|Industry||Retail Trade & Specialty Store – Furniture|
|Employee||172,000 as of August 31st, 2015|
|Competitors:||Magick Woods Exports Pvt Ltd., Trevisana Kitchens & Interior, Dassbach Kuchen Werksverkauf, Bald Group BV, JKE Design A/S|
IKEA AB is a private company that manufactures and sells furniture. The company offers furniture and kitchen appliances, lighting, textile, carpets, decoration, and other things. IKEA has 346 stores in 43 countries in Europe, North America, Australia, and Asia, as of 2013. Ikea has about 9,500 products in its portfolio, and approximately two-thirds of its production is in Europe. IKEA’s vision is “To create a better everyday life for the many people” and its business idea 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.” Founded in 1943 by Ingvar Kamprad, the name IKEA is the initials of his name and the village that he grew up in, Elmtaryd, Agunnaryd. The company started out selling furniture through mail-order and grew to more than a dozen stores throughout Europe by 1974. Let’s dive in the swot analysis of the company.
IKEA STRENGTHS 2020
- Good quality, affordable products with modern Scandinavian designs through efficient designing processes. IKEA embraces a concept called “democratic design” that made up of five elements: form, function, quality, sustainability, and low price. Every IKEA product is designed and produced around that concept, therefore its designers have to find the balance of those elements when the design process begins. Unlike many designing processes where ideas are allowed to flow widely during brainstorming, designers at IKEA have to incorporate feasibility in a very early stage of the process by working with suppliers, technicians, manufacturers. By doing so, IKEA can keep the price low and find the latest technology to create products in the IKEA way. IKEA’s effort to reduce cost has allowed it to pass it on to consumers in terms of lower prices every year since 2000. For quality insurance, IKEA tests its products in their development stage by simulating the stress that furniture may endure at homes. The company has two test labs in Sweden and China where they also act as training grounds for employees.
- World-class supply chain management. IKEA seeks to source its wood close to its markets to reduce transportation costs. In some markets, such as Russia, IKEA leases forest land and has its employees directly manage the timberland. By 2013, IKEA was sourcing 20% of its wood from the leased forest in Russia. The company also partners up with a Russian-Chinese joint venture that was formed exclusively to meet IKEA’s specifications on wood supply for the Chinese market. By backward integrating its supply chain, IKEA can efficiently control it in terms of cost, quality, and quantity. The company managed 1,046 home furnishing suppliers in 52 countries, and its wholly-owned factories manufactured 25% of its own particleboard and 15% of its furniture, and there was a plan to expand its manufacturing capacity to 66% in 2013. IKEA delivers more than 50% of its products directly from its suppliers to stores, which helps cut costs. The company distributes its furniture directly to consumers through its website and a network of 345 gigantic stores worldwide, in which IKEA owns and operates 303 stores, the rest are franchising. Most of the company’s furniture is sold in unassembled flat packaging to further optimize transportation costs for IKEA and consumers.
- Very strong culture on Sustainability. Being the largest wood consumer in the world, IKEA will be in the crossfire of government, environmental activists, and consumers if it does not have a sustainable way to source its raw material. The company has a strategy that seeks to transform the whole value chain to minimize the use of raw materials, select sustainably sourced material to reduce environmental impact, improve efficiency in production, and logistics.
IKEA WEAKNESSES 2020
- Heavily relies on third-party manufacturers for its product. Even though IKEA has a plan to expand its own factory-manufacturing capacity, more than 50% of its furniture is produced by third party manufacturers. IKEA has less control over the production process, thus cost per unit might not be as optimized as if the company manufactures the products themselves.
- Unassembled furniture might not be appealing for certain consumers. Not every consumer is handy enough to assemble a piece of furniture, such as a bed frame or shelve, nor having proper assembly tools to do the task. Moreover, bulkier furniture, even unassembled, needs more than one person to move them around, making IKEA products unattractive to certain groups of customers.
- Leasing forest land could be costly to operate. While there are many advantages to lease land for timber forests, this method is associated with high fixed costs of leaseholds. In addition, IKEA’s management has to develop forestry planning to effectively managing timberland, which can lead to IKEA being a wood trader and distract its main intention.
IKEA OPPORTUNITIES 2020
- Expand in the developing market. 90% of IKEA sales are from OECD countries, and 70% in Europe. According to company data and Euromonitor Report “Passport: Company Profile on IKEA Group”, China, India, and other developing countries in Asia and South America are the most rapidly growing new markets for IKEA. Therefore, the company should concentrate its resource and open new stores in those markets to diversify its revenue and income away from a sluggish European economy.
- Use more particleboard in place of solid wood to further reduce manufacturing and transportation cost. Particleboard is made from wood particles or fibers bonded by glue, often topped with wood veneer. In 2013, particleboard and solid wood represented 45% and 55%, respectively, of all wood sources by IKEA. IKEA representative stated that more particleboard than solid wood a log of wood can yield, therefore increase the use of particleboard in furniture can reduce wasted raw material. Moreover, products that use particleboard are lighter to transport, thus a truckload could take on more products each trip. A product made from particleboard, in general, is 20% cheaper than that made out of solid wood.
IKEA Threats 2020
- Anticipated recession in two major markets, Europe and North America, will impede sales in the near future. European economy, for a few years now, has been struggled to grow to pass 2% annually, and economists predicted that the situation could last for another year, minimum. North America market has recently entered a recession and it will take some time for the economy to recover. IKEA’s revenue will face a strong headwind if the company does not diversify its customer base to somewhere else.
- Locating sustainable wood sources and recycling wood in emerging markets could pose a big challenge. Since countries such as Russia and China do not have standards to sustainably harvest wood in place, and in some cases, current legislations are the opposite of conventional sustainability standards, it may be costly for IKEA to follow its own standards. For example, IKEA has to ship wood from Russia to China because of wood shortage and the sources in China are not sustainable. Furthermore, in many regions, there is no incentive or facility to recycle used wood, thus old furniture will just end up in landfills. If IKEA wants to follow its recycling policy, the company has to collect and recycle the wood themselves, which could add more expenses to its financial statement.
SWOT Analysis of IKEA Conclusion 2020
IKEA has an ambitious growth plan of doubling its sales to EUR 50 billion by 2020. So far, the company has taken solid steps to achieve its plan, including expansion in new markets and optimizing its supply chain to minimize cost while sticking to its core principle of manufacturing and selling affordable, well-designed Scandinavian furniture. Nevertheless, as world economies enter a new recession, IKEA must come up with another plan to survive this turbulent time and come out stronger than its competitors. You can find a blank SWOT pdf template here.
Euromonitor. (n.d.). Passport: Company Profile on IKEA Group. Euromonitor.
FactSet. (n.d.). IKEA AB Company Overview.
IKEA Group. (n.d.). COMPANY INFORMATION. Retrieved from IKEA Group: https://www.ikea.com/ms/fr_MA/about-the-ikea-group/company-information/
IKEA Group. (n.d.). Democratic Design. Retrieved from IKEA Group: https://www.ikea.com/ms/fr_MA/about-the-ikea-group/democratic-design/#working-with-suppliers
V. Kasturi Rangan, M. T. (2015). Sustainability at IKEA Group. Cambridge: Harvard Business School.