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Business Report IKEA v2
Business Report IKEA v2
Business Communication Department of Marketing & Entrepreneurship California State University, East Bay Marketing 3495, Section 3 03/13/2013
IKEA
Organizations Background
Start-up of the organization:
IKEA is a Swedish pronunciation, famous for home products company that designs and sells ready to assemble furnitures, appliances and home accessories.Today, IKEA is one of the world's largest furniture retailer, owning about 301 stores in 37 countries. IKEA is founded at Sweden in 1943 by 17-year-old Ingvar Kamprad. The company's name is an acronym comprising the initials of Ingvar Kamprad (the founder's name), Elmtaryd (the farm where he grew up) and Agunnaryd (his hometown in Smland, South Sweden). Today, the company is known for its modern architectural designs on various types of appliances and furniture, often associated with a simplified eco-friendly interior design.
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Organizations evolution from its founding to where it is now:
The IKEA story begins in 1926, when founder Ingvar Kamprad is born in Smland in southern Sweden. He is raised by Elmtaryd, a farm near the small village of Agunnaryd. Even as a young boy Ingvar knows he wants to develop a business. In 1920s: At the age of five Ingvar Kamprad starts selling matches to his nearby neighbors and by the time he is seven, he starts selling further a field, using his bicycle. He finds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually at a very low price but still make a good profit. From matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens. 1940s-1950s: Ingvar Kamprad is entrepreneurial in developing IKEA into a furniture retailer. This period sees the exploration of furniture design, self-assembly, advertising, the use of a catalog and a showroom to reach many people. 1960s-1970s: In this period, the IKEA concept starts to take shape. New IKEA stores open and hero products are developed such as PONG and BILLY bookcase. It is a time where concept takes shape and is documented in Ingvar Kamprad's. 1980s: IKEA expands dramatically into new markets such as USA, Italy, France and the UK. More IKEA classics arrive such as KLIPPAN, LACK and MOMENT. IKEA begins to take the form of today's modern IKEA. Page 3
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In 2000s: IKEA expands into even more markets such as Japan and Russia. Everything for the bedroom and kitchen is explored and presented in coordinated furnishing solutions. This period also sees the successes of several partnerships regarding social and environmental projects. Current: As of October 2011, IKEA has 332 stores in 38 countries. In the year 2010, it sold about $23.1 billion worth of goods. IKEA contains about 12,000 products. There were over 470 million visitors to the IKEA websites in the year from September 2007 to September 2008.
Industry Information
Current industry environment: Home Durables Industry
IKEA is in the Household Durables industry. Household Durables includes the type of products that are manufactured for last for a long life. These are products that people use in their everyday life and the products are build endure regular usage. Every household has to have at least a few of these products, if not more. Furniture would be the most common object found at home and this falls into the Household Durables industry. IKEA is the biggest player in the furniture industry. It is the worlds largest furniture retailer with more than 301 stores and 30 franchised units.1 according to Forbes. Other products that fall into the same category are appliances and textiles. IKEA has a presence in all of these categories.
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Industry Profile:
The home durables industry is mostly dominated by big players, the primary reason being the barrier of entry. This industry requires huge capital investment. IHS Global Insight Inc., an economic research firm, and the Home Improvement Research Institute (HIRI), an industry trade group; estimate that home improvement was a $263.4 billion industry in 2011. HIRI forecasted that 2012 would see sales of $283 billion in home improvement products. IKEA is right in the middle of this game, its a big opportunity for IKEA.
Industry Trends:
The Home Durables industry has seen a modest growth in 2012. Below is a table showing prominent players in the industry with their 2011 fiscal year revenues. Refer Appendix 1: Figure 1: Year-to-Year Percent change of sales The slump in the housing industry in 2008 led to a 48% sales slump in the home improvement retail industry. This has a direct impact on the home durables industry. Less people building and renovating homes meant less people buying home improvement products. The industry has shown better results in 2011 and 2012 due to consumer confidence and higher prices. Home Depot, a top competitor to IKEA, saw a 29% increase in income in 2010 and 16% in 2011. Furniture Today reported that total retail sales of furniture and bedding grew from $80.1 billion in 2011 to $84.2 billion in 2012, a 5% increase year-over-year. According to the National Retail Federation, a retail trade association, the four-day Thanksgiving holiday weekend in 2012 recorded 12.8% growth in retail sales over the prioryear period, and one-fifth of Black Friday shoppers bought home furnishings or home dcor products. Page 5
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The housing market seen a recovery in during the last quarter of 2012 and is expected to grow in 2013 based on articles published by Furniture Today in December 2012. The number of new house constructions and home prices has been increasing. Improvements in job market and consumer confidence will only push demand for home improvement products. IKEA should expect to compete with retailers who are planning to expand operations and have a well planned inventory to meet the increasing demand. The table below shows the $ sales performance and forecast from 2012 to 2016.
Figure 2: Products Market Forecast The US economy is a key indicator of the sales trend in the household durables industry. The table below reflects IKEAs performance over the past decade and shows a strong co-relation to the US economy.
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Top 2 dominant organizations in the industry 1. Bed Bath & Beyond Inc. 2. Williams-Sonoma
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1. Bed Bath & Beyond Inc
The first store selling specialty linens and bath products was opened by Warren Eisenberg and Leonard Feinstein in 1971 in Springfield, New Jersey. Today its retail store brands also include Christmas Tree Shop, Harmon Health and Beauty, and BuyBuy Baby. [10] History: Bed Bath & Beyond Inc. operates the largest houseware goods specialty stores in the United States. The company has a chain of over 300 stores that sell such domestic merchandise as bed linens, bath accessories, kitchen textiles, cookware, dinnerware, kitchen utensils, small electric appliances, and basic home furnishings. Throughout the company's short history, bigger has proven to be better. In the mid-1980s, Bed Bath & Beyond was a pioneer in the concept of superstores: large, well-stocked specialty shops with prices allegedly comparable to, or lower than, department store sale prices. Some Bed Bath & Beyond stores have over 80,000 square feet--the average is 45,000 square feet--of selling floor and offer more than 300,000 different items, stacked literally from floor to ceiling. The company expanded rapidly in the early 1990s on the strength of the superstore concept. Store count continues to grow at a rapid clip and in 2000, the company recorded its eighth consecutive year of record earnings. The $1.8 billion company has operations throughout the United States and plans to continue opening new stores to support its goal of doubling its earnings every three years.[10] Products and Services Bed Bath & Beyond includes products such as Bath, Bedding, Kitchen, Home dcor and Furniture.[10] Bed Bath and Beyond offers hundreds of products in the following categories. Page 8
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Bedding Bath Kitchen Home Decor Window Treatments Services offered: Shipping services to many items in the store Provides and supports many local events Committed to many social responsibility like Partnered with HealthyWomen.org (formerly the National Womens Health Resource Center) since 2004 Offers local projects to preserve coastal and marine habitats and the life within them Williams-Sonoma, Inc Williams-Sonoma, Inc. is a high-end American consumer retail company that sells kitchenware, furniture and linen, as well as other housewares and home furnishings, along with a variety of specialty foods, soaps and lotions. Its international corporate headquarters is in San Francisco, California, United States.[11] History Williams-Sonoma was founded in 1956 [4] by Charles E. (Chuck) Williams, selling professional and restaurant-quality kitchenware for home use. Chuck Williams was one of the titans of the American food revolution. He had a tough childhood made even more so by the great depression. By the time he was a teenager, he was on his own working his way through high school at a Page 9 Kitchen Electronics Cookware Cutlery Furniture Lighting Fine Dining/Gift ware Table Linens Casual Dining Serve ware Vacuums Utility Rugs Wall Decor Storage Cleaning
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California date farm. During World War II, he repaired war planes in East Africa and India. In 1953, he took his first trip to France. He quickly fell in love with French kitchenware such as copper cookware, and is quoted as saying "I knew this was something that wasn't found in America, but thought people would want." Soon after, he formulated a plan to import French cookware into America. He settled in Sonoma, California in 1947 and taught himself how to build houses before opening his first shop several blocks from the town square. The store quickly became a destination. In 1971, along withand at the suggestion ofregular customer Jackie Mallorca, Williams began publishing a mail order catalog to expand his business beyond the San Francisco Bay Area. By 1972 he was sending out thousands of catalogs, took on partners, borrowed money and opened more stores. Products and Services Williams-Sonoma offers hundreds of products in the following categories. Cookware Cooks' Tools Cutlery Home Keeping Table Top and Bar Furnitures Services includes: Free Shipping for many items Even offers recipes Provides Top 10 for all categories in their website which are collected from customers Separate link for Professional Chefs Page 10 Bake ware Electrics Food Outdoor Serve Ware Grills
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Figure 5: IKEA's main focus Some of the products are shown in table below: Children's IKEA Safety mattresses, changing table ,storage furniture, children's highchairs, baby toys, children's beds, children's mirrors. Cooking Cooking accessories oven ware, knives & chopping boards, mixing & measuring tools, food storage & organizing, dishwashing accessories, Swedish food kitchen textiles, frying pans & woks pots, sauce pans bake ware kitchen utensils. Bathroom storage Beds & mattresses
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Sink cabinets, sinks Faucets, bathroom storage furnitures, bathroom accessories Full, queen and king beds single beds, guest beds & daybeds, bunk beds, headboards mattresses, sofa beds . Chairs Armchairs bar tables & chairs highchairs Junior chairs stackable & folding chairs caf furniture, dining sets, step stools & step ladders, office chairs, upholstered chairs covers, dining chairs stools & benches . Decoration Outdoor plant pots & plants candle holders & candles clocks, frames & pictures, gift wrapping, plant pots & plants vases, bowls & flowers . Lighting Integrated lighting, ceiling lights, children's lighting, work lamps, wall lamps, spotlights LED lights, bathroom lighting, decorative lighting, floor lamps light, bulbs & accessories shades, bases & cords table lamps . Sofas & armchairs Modular sofas, armchairs, chaise lounges, footstools , extra covers fabric sofas leather sofas. Textiles & rugs Baby textiles, children's textiles, kitchen Tables Bar tables & chairs, caf furniture, dining sets, nightstands, dressing tables, dining tables, coffee & side tables Storage furniture Pantry wardrobes, bed storage, headboards, Clothes storage Hooks & hangers, wardrobes, chests of drawers, clothes organizers, clothes storage, systems racks & stands shoe, cabinets shoe, coat & hat racks.
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textiles, curtain rods & rails, shower curtains, bath mats, towels, bedspreads blankets & throws, comforters, pillows ,place mats & dining textiles, curtains & blinds cushions & cushions covers fabrics Some of the services that IKEA provides are: Home delivery service: IKEA charges the same delivery fee regardless of the weight or size of the order. They charge for new products directly to the room of your choice starting at just $59! Kitchen services: IKEA kitchens were designed to be installed by the people, but IKEA knows sometimes a little help makes the process go more smoothly. IKEAs new menu of services gives the flexibility to do as much as little work as customers likes to bring the dream kitchen. Measuring, individual kitchen planning and installation may not be available in all stores. Customers have to get information with local IKEA store for available services. Services includes in restaurants and play areas: Customers are very satisfied with the food provided, especially the meat balls in the IKEA store. IKEA store provides some free food with the purchase of 100 $ or more, which is a good attraction for customers. They provide services of taking care of children while the customers are shopping. nightstands, dressing tables bookcases, cabinets & sideboards, chests of drawers, clothes storage systems ,drawer units, DVD & CD furniture, filing cabinets, shelving units, TV & media furniture, Wall shelves.
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IKEA
IKEA
IKEA has different design lines. Each IKEA factory concentrates in producing one design line. One base raw material and a limited product range. This type of product manufacturing optimizes efficiency and production volume. The Danville facility that opened in 2008 specializes in the manufacture of IKEA's LACK, EXPEDIT and BESTA lightweight panel furniture and storage systems. All panels processing and finishing is done in house, including the construction of the product lines' signature honeycomb panel. IKEAs uses product/price matrix as product strategy to evaluate product lineup. IKEAs product development process starts with product-strategy council which consisted of a group of managers who establish priorities for IKEAs product lineup. Priorities are based on consumer trends. Once a product priority is established, a product developer would set the products target retail price using what the company referred to as the matrix. The matrix consisted of three basic price ranges and four basic styles (see Figure B below). Based on each price range company conducts survey, establishes benchmark, and then sets price lower than competitors. Matrix is used to identify gaps in the companys product line. By plotting the companys current product offerings on the grid and looking for empty spaces, product managers could readily identify market opportunities. Based on target retail price, the company selects manufacturer to produce it.
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Pricing Strategies The founder of IKEA Mr. Ingvar Kamprad started business when he was 17 years old. He came up with idea of building elegant furniture at very low price. To produce furniture at low price Mr. Kamprad came up with idea to preventing retailers and sold products directly to consumers through large ware house and he also changed his furniture designs so that it is easy to assemble and transport.
1. IKEA designers help in cost reduction by recycling left over material to create new
unique product example left over small pieces of wood is used to create photo frames, wall decors etc.
2. IKEAs Flat packing: Smart packing is used to reduce distribution, transportation and
warehouse storage cost. IKEAs flat pack allows seven times as many units transported per shipping container than if the products were assembled. The result is reduced number of freight shipments, emissions and transportations costs.
3. IKEA designers first set price range and work backward to achieve it. Designers look for
car, this helps cut down staff requirements and cost of selling. Placement and distribution strategies IKEA places its stores in the outskirts of major cities but keeps them close to freeways or major road ways, making them accessible both for consumers and receiving their stocks. The other added advantage of keeping stores away from the center of cities is cost, that helps IKEA stay Page 16
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true to its mission of delivering high value at low cost. IKEAs stores have a basic set of core principles that are followed in all their stores internationally. They are layout and design, number of departments, display and color, service levels to name a few key ones. Sticking to these set of common principles helps IKEA to provide a similar shopping experience across all their stores. Promotion strategies: IKEA produces an annual catalogue of its product range; this dominates its in-market communication strategy. It spends 70% of its annual marketing budget to produce 200 million copies of this catalogue in 27 different languages. This booklet, full of pictures of its home furnishing products is a key tool in IKEAs marketing strategy. IKEA employs other tools to capture the season shopping spikes. For example, here in the US, National Retail Federation found that retail stores recorded a 12.8% growth in sales over prior-year period during Thanksgiving holiday weekend in 2012. One in every five Black Friday shoppers bought home furnishings or home dcor products. IKEA offers price discounts and positions its products for seasonal sales by making it more attractive to shoppers. Another example to IKEAs marketing ingenuity was its introduction of vanilla ice-cream to attract thrifty consumers into its stores in china. Heres the extract of the story from Wall Street Journals publication on March 3rd, 2006. When Ian Duffy was first put in charge of IKEAs China stores four years ago, he spent hours at the checkout line observing customers. He didnt see many. Instead, he saw plenty of people crowding the Beijing store for freebies air conditioning, clean toilets and even decorating ideas. Adding insult to injury: shops right outside were offering copies of IKEAs designs at a fraction of the cost. So, to lure shoppers, the Englishman launched what could be the cheapest IKEA non-sale items in the world: a scoop of vanilla ice cream in a cone for 12 cents. Thus
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began IKEAs strategy to beguile the finicky Chinese consumer by slashing prices in China to the lowest in the world the opposite approach of many Western retailers.
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IKEA has made Kamprad one of the world's wealthiest people with a fortune estimated at $18.5bn. But instead of a chauffeur-driven limo, he drives a 10-year-old Volvo and whenever he flies, even long haul, it's in economy. Rather than traveling by taxi, he's even been known to use Stockholm's subway and public buses to take advantage of his pensioner's discount. Mr Kamprad himself - charismatic, self-deprecating, reclusive. It is his ideas and values that have penetrated IKEA to its core. [13] Ingvar Kamprad is no ordinary multi-billionaire. The founder of the IKEA furniture empire travels economy class, drives a 10-year old Volvo and buys his fruit and vegetables in the afternoons, when prices are often cheaper. [13] Ask him about the luxuries in his life and he says: "From time to time, I like to buy a nice shirt and cravat - and eat Swedish fish roe." [13] Best known for his thrift and his spartan lifestyle, he washes plastic cups to recycle them. He has just dumped his long-standing Swedish barber because he found one in Switzerland, where he lives, who charges only SFr14 (6) for a cut. "That's a reasonable amount," he chuckles. His behavior could appear mean but somehow Mr Kamprad manages to carry it off. He has made it part of the IKEA mythology and part of IKEA's covenant with its customers. Our low costs are your low prices, the group implies. And the image of Mr Kamprad carrying his own bags is at one with the IKEA customer who lugs his new shelf units home. [13]. One of Mr Kamprad's characteristics is his obsessive attention to detail. He is a remarkable, self-confessed flawed character whose life and business philosophy is rooted in thrift, hard work and leading by example -- with a heavy dose of humility and simplicity built in.[13] Some of his amazing quotes are [18]
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"It was our duty to expand. Those who cannot or will not join us are to be pitied. What we want to do, we can do and will do, together. A glorious future! Waste of resources is a mortal sin at IKEA. Simplicity and common sense should characterize planning and strategic direction. Pernille Sipers Lopez Ex President, IKEA North America Pernille Spiers-Lopez, a former journalism student, traveling saleswoman and human resources executive, embodies both the rewards and dangers of this idiosyncratic mixture. She is in her mid-40s, married, with two children. After an "epiphany" at a women's conference in 1997 and her appointment as IKEA's head of North American human resources in 1998, Spiers-Lopez began radically changing the company's approach to benefits, corporate culture, chain of command and work/life balance. [14] On top of offering full benefits for domestic partners, in 2002 she initiated full medical and dental benefits for part-time employees working a minimum of 20 hours a week. IKEA only recently began deducting $5 to $ 10 a month from paychecks for individual coverage of full-time workers ancl $140 a month for their families. Part-time workers who work less than 20 hours a week pay $64 to $185. [14] Spiers-Lopez has substantially increased the number of women and minorities in management. Forty-seven percent of the company's 75 top earners are female. The number of women on IKEA North America's 14-member management board has increased from one-Spiers-Eopez-to five, including Brody, IKEA's North America's marketing manager, its head of new business development and the deputy CFO. [14]
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How the organization is structured to accomplish its mission
IKEA is a large formal organization and it is best suited to a hierarchical organizational structure. This is because; there are more employees as it goes downwards from each level. This type of organizational structure has many levels of management. The organizational structure has been structured according to its own function i.e. marketing, finance, human resources and sales. This is known as a functional organization. [16] The hierarchical organizational structure of IKEA is very similar to a tall organization structure. Looking at IKEAs organizational structure, the chain of command shows a clear line for messages within functional departments, so therefore; it leads to good communication. For example, looking at the organizational structure of IKEA, there is a clear communication within a human resources department. The hierarchy that is followed and the value chain as shown below helps to achieve mission of IKEA. [16]
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References:
16. IKEA's organization structure to achieve mission, retrieved from http://www.reocities.com/timessquare/1848/IKEA.html 17. IKEA Group yearly Summary FY12 http://www.IKEA.com/ms/sv_SE/pdf/yearly_summary/ys_welcome_inside_2012.pdf
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IKEA Appendix 1
Figure1: *IKEA is a privately held company, so financial results are not disclosed to public.
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