IKEA: how the S became a global cult brand wedish retailer A hybrid strategy (ooint 3 on the strategy clock ~ Exhibit 6.2) can be very successful and atticut for competitors to imitate. However, there Is @ danger that the organisation can dhift into a ‘stuck in the mica position - being ‘out-flanked!” by both low-priced and differentiating competitors at the same time, Since IKEA began in 1943 it has grown into fa successful global network of stores with its unique retailing concept. An article in Business Week discussed the concept ‘the Tkea concept has plenty of room to nun: The relailer accounts for just $-10% of the farniture matket in eaca country in whieh operates, More important, says CEO Ande: Dablvig, is that ‘awareness of our brand is mmch bigger than the size of our company.” ‘That's because Ikea is far more than a furniture merchant. Tt sells a lifestyle that customers around the world embrace as a signal that they've arrived, that they have ‘good taste and recognize value. ‘It wasn't f Ikea,’ writes British design magazine Icon, people would have no access 10 affordable con- temporary design.’ The magazine even voted Ikea's founder Imgyar Kamprad the most influential tastemaker in the world today. ‘As long as consumers from Moscow to Beijing and beyond Keep striving to enter the middle class, there will be @ need for Ikea, Think about it What mass-market retailer has had more suecess globally? Not Wal-Mart Stores Inc. (WMT), which despite vast strengths has stumbled in Brazil, Germany, and Japan, Not Prance's Carrefour, which has never made it in the U.S, Thea has had its slip-ups, too. But right now its 226 stores in Europe, Asia, Australia, and the U.S. are thriving, hosting 410 million shoppers a year, The emotional response is unparalleled, The promise of store vouchers for the first 50 shoppers dzew thousands to an Thea store in the Saudi Arabian city of Jeddah in September, 2004, In the ensuing melee, two people died and 16 were injured, A Febraary 2005 opening in London attracted up 0 6,000 petore police were called in. Such buzz has Kept Tkea’s sales growing at healthy clip: For the fiscal year ended 31 August 2005 revenues rose 15%, to $17.7bn (=€14.2b}. And althorgh privately held Tkea guards prosit figures as jealously as its recipe for Swedish meatballs, analyst Mattias Karllgell of Stockholm’s ABG Sundal Collier conservatively estimates Tkea's pre-tax operating profits at $1.7bn (€1.36bn). Tkea maintains these profits even while it cuts prices steadily. Tkea's 02¢r ating margins of approximately 10% are among “This is en abridged version of an alee from Busingss Week oni (N. Arnorcan edition} 14 November (2005)Aiticult for he mick 2 wppers wwabian nsuing red. A up to pata August And nalyst vollier “ating these oper: 3 the warns IKEA: KOW 1 best in Home furnishing,’ Karlljel! says. They also compare well with margins of 5% at Pler 1 haports and 7.7% at Tenget, both competitors of Ikea in the US To keep growing at that pace, Tkea is accelerating store rollouts. Nineteen new outlets are set to open worldwide in the fiscal year ending Aug. 31, 2006, at 2 ost of $66m per store, on average. CEO Dahli is een to boost Tkea’s profile in three of its fastest. growing markets: the T.S,, Russla (Ikea is already a huge hit in Moscow), and China (now wozth $120m in sales). In the U.S. he figures the field is wide open: ‘We have 25 stores in a market the size of Burope, where we have more than 160 stores.’ The goal is 50S. outlets by 2010; Five are opening this year, up from just one in, 2000, ‘The Key to these rollouts is to preserve the strong enthusiasm Tkea evokes, an enthusiasm that has inspired two case studies ftom Harvard Business School and endless shopper comment on the Net Examples: ‘Tkea makes ine free to become what Iwant to de (from Romania). Or this; Half my house is from Thea ~ and the nearest store is six hours away’ (the US). Or this: “Every time, it's trendy for loss money’ (Germany) What enthrals shoppers and scholars alike is the Store visit ~ a similar experience the world over ‘The bine-and-yellow buildings average 300,000 square feet in size [28,000m"], about equal to five football Selds. The sheer number of items ~ 7,000. from Kitchen cabinets to candlesticks ~ is a decisive advan tage, ‘Others offer affordable furniture,” says Bryan Roberts, research manager at Planet Retail, a con. sultancy in London, “But there's io one else who offers the whole concept in the big shed. ‘The global middle ciass that Ikea targets shares buying habits, he $120 Billy bookease, $13 Lack side fable, and $190 Ivar storage systam are best-sellers worldwide." (WS, prices are used throughout this Story) Spending per customer is even similar According to Tkea, the figure in Russia is $85 per store visit exactly the same as in affluent Sweden Wherever they are, customers tend to think of the store visit as more of an outing than @ chore. That's intentional: As one of the Harvard B-school studies States, Tkea practices a form of ‘gentle coercion’ to Keep you as long as possible. Right at the entrance, for example, you can drop off your kids at the playroom, ‘an amenity that encourages more leisuzely shopping ‘Then, clutching your dog-eared catalog {the print nun for the 2006 edition was 150 million ~ more than the Bible, Ikea claims), you proceed along a masked path through the warren of showsoors, “Because the store is designed as a circie, Lcan sce everything as long a5 1 keep walking in one dicection’ says Kuytyna Gavora, an architect who frequents [kes Ia WEDISH RETAILER BECAME A GLOBAL GULT enAND. Schaumburg, Il, Wide aisles let you inspect merchan- ise without holding up traffic. The furniture itself is arranged in fully accessorized displays, down 10 the picture frames on the nightstand, to inepire cus fomers and get them to spend more. The settings are Se lifelike that one waiter is staging a play at Tea in Renton, Wesh, Along the way, one touch after another seduces the shopper, ftom the paper measuring tapes and pencils to strategically placed bins with items Hike pink plastic watering cans, scented candles, and pichire frames These are things you never Jmew you needed but at Jess than $2 each you load up on them anyway. You Set out to buy a $40 coffee table but end up dropping $500 on everything from storage units to glassware ‘They by this way of making you believe nothing is ‘pensive,’ says Bertille Faroult, a shopper at Ikea on the outskirts of Paris, The bins and shelves constantly hold surprises: Ikea replaces a third of its product line every year Then there's the stop at the restaurant, usvally laced at the center of the store, to provide shoppers & breather and encourage them to keep going You Proceed to the warehouse, where the full genius of founder Kamprad is on display. Nearly all the big items are flat-packed, which not only saves Ikea ail tions in shipping costs roma suppers but also enables shoppers io haul their own stuff home ~ another sav. ‘ng, Finally you have the fun (or agony) of assembling at home, equipped with nothing but an Allen wrench and those cryptic instructions, A vocal minority rails at Tkea for its Jong lines, ‘crowded parking lots, exasperating assembly expect, ences, and furniture that’s hardly but for the ages (the running joke is that Tkea is Swedish for particle board), But the converts outnumber the critics, And for every fat who shops at ikea, there seems to be one working at the store itself The fanaticisin steins from founder Kampred, 79, a figne as important to slobal retailing as Wal-Mart's Sam Walton, Kamprad Started the company in 1943 at the age of 17, sellag ens, Christiaas cards, and seeds fom a shed on his family’s farm in southera Sweden. In 1951, the rst catalog appeared (Kamprad penned all the text himself untit 1963). His credo of creating ‘a better life for many’ is enshrined in his almost evangelical 1976 tract, A Furniture Deater’s Testament. Peppered with folksy tidbits - ‘divide your life into 10-minute Units and sacrifice as few as possible in meaningless activity,’ ‘wasting resources is @ mortal sia’ (that’s for sure: employees are the catalog models), or the more Pevealing ‘itis our duty to expand’ - the pamphlet is ‘iven to all employees the day they start Kamprad, though officially retired ig still the ehectleader for the practicos that define lcea culture &eIKEA: HOW THE SWEDISH RETAILER BECAME & GLOBAL CULT BRAND One is egalitarianism. Ikea regularly stages Anti- ‘bureaucracy Weeks, during which executives work on ‘the shop floor or tend the registers, ‘In February,” says CBO Dahlvig, I was unloading trucks and selling beds and mattresses.’ Another is a steely competitiveness. You get a sense of that at one of Tkea's main offices, in Helsingborg. Sweden. At the doorway, a massive bulletin board tracks weekly sales growth, names the dest-performing country markets, and identifies 1 best-selling furniture, The other message that comes across lowd and clear: Cut prices, At the far end of the Helsingborg foyer is a row of best-selling Klippan sofas, displaying models from 1999 to 2006 with their euro price tags. In 1999 the Kiippan was $354. In 2006 it will be $202, ‘The montage vividly illustrates Ikea's relentless cost-cutting, The retailer aims to lower prices across us entire offering by an average of 2% to 3% each year, It goes deeper when It wants to hit rivals im certain segments. ‘We look at the competition. take their price, and then slash it in half says Maric McCaslin, manager of Ikea Long Island, in Hicksville, N.Y. It helps that srugality is as deeply ingrained in the comporate DNA as the obsession with cesign, ‘Managers fly economy, even top brass. Steen Kanter who left Ikea in 1994 and now heads his own retail consultancy in Philadelphia, Kanter International, recalls that while flying with Kamprad once, the boss handed him a coupon for a car rental he had ripped ‘out from an in-flight magazine. This cost obsession fuses with the design culture ‘Designing beautifal-but-expensive products is easy,’ says Josephine Rydberg-Dumont, president of Tkea of Sweden. ‘Designing beautiful products that are ‘inexpensive and functional is a huge challenge. No design ~ no matter how inspired - finds its way into the showroom if cannot be made affordable, To achieve that goal, the company’s 12 fwl-time design: ers at Almhult, Sweden, along with 40 freelancers work hand in hand with in-house production teauns to identify the appropriate meterials and least costly suppliers, a trial-and-error process that can take as Jong as three years. Example: For the PS Ellan, a $89.99 dining chair that can rock back on its hind legs without tipping over, designer Caris Martin worked with production staff for a year and a half to adapt a wood-fiber composite, an inexpensive blend of wood ‘hips and plastic resin used in highway noise barriers, for use im furnishings. Martin also ad 4o design the chair to break down into six pieces, so it could be fat-packed and snapped togetier without screws. With a network of 1,300 suppliers sn 53 countries, Ikea works overtime to find the right manufacturer for the right product, It once contracted with ski makers Se a peas armcisry and thas tpped mater ot taro om out durable star Se Swedish design helps Kacy corte dose Trott meg cones only in Die tea leat expensive pigments Ike's conse, txteuds sntuy from ths ceseaare mo Waive sre fs Seared nasal een sel ele fshoned mn sean eee heaood unuremakes prefer eae ood) and a sorage sys mace soe eee mukeaton Ian Ken arowing ate itr average 2010 ea wll nee fo Souretviee a nue ne ts ody. We cat cease by more ena) deer because Supiyis the Dtdentak ear set Danlgren, county amg for uss See ee ‘applic of fished product “Adting fo tho challenge. the supple and design. ers have to customize ome Iker produce oy thon sel beter oca aets nhs tego laste placemats Thea produced fo commanesns the year ofthe roster sld out in jst tree a Jule Desrosiers. the bearoom-line manages at hey of Sweden vated people's houses In he U's, ae Europe to peek imo that Covet lsurse Get ‘Americans prefer Yo. wore mrt cf ine tote, foked, and Tlaliens ike to hang’ The Tent eet t waste tha fetes deeper anvers te Oe The American market pose special challenges for rien beense of the huge diferences lade te Us it's a0 easy to forget to realy af tow people Ue? says tees US. interior denigndcecon Mats Wises, In the spring of 2004 tea reslized i might not be reaching Calforna’s Hispanics. So ts despues fed tho homes of lope sta They soon ent Icy ed set up the raves loplaye al rong tage Hispante fares need ining tables nnd steel ft more than two People, the Swedsh non, Tey prefer bold coer tothe tore subdued Seunnee falete and diplay tony of pierre lta Frames. Mtsson warmed the showrooms els Adding more seating, end throwing’ numero en ames, Tica is particlely concerned about the US, ice tts key fo expansion ~ and since Den came cote bowing "We gt owe dots leased tee ely 1Wo0s because we really dia listen tothe consume says Ranier Slores werent big enovght afer he fulton experience, and miaay were noo locatan Prices were too high: Beds were mrawgred In eet treters not King, queen, and win, Solas werent is Po, Perman key 2 tea gf 50 cent, white. theS Poang smart tenet of 50 cents ite, the 20 Ave For its ad inno. als. The mm birch exterior recycied rage, by material stores a Lennart Iussia is & major design © make 250,000 smorate weeks, at Tea 's. and ag that lothes alt was or US ages for he US, Ie live Sisson not be vealized Targe ‘as that hey worate colors, Tose t0 2 eanly fer the ations. voren't IKek: HOW THE SWEDISH AETAILER BECAME A GLOBAL CULT BRAKD € deep enough, curtains were too short, and Kitchens didn't Ot U.S-size appliances, ‘American customers were buying vases to drink from because the glasses were too small,’ recalls Goran Carstedt, the former head of Ikea North America, who helped engineer a turnaround. Parts of the product line were adapted (no more metric measurements), new and bigger store locations chosen, prices slashed, and service improved. Now U.S. managers are paying close atten tion to the tiniest details. ‘Americans want more com fortable sofas, higher-quality textiles, bigger glasses, more spacious entertainment units’ says Pernille Spiers-Lopez, head of Ikea North America Can the cult keep thriving? Tkea has stumbled badly before. A foray into Japan 30 years ago was @ aisaster (the Japanese wanted high quality and great materials, not low price andl particle board). The com: pany is just now gearing up for a return to Japan next year. Dkea is also seeing more competition than ever: In the U.S,, Target Corp. (IGT) has recruited top designer Thomas O'Brien to develop a range af low- priced furnishings, which ware launched in October 2005, Kmart has been collaborating with Martha Stewart on its own furniture line. An Tkea-like chain called Fly is popular in France. In Japan Nitori Co, has alock on low-cost furniture Perhaps the bigger istue is what happens inside Ikea, ‘The great challenge of any organization as it becomes larger and more diverse is how to keep the core founding values alive,” says Harvard Business School Professor Christopher A Bartlett, author of a 1996 case study. Tkea is stil ran by managers Who were trained and groomed by Kamprad himself ~ and who are personally devoted to the founder. As the direct links with Kamprad disappear, tae culture may start to fade,