lack of goal congruence and a distraction from the common goals. There may be a waste of resources to get such a diverse group to agree to a common viewpoint. Problem #3: Not enough like-minded managers (Swedes) to manage stores. Recommendation: There are two options to solve this issue. Firstly, a solution would be to hire more Swedes with similar work ethos and cultural similarities. Secondly, another option is to promote successful managers from various countries to expatriate jobs in other geographies. This would not only achieve strong transplantation of talent but also build strong and committed global managers. Limitation: There may not be enough capable candidates in the overseas poll of Scandinavian expats. Additionally, looking at the second option of transplanting foreign mangers in businesses outside their home countries may foster feelings of resentment of locals, inhibiting individual advancement.
10
developers
and
designers
is
always
the
price.
Together
with
our
very
skilled
suppliers,
we
make
sure
to
get
the
most
out
of
the
possibilities
in
the
production
plants.
We
adapt
the
sizes
and
constructions
of
our
products
so
we
can
produce,
package
and
transport
them
in
the
most
efficient
way.
We
also
put
a
lot
of
effort
into
developing
materials,
to
improve
them
and
save
resources.
A
limited
range
of
articles
and
big
sales
volumes
make
it
possible
for
us
to
keep
costs
and
prices
down.
On
top
of
this,
our
customers
contribute
to
the
low
prices
by
collecting,
taking
home
and
assembling
the
products
themselves.
Today,
they
can
even
design
their
kitchen
or
wardrobe
themselves
using
our
computerized
planner
tools.
We
do
our
part,
you
do
yours
together
we
save
money.
2- Product
strategy:
Wide
range
of
products
according
to
the
need
of
consumers.
Products
available
for
different
sections
of
the
society.
Products
adaptation
according
to
the
need
of
different
market.
Diversify
product
line
and
product
depth.
Low
priced
furniture
store
provides
reassemble
furniture
and
casual
furniture.
Most
of
IKEAs
product
are
stylish
that
makes
the
company
unique.
Concept
of
Flat
packaging,
which
makes
it
easier
to
consumers
to
transport
the
furniture.
IKEA
designs
its
own
furniture.
IKEA
offers
a
variety
of
style
for
interested
consumers
to
choose
from.
3-
Promotion
strategy:
High
Profile
advertisement
campaigns.
(Spending
70%
of
annual
marketing
budget
in
printing
catalogs.)
Upon
entry
to
IKEA
store
shoppers
are
guided
properly.
Online
shopping.
IKEA
providing
home
delivery
service
to
its
customers.
After
sale
service
to
the
customers.
Online
advertisements.
4-
Market
Development
strategy:
Target
new
segments
and
enter
new
markets
with
existing
products.
The
Potential
benefits
of
international
expansion
are
increased
market
share,
revenues,
profit,
and
buyer
awareness.
2011 by Osama Albarrak. All rights reserved
11
} IN EUROPE: IKEA is planning to open 10 new stores in Europe. Russia is a potential market for IKEA because the economy of Russia is expanding. Germany is a largest market of IKEA. } IN NORTH AMERICAS: America market can be tough for IKEA as there. Are big competitors like FORTUNEBRANDS, JARDEN, MASCO exists? IKEA planning to open 5 new stores in USA. } IN ASIA: Asia is a large potential market for IKEA. IKEA is planning to enter in INDIA. In 2011 IKEA is opened its store in MALAYSIA. CHINA, JAPAN and SINGAPORE are profitable market to expand. } IN AUSTRALIA: AUSTRALIA is a big market for IKEA, there is always demand for ready to assemble furniture. IKEA planning to increase employees in there stores IKEA is currently operating in all the states of AUSTRALIA and planning to open more of stores. } Potential market of IKEA: Currently IKEA is not operating in LATIN AMERICA. (MEXICO, BRAZIL, CHILE, ECUDOR). AFRICA can be a profitable market for IKEA (SOUTH AFRICA). In ASIA, INDIA is a big potential market. IKEA is planning to open new store is china.
Competitive
Advantage:
There
is
so
much
knowledge
about
IKEA
from
the
web,
the
interview,
and
especially
follow
the
history
of
IKEA;
we
can
find
many
methods,
which
IKEA
used
to
improve
the
competitive
advantage.
According
to
the
theory
of
competitive
advantage.
1. Low
price
and
good
quality
more
than
competitors.
2. Good
service
3. High
quality
of
design.
4. Wide
varieties.
2011 by Osama Albarrak. All rights reserved
12
5. Good brand image in consumers brains. 6. IKEA has a special team develops new products, updating technology, promoting technological development. 7. Most of IKEAs product are stylish that makes the company unique.
Conclusion:
There
are
so
many
reasons
that
make
IKEA
so
popular,
for
example,
cooperating
with
the
suppliers
from
all
over
the
world,
high-efficiently
of
logics,
using
life
system
to
find
what
customer
need,
and
so
on.
Follow
the
concept,
IKEA
try
their
best
to
give
the
customers
what
they
promised:
low
price,
well-design,
creating
a
better
everyday
life
for
many
people.
As
a
world
famous
international
company,
IKEA
is
like
a
fresh
air
in
to
new
target
markets
such
as:
Middle
East
Australia
and
China
market.
It
not
only
brings
new
strategy
and
model
to
their
competitors,
but
also
brings
the
new
life
style
and
service
to
the
customers.
For
the
dilemma
of
IKEA
in
China
market
right
now,
IKEA
should
try
to
change
the
supply
base
to
supply-
product-
sale
base.
Though
the
centralized
procurement,
flat-package,
and
more
cooperation
with
local
suppliers,
IKEA
can
get
more
cost
leadership.
So
IKEA
can
reduce
the
price
and
get
the
virtuous
circle
of
reduce
price-increase
demand-
scale
effect-
reduce
price.
IKEA
already
understand
Middle
East
Australia
and
China
markets
more
than
before.
With
accelerating
the
speeds
of
expand,
IKEA
will
get
more
customers;
the
success
of
IKEA
in
these
markets
is
only
the
problem
of
time.
References:
IKEA.
(2010).
Retrieved
21/12/2011,
from:
http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_inf o.html
The
official
board.
(2011).
Retrieved
22/12/2011,
from:
http://www.theofficialboard.com/org-chart/ikea
IKEA.
(2010).
Retrieved
22/12/2011,
from:
http://www.ikea.com/ms/nl_BE/pdf/yearly_summary/Welcome_insi de_2010_update.pdf
2011 by Osama Albarrak. All rights reserved
13