Case Analysis IKEA Strategic Management Retail 11111 PDF

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7/13/2019

Case Analysis: IKEA | Strategic Management | Retail

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Background of IKEA IKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories. The company is the world's largest furniture retailer. Founded in 1943 by 17-year-old Ingvar Kamprad in Sweden, the company is named as an acronym comprising the initials of the founder's name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish. IKEA has 300 home furnishing superstores in 35 Countries and was visited by some 583 million shoppers. IKEA’s low priced elegantly designed merchandise displayed in large warehouse stores, generated sales of $21.2 billion in 2008, up from 4.4 billion in 1994. The fledgling company sold fish, charismas magazine, and seeds from his family farm. His first business had been selling matches, the enterprise Kamprad purchased them wholesale in 100 box lots and then resold individually at a higher mark up. Before long, Kamprad had added ballpoint pens to his list and was selling his products via mail order. In 1948, Kamprad added furniture to his product line. In 1949 he published his first catalog. Kamprad hired 22 years old designer, Gillis lundgren originally helped Kamprad to do photo shoot for catalog but, later he became a designer of many furniture for IKEA. Its goal was over time to provide stylish functional design that can be cost effective. Ultimately this led to concept of what IKEA calls “democratic design”. In 1957, IKEA started to exhibit and sell its products at home furnishing fairs in Sweden. By 1958, an expanded facility at the Almhult location became the first IKEA store. The original idea behind the store was to have a location where customer could come and see the IKEA furniture set up. Kamprad experimented with adding restaurant to the store soanthat customers refresh when shopping. restaurant was hit and, it became integral featurecould of all relax IKEAand stores. In 1965, IKEA openedThe its first store in Stockholm. By now, IKEA was generating the equivalent of $ 25 million and had already opened a store in neighboring Norway. IKEA experimented with a self service pick up solution, allowing shoppers to enter the warehouse, load flat packed furniture on to trolleys and then take them through the checkout. It was so popular that soon it became the company norm in all stores. By 1973, IKEA was the largest furniture retailer in Scandinavia with nine stores. The company enjoyed market share of 15% in Sweden. The main in charge of European expansion was Jan Aulino, Kamprad ’s former assistant, who was just 34 years old when the expansion started. IKEA also entered in North America, opening 7 stores in Canada between 1976 and1982 and got success then in 1985 in entered in United States later the company found that its European style offerings did not always resonate with American consumers. IKEA also acquired Britain’s Habitat in t he early 1990s and to run it under the Habitat brand name. In total there were 285 IKEA stores in 36 countries and territories. And important limiting factor on the pace of expansion was building the supply network. Later IKEA opened its store in China. In china store was located near public transportation, and IKEA offers delivery services so that Chinese customers can get their purchase home. The store them salve are large warehouse festooned in the blue and yellow color of the Swedish flag that offers 8000 to 10000 items, from kitchen cabinet to candlesticks. There plenty of parking outside and the stores are located with good access to major roads. The interior of the stores is configured almost like a maze that requires customers to pass through each department to get to the checkout. By 2008, IKEA had 1380

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suppliers in 54 countries. IKEA always maintain a good relation with its suppliers and insist them to buy new technology so that the production cost could decline. In common with some other retailers, IKEA has launched a loyalty card in its stores in Sweden, Denmark, Finland, Turkey, the UK, Australia, Netherlands, Belgium, Germany, Austria, Russia, China, Japan, Switzerland, Czech Republic, Slovakia, Ireland, Poland, Italy, Hungary, France, Dominican Republic, Portugal and Spain called "IKEA Family." The distinctive orange card is free of charge and can be used to obtain discounts on a special range of products found in each IKEA store. In particular, it gives 25% off the price of commissioned ranges of IKEA products on presentation of the card. The card also gives discounts on food purchased in the restaurant and the Swedish Food Market. In the Netherlands, Australia, Denmark, Finland, Germany, Austria, Russia, Japan, UK, Switzerland, Slovakia, Czech Republic, Italy and Poland it also entitles the holder to free coffee in the restaurant. In Spain, France, Hungary, Czech Republic, Belgium, https://www.scribd.com/doc/59951004/Case-Analysis-IKEA

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Ireland and Poland, this offer is only available on working days. Despite its Swedish roots, IKEA is owned and operated by a complicated array of not-for-profit and for-profit corporations. The corporate structure is divided into two main parts: operations and franchising. Most of IKEA's operations, including the management of the majority of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company. Of the IKEA stores in 36 countries, 235 are run by the INGKA Holding. The remaining 30 stores are run by franchisees outside of the INGKA Holding. INGKA Holding is not an independent company, but is wholly owned by the Stichting Ingka Foundation, which Kamprad established in 1982 in the Netherlands as a tax-exempt, not-for-profit foundation. The Ingka Foundation is controlled by a five-member executive committee that is chaired by Kamprad and includes his wife and attorney. While most IKEA stores operate under the direct purview of Ingka Holding and the Ingka Foundation, the IKEA trademark and concept is owned by an entirely separate Dutch company, Inter IKEA Systems . Every IKEA store, including those run by Ingka Holding, pays a franchise fee of 3% of the revenue to Inter IKEA Systems. The ownership of Inter IKEA Systems is exceedingly complicated and, ultimately, uncertain. Inter IKEA Systems is owned by Inter IKEA Holding, a company registered in Luxembourg. Inter IKEA Holding, in turn, belongs to an identically named company in the former Netherlands Antilles that is run by a trust company based in Curaçao. In 2009, the company in Curaçao was liquidated. The company responsible for this liquidation traces back to the Interogo Foundation in LiechtensteinIngvarKamprad has confirmed that this foundation owns Inter IKEA Holding S.A. in Luxembourg and is controlled by the Kamprad family. In 1986, Kamprad gave up day to day control to Andres Moberg, a 36 year old Swedish who had dropped out of college to join IKEA’s mail order department. Despite relinquishing management control, Kamprad continued to exert influence over the company as an advisor to senior management and as an ambassador for IKEA.

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External Analysis PESTEL Analysis

Political factors

There are no data about the political influence over the industry. Though it is anticipated that the organizations are heavily supervised by the government. There are many departments involved in the process of controlling and managing the corporations. The political situation is stable and the political parties respect the agreements made between the MNCs and the government This https://www.scribd.com/doc/59951004/Case-Analysis-IKEA

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Case Analysis: IKEA | Strategic Management | Retail the political parties respect the agreements made between the MNCs and the government. This ensures a healthy business environment.

In Poland after the fall of communist government the political situation changed drastically. The relationship between the supplier and IKEA deteriorated as the suppliers tried to raise price, tore up contracts and denominated new technologies provided by IKEA. Economical Factors

The financial recession is clearly the greatest economic factor for IKEA. As mentioned in the New York Times the recession of 2008 was not getting any better.

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Moreover IKEA was unable to understand the effect of floating rate of currency cross-countries. As the Swedish Kronors was getting strong against US dollar the importing cost of raw materials from Sweden was getting more expensive. Social factors

The cultural differences of Europe/Scandinavia and USA may play a significant role on the business strategy of IKEA. As the Scandinavians emphasis on the design and the perfection of the products, on the other hand the Americans emphasize on the functional ability of the product. People in all the countries tend to inherit furniture from their forefathers. Furniture may last for generations. This practice is more common in Sweden. In USA this culture has been changing recently. Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Technological factors include R&D activity, automation, technology incentives, and rate of technological change. IKEA developed some unique features in the furniture industry like self-assembly. This feature enabled IKEA to ship its products in flat-packs reducing the damage while transporting.

Porter’s Five Forces Analysis

Threats of new intrants

Burgaining power of buyers

Competitive rivalry within industry

Burgaining power of suppliers

Threats of substitute products

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Rivalry within the industry

In Sweden there is handful of companies involved in the furniture industry. Moreover there are a lot of retailers in the market. The condition is pretty much same in USA. There are Home Depot, Wal-Mart, Costco and many other small retailers. On top of this many retailers import from china and sell it in the market at low price. This indicates that the competition within the industry is very high. Bargaining power of suppliers

It can be say that the bargaining power of suppliers is low. IKEA has a well-established relation with suppliers all over the world. Till 2008 IKEA has 1380 suppliers in 54 countries 21% of which are in China. Moreover IKEA also own manufacturing company like Swedwood Manufacturer. So it is evident that IKEA can threats the suppliers to enter into their business.

Bargaining power of buyers

There are a lot of retailers who are directly involved in price war against each other. There are importers who are importing from china also in direct competition in the market. So the consumers have many alternatives. They can chose which manufacturers they will buy from. So the bargaining power of buyers is high.

Threats of new entrants

There are no entry barriers in the industry. But the intensity of competition may scare off potential entrants. The required initial investment is not too much. Anyone can open a retail shop with small investments. But if someone wants to become a major player in the industry; than the firm needs to invest a lot of money, need to establish relation with suppliers, select suitable locations for outlets. These will require a lot patience and capital. So it is safe to say that the threats of new entrants are high if competitors want to do business for a long term.

Threats of substitutes

Since the born of civilization men are using furniture. The styles are changing so as the trends. The industry is moving wood to plywood, rot iron even plastics. As the market is becoming more environment concerned many firms are giving slogan to go green. But the basic functional demand has remained the same. So it is safe to say that there are no threats of substitutes.

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Opportunities https://www.scribd.com/doc/59951004/Case-Analysis-IKEA

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Case Analysis: IKEA | Strategic Management | Retail IKEA can expand its product line by producing high end products

Fro m the very beginning IKEA’s target market has been the middle class to lower middle class people. This strategy has been worked for a long time but IKEA never wondered about how farther they can reach. In USA the trend was changing; people were getting thirstier for elegant design. IKEA can develop products that are designed for the high class people who are sensible about the design and quality and do not care about the price. For example Toyota: Lexus.

IKEA can expand its business into interior designing and crockery products

IKEA can expand its core business of furniture to a next level. IKEA can place crockery items with the kitchenware furniture. This way when a customer walks through the kitchenware department he/she will be attracted to these products and may end up buying some.

IKEA can go for environment friendly technology

Customers now a days are now more concerned about the environment than ever. So IKEA can make products that are environment friendly; products that consume less water so the carbon footprint will be at minimum.

Product customization can boost up IKEA’s sales

IKEA can call for idea from its customers. This will definitely bring in some unique idea to the tent. IKEA can initiate a service that will allow customers to order customized products for some extra charges. This will help IKEA to capture the particular segment of the market who loves customization.

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Threats Changing social trend can hinder the growth of sales of IKEA

IKEA’s objective is to provide products to its customers at cheaper rate than the competitors. This objective does not recognize the necessity of a constant development of design and quality. In the pursuit of becoming a cost leader in the market IKEA can lose a major portion of the market that want quality and well designed products.

Accelerated market competition in USA

The furniture market of USA is very fragmented. But there are some well-established retailers who are selling functional furniture at a very low cost for example: Wal-Mart, Office Depot. These retailers will be in direct competition with IKEA. On top of this there are also some high end retailers who sell high-quality, well designed furniture. These high-end retailers often provide additional services like interior designing, home delivery and free set-up.

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Case Analysis: IKEA | Strategic Management | Retail The risk of global financial crisis

The global is under a constant threat of depression since 2007. The whole economy of the world is suffering from a recession since fiscal year 2006-07. This economic condition may affect IKEA. Since the purchasing power of buyers has gone down they would be reluctant to purchase products that are not vital to them. This can cause a free-fall of sale revenue of IKEA worldwide; especially in USA.

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Internal Analysis IKEA’s low cost

concept keeps it ahead of its competitors.

IKEA is the cost leader in the furniture industry. A living room furnished with IKEA products is as much as 65% less expensive than one furnished with equivalent products from other stores. Its target market are the young married couples, college students, 20 to 30-something singles and middle class families who are basically price sensitive customers. So, if they can get furniture at a much lower price, of course the will opt for that. Thus, this concept gives IKEA its biggest competitive advantage keeping it ahead of its competitors. IKEA has successfully combined low cost with good quality.

Generally people have an idea that price and quality are directly related as in, higher the price better is the and lower the price Not loweronly is the However, successfully changed thisquality idea related to furniture. is quality. its furniture muchIKEA lowerhas priced than its competitors, they also have great quality. It has productively combined low cost with good quality. Its “democratic designs” which balances function, quality, design and price gives IKEA the competitive edge. IKEA’s research and development team finds ways to alter designs to save on manufacturing costs.

Starting with the designer Gillis Lundgren, IKEA’s research and development team always finds

ways to alter designs to save on manufacturing costs. The goal of the research and development team is to come up with stylish functional designs with minimalist lines that can be costefficiently manufactured. This keeps the cost down and allows for the prices to be much lower than that of the competitors. A key feature of IKEA furniture is self-assembly.

A key feature of IKEA furniture is self-assembly. This proves to be a very efficient concept for both the parties – IKEA as well as its customers. The furniture pieces are taken off and flat packed and then assembled by the customers at their homes. It reduces IKEA transport and warehouse costs as well as saves additional hassles related to transporting a big piece of https://www.scribd.com/doc/59951004/Case-Analysis-IKEA

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furniture, and the customers are also willing to take on the task of assembly in return for lower prices. Due to this, the furniture are always readily available which means the customers do not have to wait 2/3 days after purchase for their furniture. This is a breath of fresh air for the customers.

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IKEA uses cheap labor which keeps its costs down and gives them a competitive advantage.

Starting from the days when it discovered that furniture manufactured in Poland was as much as 50% cheaper than furniture made in Sweden, IKEA has started looking for cheap labor. It top five supplying countries are China (21% of supplies), Poland (17%), Italy (8%), Sweden (6%) and Germany (6%). China, as everyone knows, provides really cheap labor so IKEA gets its largest chunk of furniture manufactured from there. Cheap labor keeps the costs down and allow them to charge customers low price and helps IKEA sustain its competitive advantage

Its strong long-term relationship with its suppliers gives it a competitive edge.

IKEA has built a strong long-term relationship with its suppliers over the years. The relationship that IKEA established with the Poles has become the archetype for relationship with suppliers. This is one of their biggest strengths. A strong relationship established with the suppliers provides a very smooth supply chain which saves IKEA from quite a lot of additional costs and hassles. Due to this strong relationship IKEA can put in a lot of additional advice regarding production. It is widely seen that companies have always been benefited by a strong long-term relationship with their suppliers.

IKEA has the ability to adapt its tactics a...