How IKEA became a household name with digitalization, consistency, and experience

How IKEA became a household name with digitalization, consistency, and experience

Whether you’re moving to a new apartment or it’s simply time to let go of that beaten up and wobbly coffee table, there’s one name that jumps to mind whenever you’re in need of furniture: IKEA.

In the beginning...

Just about 80 years after it was founded, IKEA has become one of the world’s top furniture companies. Today, it’s known as a place where shopping is truly an experience, not just a chore. Between the popular food courts and handsomely designed showrooms, IKEA is simply a fun place to spend an afternoon — and be productive at the same time. 

Of course, the company wouldn’t still be in business if it wasn’t able to provide great products as well. Throughout the years, IKEA has carved out a name for itself as a company that provides unique and high-quality furniture at a great price — some assembly required. As a result, it’s particularly popular among young and thrifty shoppers. 

Here’s what the company’s numbers look like at a glance:

In this strategy study, we’re going to explain how IKEA became not only one of the world’s leading retail furniture brands, but a global cultural icon. From rural Sweden to the global marketplace, this is the story of IKEA’s rise.

The vast majority of people alive today have never lived in a world without IKEA. In fact, many of us have fond childhood memories of walking through one of its stores with our parents and enjoying some tasty Swedish meatballs before heading home.  

But IKEA didn’t appear spontaneously. It was brought into existence thanks to the hard labor and ingenuity of one man: Ingvar Kamprad. To understand IKEA’s success, we need to understand the man behind it.

The founder's first steps

Ingvar Kamprad was born in 1926 in Angunarryd, a small town in the Småland province of southern Sweden. Heir to a poor family of farmers, Ingvar was surrounded by financial insecurity and quickly learned the value of money and hard work. 

From an early age, Kamprad exhibited an entrepreneurial spirit. By the time he turned six, he had already started his first business selling matches, buying them on the cheap in Stockholm and selling them at a profit in his hometown. Two years later, he moved into the vehicle business, selling bicycles to his neighbors. As he grew older, his enterprises moved into various different products, ranging from Christmas tree decorations to fish to seeds and beyond. 

When Kamprad turned 17, his father made good on a promise to provide him with money if he succeeded in his schoolwork. He used that money to found what we now know as IKEA.

Kamprad founded IKEA while sitting at his uncle Ernst’s kitchen table in 1943, deriving the name from his own (Ingvar Kamprad), his family farm’s (Elmtaryd), and his hometown’s (Angunarryd). 

ingvar-kamprad

Ingvar Kamprad (source)

At the start, IKEA was not a furniture business. Instead, Kamprad sold small household goods, such as pens and wallets, which customers ordered through a mail-in catalog and would receive via milk truck delivery. This catalog was an essential feature of Kamprad’s business, as his rural location made it difficult to conduct business any other way. 

It wouldn’t be until 1948, five years later, that Kamprad would get into the furniture business and begin shaping IKEA into what we know it as today. 

Necessity breeds innovation

Although many people imagine that businesses always start out with their unique selling propositions fully formed, this could not be further from the truth. IKEA is a perfect example of a company that grew into its own, finding its way not through some clear vision at the outset but through many small “aha” moments that shaped it into its current form. In fact, many of the features that we recognize IKEA by today came completely in response to difficulties — they were creative solutions to the problems Kamprad faced. 

Right out of the gates, IKEA made a name for itself as a retailer with extremely low prices.  In 1951, it launched its first catalog, which offered low-cost, chic, and stylish furniture with the convenience of mail-order shopping.

Ikea 1951 catalog

IKEA’s first catalog (source)

As appealing as budget-friendly options may be, they also raised concerns: customers simply couldn’t believe that quality furniture could be had at such a bargain. As a result, they began to worry about IKEA’s quality. 

To solve this, Kamprad came up with a solution: set up a showroom. Now, customers could come into his store, look at the furniture themselves, and walk away with it. Problem solved. 

But this wasn’t the end of IKEA’s pricing struggles. Although the consumers had been pacified, the producers were still unhappy — but for an entirely different reason. In 1955, the producers that IKEA used started boycotting the business, claiming the prices were too low.  Instead of viewing this as an insurmountable problem, Kamprad took it as an opportunity to bring manufacturing in-house.

The last major innovation came as a bit of a happy accident one year later in 1956. One day, as Kamprad watched an employee load up a customer’s table into their car, he noticed something interesting: the employee had removed the table’s legs to help it fit. 

Then it hit him: if Kamprad sold his furniture disassembled, he could fit more of it into a single truckload, thus saving money on shipping costs. Instead of trying to fit fully-assembled tables together, leaving tons of empty space in the truck, he could pack everything flat. 

This “aha” moment gave IKEA what is perhaps its most recognizable feature — it became a retailer of furniture that required assembly at home, thus making it cheaper, easier to carry out of the store, more efficient for delivery, and rather fun to set up.  Although flatpack furniture already existed, it wasn’t yet popular in Sweden. This observation showed Kamprad an untapped market opportunity. 

By the time IKEA had pivoted to flat-packing, it had achieved several milestones: it now manufactured all its own products, it ran its own showrooms, and it provided high-quality, low-cost products that appealed to young people. At this point, IKEA had stepped into its modern skin. 

Key takeaway #1: limitations boost creativity

IKEA didn’t emerge from Kamprad’s kitchen as a fully-formed entity. Quite the opposite: the first thirteen years of operations were an experimental period during which Kamprad sought out solutions to the problems that confronted him.

IKEA’s development wasn’t visionary but reactionary. Although Kamprad always envisioned IKEA as a company that sold high-quality, low-priced products with mass appeal, it was the sum of Kamprad’s clever solutions over time, such as shipping disassembled furniture to save on packing space, that shaped IKEA into what it is today. 

All great businesses are essentially solutions to difficult problems. When faced with a seemingly intractable issue, business leaders should view it as an opportunity for growth, not as a disruption to their normal operations. For all you know, that nagging problem could be what turns you into the world’s next IKEA.

IKEA goes global

From the beginning, international expansion has been a cornerstone of IKEA’s growth strategy. And if you think about it for a minute, it makes a lot of sense: Sweden is a small country with a population of only 10 million. That imposes a pretty low ceiling as far as business growth is concerned. 

Ingvar Kamprad knew that if he wanted to grow his company, he would need to go beyond Sweden’s borders. But unlike many other brands (Walmart and Home Depot, to name a few), he actually succeeded in his internationalization project. In 2018, IKEA had company-owned stores in 24 countries and franchises in many more. Currently, there are over 50 IKEA locations around the world, and the company is continuing to expand. 

Let’s take a look at what made IKEA’s globalization so successful.

Patience is a virtue: starting local

At the start, IKEA threaded lightly. Although international expansion was clearly a goal from the start, as indicated by Kamprad’s maxim “it is our duty to expand,” IKEA didn’t come out with guns blazing. Its first expansion efforts were within markets it already fully understood: its neighboring Scandinavian countries. 

The first international IKEA branches were in Norway (1963) and Denmark (1969). Just going by the dates alone, it’s clear that this was by no means a rapid expansion. Kamprad took things slow, making sure to firmly establish his business in the local market. 

By 1973, Kamprad was positioned well: he had opened up stores in all three Scandinavian countries, and he had captured 15% of the Swedish market share. He was ready for his next step. 

Going continental

In 1973, Kamprad decided to take IKEA beyond the borders of snowy Scandinavia and into the broader international market. 

At the time, the German-speaking countries had the largest furniture markets. And beyond that, they were fragmented: 67% of furniture companies had fewer than three employees and were in expensive locations, meaning that there was a gap in the market for non-boutique, affordable furniture. Kamprad believed that “if it works in Switzerland, it’ll work anywhere,” and chose the quiet country as his next stop on the continent.

Kamprad selected a small suburb outside of Zurich, called Spreitenbach, as his entry point. This small area accounted for 20% of the consumer purchasing power, so was a logical choice. To promote the new store, he circulated 500,000 catalogs filled with off-beat advertising. Within a year, he had 650,000 visitors. The store was a smashing success. 

A year later, Kamprad opened a store in Munich, West Germany, that attracted 37,000 visitors in just the first three days. Over the next five years, IKEA conquered a 50% share in the German cash-and-carry market. To this day, IKEAs biggest market is Germany, where it has 53 stores. 

Although there was opposition from more traditional furniture retailers (and even some court-mandated penalties), by this point it was becoming clear to everyone in the industry that IKEA had something special. The model was here to stay, and competitors needed to start taking notes. 

Learning from your mistakes: IKEA's "secret' formula

From 1973 onwards, IKEA began to expand at a much more rapid pace. But it hit a snag: in 1974, IKEA entered the Japanese market. Although it stayed around for 12 years before closing down, the entry was ultimately a failure. 

What went wrong? At the time, IKEA thought it could export its current business model wholesale without making any changes to fit the culture it was expanding into. Japan had a very service-oriented culture, and the people didn’t take well to the do-it-yourself attitude that IKEA was offering. But IKEA was also not a fit with the Japanese market on a much more literal level: its products simply weren’t compatible with the size of the average Japanese home. 

Luckily, IKEA was able to learn from its mistakes. After its Japanese fiasco, the company began tailoring its expansions to the market much more thoroughly. In its 1985 US expansion, for example, it ensured that its products matched up with the sizes that Americans would expect. In its recent 2018 entry into the Indian market, it made sure to set up customer service booths, where employees can help customers build their products — an important feature given that India, like Japan, does not have a strong DIY culture. 

In an almost literary redemption story, IKEA re-entered the Japanese market in 2006. Its newer stores implemented features that meshed better with Japanese culture, such as assembly assistance, delivery, and of course: products that were hand-selected to fit Japanese homes.

By all measures, IKEA’s return to Japan was a success (as of 2020, there were nine stores across the country) and gives clear proof that not only has the company learned from its mistakes, but it has developed a truly mature expansion strategy. 

Key takeaway #2: learn from your mistakes and the customer is always right

Some of IKEA’s initial expansion efforts failed because the company was a bit stubborn — Kamprad believed that what worked in Europe should translate directly into every market.

This was a huge mistake. Within twelve years, IKEA’s first expansion into a non-European market had failed. But this failure wasn’t without its lessons. 

Japan taught Kamprad that his products needed to fit the customer, not the other way around. While he didn’t upend IKEA entirely to fit into new markets, he did make small but necessary changes that would help the stores integrate better into different cultures. 

On a conceptual level, business leaders should realize that every mistake is a learning opportunity. Although Japan started out as a failure, without this mistake under Kamprad’s belt, he likely wouldn’t have been able to catch his missteps, and he may never have learned how to successfully expand into foreign markets. 

On a more concrete level, the key takeaway here is that the same market entry strategy won’t work across the board. 

Standing out from the crowd

There are a lot of reasons why IKEA was able to make the global impact that it has — a talented founder at the helm, a successful market entry strategy, and an ingenious business model are just a few. 

But there’s something else that has helped IKEA climb the ranks and become one of Sweden’s largest cultural and business exports: differentiation. IKEA’s differentiation strategy can be divided into three prongs: 

  1. Swedish Design and Influence
  2. Cost leadership
  3. Unique experience

The sum of these three parts is a company that offers a unique and appealing product at a low cost and with a unique shopping and assembly experience. Let’s take a look at how IKEA was able to build a name for itself and stand out from the crowd. 

Swedish design

Today, Swedish design has become synonymous with sleek, minimalist, and aesthetically appealing furniture and interiors. Of course, IKEA didn’t invent the style itself —  its pioneers were the likes of Bruno Mathsson and Astrid Sampe. But even though Ingvar Kamprad wasn’t the mastermind behind Swedish design, it’s undeniable that his company helped bring the style to a worldwide audience. 

However, like most parts of IKEA’s development, its design language didn’t come out of the womb fully formed. In the early days, IKEA’s furniture offerings were fairly conventional — a far cry from the eccentric shapes and unusual colors it would later employ. At that time, IKEA differentiated itself primarily from a cost leadership and convenience standpoint. 

That said, even in 1954, the beginnings of IKEA’s signature designs were taking form. That year, the Lovet table,  one of IKEA’s most well-known designs, was introduced. The wood table was crafted to look like a leaf, giving it an eye-catching and aesthetically pleasing appeal. It also happened to be the first of IKEA’s flatpack offerings. 

IKEA coffee table

Ikea Lovet table (source)

By the 1970s, IKEA had truly entered its own, offering furniture that looked unlike almost anything on the market — at least at the same price point. Many of the pieces released during that time are still popular today, such as the classic Poäng chair. 

Swedish flair

But looking at the design of the furniture itself doesn’t tell the whole story. IKEA built up a brand aesthetic that exudes Swedishness in everything from the names to its logo, which uses the Swedish flag’s colors. 

Take IKEA’s product names as an example. Although the company learned that it needs to alter its catalog a bit for every new market it enters, one thing stays the same in every country: the names. Outside of Scandinavia, practically no one can pronounce them, but that’s part of their appeal — strange and alien-looking names like Poäng, Ektorp, and Famnig are intriguing and stand out from competitor offerings. 

There’s a good reason for those exotic names. Apparently, Kamprad struggled with dyslexia and decided to name the furniture after Swedish towns and villages, humans, and other applicable Swedish names. 

IKEA Sofa Catalog

Ektorp sofa is named after a village just outside Stockholm

IKEA’s shift to Swedish branding evolved as it expanded into foreign markets. This makes sense — the exotic appeal of the Swedish language doesn’t have the same effect in Sweden. This development can be seen especially clearly in its logo design.

Originally, the IKEA logo was quite bland. In 1951, it was nothing but a reddish stamp with the name “ikea” stamped in the middle:

IKEA logo 1951

IKEA logo in 1951 (source)

In 1967, IKEA’s logo almost entered its final form: a circumscribed name in capital letters with a rectangle surrounding it. 

IKEA logo 1967

IKEA logo in 1967 (source)

Finally, in 1983, as IKEA was making significant advantages in its globalization effort and close to opening its first US store, it hit on the right design: the familiar gold and yellow logo.

IKEA logo

IKEA logo in its final form (source)

If you’ve ever seen a Swedish flag, it’s clear where the logo takes its inspiration from. With this move, IKEA made it clear that it was a Swedish company, and that foreign flair helped differentiate it.

IKEA food

But there were still a few final touches that needed to be added. In 1985, when IKEA opened its first US store, it also launched the iconic Swedish meatballs, aka Kottbullär. Although the IKEA restaurant had been a feature of the store from the beginning (Kamprad firmly believed that “it’s tough to do business with hungry stomachs”), it was at this point that the menu took an even more decidedly Swedish turn. 

 

IKEA Kottbullar

IKEA’s world-famous Kottbullär (source)

Swedish food became so important to IKEA’s brand image that nowadays, the last thing you see as you exit the store are bottles of lingonberry jam and Kottbullär available for purchase. 

Cost leadership and the "IKEA effect"

From the very start, IKEA was envisioned as a brand that would provide budget-friendly products to the masses. Although those products changed over time from small household goods to furniture, the mission statement stayed the same. 

In the end, IKEA succeeded in its mission. Today, IKEA is the go-to brand for young people in need of cheap furniture for their first houses and apartments — and frugal people of all ages aren’t shy to walk through IKEA’s doors either. 

Flat-pack and modularity

So, how exactly was IKEA able to keep its costs so low? For the most part, it comes down to IKEA’s reliance on self-assembled and flat-packed products. In the early days, IKEA sold fully-assembled furniture. It wasn’t until 1954 that Kamprad got the idea to pivot to flat-packed goods. 

This change provided several advantages. Obviously, it made shipping and transportation costs lower — with flat-packed goods, more products can be loaded up into a single delivery truck. Along the same lines, it also saved money on the manufacturing end because IKEA could essentially “outsource” the assembly work to its customers. 

But there was another advantage that came from this move: modularity. By requiring customers to assemble their products, IKEA can manufacture modular pieces that fit several different furniture items. This means that production lines can be streamlined and made more efficient. 

Similarly, by removing the assembly from the picture, IKEA also needs to hire fewer service employees, which saves on employee compensation costs. Although IKEA has begun adding more service centers in markets that don’t have a mature DIY culture, these costs are minimal compared to the expense of fully-fledged service initiatives.

The IKEA effect

This unique business model has a surprising and somewhat paradoxical side effect, commonly referred to as the “IKEA Effect,” which allows IKEA to make its products appear more valuable than they are. 

The principle behind the IKEA Effect is simple: people value things that they build themselves more than things that are built for them. There is a certain satisfaction that comes from spending an hour building your own sofa that simply can’t be had if you buy one pre-assembled. Doing the work yourself gives you a better appreciation of the value, and since people tend to think quite highly of their own craftsmanship, they will tend to view the furniture as well-made. 

This helps IKEA with a cost leadership sleight of hand: by asking customers to assemble their own furniture, they can keep their own costs low, while simultaneously making their customers view their products as higher-quality and more valuable. 

IKEA effect

Source

A variety of strong and consistent production relationships

While many low-price retailers attempt to keep production costs low by pitting suppliers against each other and selecting the most competitive price offerings, IKEA takes the opposite approach. Instead of fostering competition among the suppliers it works with, it opts for collaboration. 

IKEA keeps production costs low by signing long-term contracts with its suppliers. The result is that IKEA is able to keep its costs low consistently, instead of constantly scrambling to find the lowest cost supplier. 

The strategy appears to work. IKEA has more than 1,800 suppliers in 50 countries, and it consistently has more than 95% of its inventory in stock. 

Additionally, IKEA does its best to source its wood close to its suppliers in order to keep transportation costs down. For example, in 2018, IKEA bought 25,000 acres of timberland in the US to provide raw materials to its suppliers. This also helps with the company’s sustainability initiatives. 

A unique and cost-saving experience

Although IKEA originally started as a primarily mail-order retailer, the showroom experience has become an integral part of the company’s branding and operations. It’s a devilishly clever strategy because, like the IKEA effect, it keeps business-side costs low while simultaneously providing a high-quality shopping experience to customers. 

If you’ve ever been to an IKEA, you’ll recognize one thing immediately: these stores are big. They are essentially repackaged warehouses. Within the store, customers are presented with realistic representations of how each furniture item might be used in a contemporary living situation. The displays are not sterile lineups — they feel alive, livable, and customers can easily see the functionality of each item.

To make the shopping experience even more pleasant, IKEA provides play areas for children and eating areas for hungry shoppers. The end result is a store that feels homey and comfortable despite the industrial scale. 

Although this may all seem entirely in service of the customer, it also confers several cost-saving benefits to IKEA. 

For one, IKEA specifically places its stores in more domestic areas, where real estate prices are lower and the stores can be more expensive. This saves the company from having to spend top dollar for competitive retail space in a large city. 

Secondly, by making stores so large, they can effectively function as both a warehouse and a showroom. As a result, IKEA can combine warehouse and showroom expenses into one, keeping total costs low. Of course, the fact that IKEA products are flat-packed also means that more products can be stored per warehouse, further reducing storage expenses.

Thirdly, the huge amount of space allows IKEA to present many different design possibilities to customers without the need for large numbers of staff to constantly rearrange furniture for shoppers.  

Overall, the end result is that the unique IKEA showrooms provide customers with an enjoyable shopping experience, all while allowing the company to save on real estate, warehousing, and staffing expenses. 

Key takeaway #3: valuable doesn't mean expensive 

When we think of something valuable, we tend to think of something expensive: gold watches, luxury cars, rare jewelry. But not all value can be measured in dollar bills: to a parent, their child’s drawing could be more valuable than the Mona Lisa. 

IKEA was able to leverage this phenomenon by offering what is essentially “low-cost value” — the type of value that money can’t buy. Thanks to the IKEA effect, customers often find IKEA products to be more valuable to them than other, higher-priced products. Add on a unique experience, filled with memories of eating Swedish meatballs with your family, and you have a value that money can’t touch. 

After all, it’s a part of their vision “To create a better everyday life for the many people.”

Business leaders should follow in IKEA’s footsteps and look for new ways to increase their products’ or services’ worth without raising costs. Sometimes, small changes can lead to big results. 

Understanding IKEA's positioning 

From its humble beginnings in small-town Sweden to its current seat as a major player in the global retail market, IKEA has been nothing short of a Cinderella story. But no business can rest on its laurels — the market is constantly changing, and a single bad move could throw away 80 years of success in a flash. 

That said, the future does look bright for IKEA — even during the pandemic, the company was able to generate almost the same amount of revenue as the previous year (€39.6 billion in FY2020 and €41.3 billion in FY2019). But a few figures don’t tell the full story. To get a better view, let’s dive into a SWOT analysis. 

Strengths 

Market understanding

If there is one thing that IKEA does well, it’s understanding its market and leveraging that understanding to better position itself. From the start, IKEA has had the goal of becoming a company that sold low-priced products that would appeal to mass-market consumers. Today, IKEA has become practically the world leader in budget furniture — it is the first place that the average Joe will go when searching for new furnishings. It is particularly popular amongst young people furnishing their first apartments and houses. 

Throughout its development, IKEA had ample opportunity to stray from this initial vision, but it never has. As a result, it’s carved out an important part of the market that it can expect to hold onto for years to come. 

Affordability 

IKEA doesn’t merely understand what its target market is, it’s able to corner that market. Through the various cost leadership strategies we discussed in Chapter #3, IKEA is able to consistently price its products cheaper than its competitors. In turn, this has made IKEA the go-to brand for budget-friendly furniture. 

Quality and value

Although IKEA surely isn’t top-of-the-line, its products retain a respectable level of quality despite being priced so low. This is largely thanks to IKEA’s strong relationships with its suppliers and the culture of collaboration it fosters with them. 

Any quality deficits that IKEA products may have been made up for by the IKEA Effect, which causes self-assembled products to take on a higher apparent value in the eyes of the builder. 

Unique brand experience

From the unique furniture designs to the use of Swedish names to the beloved in-store restaurants and beyond, IKEA has crafted a brand experience that is unlike any other. In fact, what IKEA has created is so special that in some countries, it’s known as a fun place to go and get a bite to eat than as a place to buy furniture. When you’re able to turn a boring old furniture store into a cool place to hang out with your friends, you know you’ve done something right. 

Brand recognition

Across the world, people instantly recognize the IKEA name and its bold yellow-and-blue logo. Without a doubt, IKEA is a household name, and that level of recognition is rare. To put things into more quantifiable terms, in 2020, the IKEA brand was worth almost $18 billion. This level of brand recognition means that IKEA is ingrained in the global culture as the first stop for affordable furniture. 

Optimized and efficient supply chain 

Unlike many companies vying for cost leadership, IKEA refuses to force its suppliers to compete with each other. Instead, it opts for a more collaborative approach, which leads to strong relationships and consistently low pricing in the long term. Additionally, having control of some of the raw material supply chain helps keep IKEA in a strong position.

Weaknesses 

Lower quality than competitors 

IKEA’s products could accurately be described as “good but not great.” Although the company makes products that are at an acceptable and functional standard, they can’t compete with high-end furniture manufacturers and dealers.

However, this weakness is mitigated by the fact that IKEA isn’t trying to compete with luxury furniture providers. Instead, they have focused on cornering the budget market. 

Reliance on third-party manufacturers

Although IKEA has developed strong relationships with its suppliers, the fact that more than 50% of its products are manufactured by third-parties leaves IKEA in a position of serious reliance on other companies. Its long-term and collaborative arrangements help reduce this risk, but it is still a less favorable position to be in than producing everything in house. 

Bad press and dangerous products

Since 2011, five children have been killed by an IKEA product, the Malm dresser, toppling over onto them. The company has agreed to pay settlements of around $50 million to several families of the victims.  

Unsurprisingly, this has led to a public relations nightmare, which could seriously damage IKEA’s reputation. The company has also received bad press for treating its workers poorly.

Few assembled furniture offerings

IKEA is a company that focuses on providing its customer base with cheap, unassembled furniture. While this works well to corner its core market, it does leave other potential markets, like budget pre-assembled furniture, almost completely untapped. 

Managing timberland could distract from the core mission

By leasing its own forest land, IKEA is able to further ensconce itself in its supply chain, which leads to more control, lower prices, and better sustainability initiatives. However, managing and operating timberland is a costly and time-consuming effort, which could ultimately leave IKEA scattered and less focused on its core purpose. 

Opportunities

Gain a greater hold over the developing market

Currently, IKEA is overwhelmingly focused on the developed world. In fact, 90% of its sales are from OECD countries, and 70% are in Europe alone. This leaves large swaths of the developing world practically untouched and represents a sizeable growth opportunity. 

IKEA is cognizant of this and has made moves into the Indian and Chinese markets. If the company continues to direct energy and resources in this direction, it could see a strong ROI.

Make use of e-commerce

Historically, IKEA’s strategy has focused on the in-store experience, which has been a key component of its success. However, as e-commerce becomes a greater part of everyday life, IKEA will need to find a way to effectively digitize and create a similarly enticing brand experience in the digital world. 

IKEA has begun making changes to better position itself in the developing e-commerce landscape. For example, many of its stores now double as fulfillment centers, and the company has made many behind-the-scenes changes to ensure online orders are fulfilled faster. 

Increase particleboard usage

Particleboard is a material that is made by gluing together wood particles. Essentially, particleboard is made from wood, but it is not wood. 

Surprisingly, a single log of wood yields more particleboard than wood, and it’s also lighter. Combined, this means that particleboard makes more efficient use of raw materials and transportation, given that its lower weight allows more particleboard items to be shipped per load. Overall, particleboard is 20% cheaper than wood. 

Currently, IKEA produces 45% of its products with particleboard and 55% with wood. If it raised the percentage of particleboard products, it could save significantly.

Threats

Lawsuits

Earlier, we mentioned that IKEA has been at the butt of several lawsuits relating to the death of children that its products purportedly caused. Although the settlement amounts are drops in a bucket for a company of IKEA’s size, they do represent a threat if they increase in number or if the bad PR severely damages the company’s reputation. 

Possible recessions

Analysts have been predicting a recession in the American and European markets for years now. Unfortunately, this is also where the bulk of IKEA’s sales and customers come from. Although IKEA is diversifying into other markets, a severe recession in its core markets could theoretically represent an existential threat to the company. 

Following standards in developing markets

IKEA has made it clear that it places an emphasis on sustainability and market expansion. However, in some developing nations, local laws are antithetical to the standards IKEA holds for itself. This leaves the company in a dilemma: it must either adapt to the lower sustainability standards of these countries or delay its market expansion. Slowing down on either one of these could threaten IKEA’s current branding and positioning. 

Key takeaway #4: Ecommerce and the developing world present the largest opportunities 

It should come as no surprise that two areas that are growing rapidly, the developing world and e-commerce, represent some of the biggest growth opportunities for IKEA. Indeed, despite IKEA’s position as a global leader in the furniture space, failure to invest in these areas could spell trouble for the brand. 

Steps towards sustainability

As we stand face to face with an unprecedented climate crisis, businesses are seeking new avenues for sustainable growth. IKEA has fully embraced this new business paradigm and is making great strides in its effort to reduce its carbon footprint and become an all-around eco-friendly company. 

However, IKEA thinks that being sustainable means more than caring for the environment. It’s for this reason that it refers to its sustainability strategy as “People and Planet Positive.” In this strategy, IKEA notes three broad areas that it wants to improve on: 

  1. Healthy and sustainable living
  2. Circular and climate positive
  3. Fair & equal

Let’s take a look at some of the changes IKEA is implementing to meet this goal. 

Healthy and sustainable living

The first prong of IKEA’s sustainability plan is quite simple: to inspire others to live more happy and fulfilling lives. Overall, this is the vaguest part of its plan, and IKEA itself doesn’t seem to be entirely clear about what its own goals are. For example, IKEA states that “We will, together with others, define what sustainable consumption means for IKEA.”

On a more concrete note, IKEA has been a leader in removing toxic materials from its supply chain. It has been ahead of the curve, removing problematic substances from its products even before they were officially banned.

Circular and climate positive 

IKEA is hoping to go one step beyond becoming a carbon-negative business and actually become a climate-positive business — that means that it’s attempting to not only stop hurting the environment but to benefit it as well. 

To this end, IKEA has made a shift towards more sustainable sources of its raw materials. For example, all its cotton, fish, and seafood currently come from sustainable sources. The company is also trying to source 100% of its wood from sustainable sources. Additionally, it will also promote the reuse of its products to extend their lifetime. 

By 2030, IKEA aims to be a completely circular business. 

Fair and equal

IKEA has received bad press over the years for the way that it treats its workers. Although it is vague about how it hopes to improve, IKEA notes several areas that it is attempting to make changes to. Some of these include gender equality, children’s rights, diversity encouragement, and providing stable and secure employment. 

IKEA overview and ambition

Key takeaway #5: make the world better

IKEA, like all businesses, is up against an unprecedented climate crisis. Beyond that, there are serious social issues that IKEA can sometimes indirectly contribute to. As the world changes, it’s important to remember to change with it — don’t stubbornly take new paradigms as a chance to prove your original view was correct but as an opportunity to find new solutions that ultimately make the world a better place. 

IKEA in the Digital Age

From the start, IKEA has placed a significant focus on showrooms and the in-person experience — in some places, IKEA has become more known for its food than its furniture. But as more and more people move away from brick-and-mortar stores in favor of the e-commerce giants like Amazon, IKEA is put in a tough position. 

Its solution? Find ways to move into the modern age without sacrificing the original IKEA vision. Here are a few ways that the company is doing that. 

Stores double as fulfillment centers

Earlier, we discussed how IKEA is able to maintain cost leadership thanks to its dual-purpose showroom warehouses. Now, these facilities are taking on a third purpose as a fulfillment center. 

Although IKEA has had some degree of e-commerce for quite some time now, the increased popularity of e-commerce along with COVID, which forced IKEA to temporarily close 75% of its stores, has made the company fast track its online experience. These new moonlighting fulfillment centers have played a crucial role in handling the onslaught of online orders.

Teaching an old dog new tricks: integration

IKEA has been making an effort to not only improve its e-commerce presence but to better integrate technology into the shopping experience as a whole. One of the latest additions is “Shop & Go,” a feature in the IKEA mobile app. This lets you scan and pay for items while you shop so that you don’t have to wait in line for checkout.

Ethical data sourcing

Like all modern companies, IKEA’s digital strategy will rely in part on customer data. However, after gaining the market’s trust over approximately 80 years, it doesn’t want to throw that away. For this reason, it introduced the “Customer Data Promise,” which says that people need to come first in all data analytics and data-driven processes.

AR and VR

Although IKEA hasn’t gone too far down the rabbit hole, the company has started implementing XR to help customers visualize objects in their own homes. 

IKEA ar and vr

Placing furniture in your home with the help of XR (source)

Key takeaway #6: keep up with the times

IKEA is a company steeped in tradition — 80 years worth. Perhaps more importantly, during that time, the business has focused almost exclusively on brick-and-mortar selling. Unfortunately, relying entirely on the old way of doing things simply isn’t tenable in this market. Business leaders need to learn to pivot as new technology emerges and integrate it into their strategy.

Finding the right employees and customers

Whether it’s employees or customers, all companies are run by and revolve around people. Finding the right people, however, is what makes or breaks a company. 

Between hiring strong candidates and reaching its target buyer persona, IKEA has succeeded in getting its products in front of the right people. 

IKEA's target buyer personas

Part of IKEA’s success lies in its ability to understand its target market. By getting fully acquainted with its ideal buyer persona, it can make better strategic decisions on all levels. 

So, who is IKEA’s core target market? Well, there are a few. 

To start, IKEA tries to corner young urbanites between the ages of 25 and 35, primarily those that have graduated high school, and are either single and living with a significant other or are married. 

There’s a good reason for this too: nearly 60% of American city dwellers plan to move in the next year. And that means they’ll likely need to buy furniture. 

Additionally, IKEA tends to target renters, not homeowners, as this demographic is more likely trying their best to budget and save up for their future goals, like buying a house, getting married, etc. 

Beyond that, IKEA also tries to get the attention of married couples with children, which is evidenced by the fact that they include playpens for children in the stores. Plus, situating the stores outside cities can make them more appealing to suburbanites. 

IKEA's hiring process

Worldwide, IKEA has over 220,000 employees. To get to that level, IKEA has developed a unique hiring process.

Primarily, IKEA seeks to hire people who are interested in home furnishings, are friendly, and care about providing good customer experiences. It hires primarily during the months between April and August and provides relocation assistance for successful applicants. 

Most of its candidates come from online sources, such as Indeed. However, IKEA has also branched out and partnered with some social media sites and universities to find new candidates. Plus, it has a strong internal referral program. 

In interviews, IKEA hopes to find candidates with some connection to the store, such as having visited one of their outlets or their website. 

IKEA has a strong internship program in logistics, marketing, communications, and interior design. Interns are not only paid but receive college credit as well. 

However, unlike many employers, IKEA doesn’t require that employees hold a formal degree except for specialist positions. That said, experience is still largely required — IKEA does expect some of its employees, such as interior design managers, to be well-versed in home design and retail trends. For other positions, just an interest is enough. 

Key takeaway #7: surround yourself with the right company 

Wise people have said that you’re only as good as the people you surround yourself with. IKEA has taken that to heart. 

For any business to succeed, it’s important to have a robust hiring process that attracts the right candidates and places them in suitable positions. On the consumer side, businesses need to be clear on what type of customers they hope to attract so that they can target their marketing efforts towards them. 

Final thoughts and key takeaways

Over the past 80 years, IKEA has grown from a small mail-order catalog in rural Sweden into one of the world’s largest furniture retailers. In the process, it has become nothing short of a global staple and a cultural icon. 

Recap: growth by the numbers

Year

2020

2015

Availability

59 countries

51 countries

Revenue

39,6 billion USD

32,7 billion USD

Number of employees

220,000

155,000

The ultimate list of strategic takeaways

Strategy must be built on market insights

While Kamprad did have a strong vision of where the company is heading, his strategic steps were based on market evaluation and identified market needs. 

He built the product strategy around the wishes and behaviors of IKEA customers. For example, disassembled furniture was created from observing customers how they struggled with getting furniture into their cars. 

Place customer experience at the heart of your strategy

Unique, home-like layout, delicious meatballs, and play area are only the start of the IKEA experience. 

Customers continue to value IKEA products due to building them at home, associating higher value to them. With this approach, IKEA continues its cost-leadership strategy while ensuring loyalty and high quality of its products. 

Innovation as a part of the strategy

IKEA’s been around for more than 80 years. Sticking to the traditional business model would only take them so far and it’s safe to say that they’d definitely not emerge as market leaders without any innovation and adaptation. 

With their vision in mind, they’ve managed to transform from brick and mortar stores to e-commerce and pick-up points. To support the transformation, they leaned into the latest technology and managed to strategically expand into the digital world.

Sustainable practices for a better world

With great power comes great responsibility… And big brands like IKEA understand the environmental and societal power they have. They have already banned toxic materials from their production, they are striving to become a climate-positive business and to positively impact the whole value chain.  

In the end, it seems that IKEA’s success largely comes from its ability to balance maintaining its core vision with changing to adjust to new market landscapes. At the start, Kamprad envisioned a store that sold products at budget prices for the masses to enjoy. Now, Kamprad has achieved that, but it took several changes along the way, such as pivoting from small goods to furniture, from fully-assembled furniture to flat-pack furniture, and more recently, from brick-and-mortar to e-commerce. 

Following in IKEA’s footsteps, business leaders should fully understand the need to keep your vision intact while still staying flexible enough that you can adjust your strategy to the changing waters of the market.

Please subscribe to continue reading this study

Subscribe to Strategy Factory to see the best strategy content!