Case example IN STARTEGIC MANAGEMENT

The IKEA approach

Kevan Scholes*

On 28 January 2018 The Guardian ¹ newspaper reported the death of lngvar Kamprad, the founder of IKEA, at the age of 91. In the article Neil Saunders, managing director of retail at the analysis firm GlobalData , said:

'Few people can claim to have genuinely revolu tionised retail. lngvar Kamprad did. . . Much of this difference was down to lngvar's Swedish heritage and instincts. It is no exaggeration to say that his innovative approach changed not just the furniture sector, but the way people decorated and led their lives at home.'

By the time of his death IKEA was the world's largest home furnishings company with some 10,000 products in 422 stores in 50 markets. For the year ending 31 August 2018 2

revenue had grown to 38 .8bn (an increase of 4.5 per cent on 2017) and net profits were 1.4bn. The company had 208,000 co-workers (of which 40,000 were in production and dist ribution).³ There were almost 1 billion store visits each year.

IKEA and the home furnishings market

By the late 201Os home furnishings was a huge market worldwide with retail sales almost $US700bn in items such as furniture, household textiles and floor covering s. IKEA sales by region reflected their European heritage with 70 per cent of sales in Europe (including Russia); 19 per cent in North America and 11 per cent in Asia. ⁴

IKEA's competitors

The home furnishings market was highly fragmented with competition occurring locally rather than globally and included competitors of several types :

• Multi-national furniture retailers (like IKEA) all of whom were considerably smaller than IKEA. These included, for example, the Danish company Jysk (turnover ~

3 .4bn).

• Companies specialising in just part of the furniture product range and operating in several countries-such as Poggenpohl from Germany in kit ch ens.

• Multi-branch retail furniture outlets whose sales were mainly in one country, such as DFS in the UK. The USA market was dominated by such players (e.g. Bed, Bath & Beyond Inc. with revenues of some $US12bn).
• Non-specialist companies that carried furniture as part of a wider product range. In the UK Argos (a subsidiary of Sainsbury's) offered some 60,000 general merchan dise products through its network of 800+ stores and online sal es. Together with Habitat (also Sainsbury's) it was number one in UK furniture retailing. General DIY companies such as Kingfisher (through B&Q in the UK and Castorama in France) were attempting to capture more of the bottom end of the furniture market.
• Small and/or specialised retailers and/or manufac turer s. These accounted for the biggest share of the market in Europe.

In 2016 it was estimated that the UK market was about

16 .7bn,⁵ of which IKEA had 1.72bn sha re.

IKEA's approach

IKEA had been founded by lngvar Kamprad in 1943 in the small Swedish town of Almhult and opened its first furniture store in 1958. The company's success had been achieved through the now legendary IKEA business approach- revo lutionary in the furnishing industry of its early years (see Table 1). The guiding business philosophy of Kamprad was that of improving the everyday life of people by making products more affordable. This was achieved by massive (20 per cent+) reductions in sales prices vs. competitors which, in turn, required aggressive reductions in IKEA's costs.

Reasons for success

In his book The !KEA Ed ge⁶ published in 2011 Anders Dahlvig reflected on the reasons for IKEA's success before, during and after his period as CEO (1999-2009). He felt IKEA had five success criteria:

'1. Design, function, and quality at low prices;

2. Unique (Scandinavian) design; 3. Inspiration, ideas, and complete solutions; 4. Everything in one place; 5. "A day out," the shopping experience . . .

' This case was prepared by Kevan Scholes, Emeritus Professo r of Strategic Management at Sh eff ield Business School . It is int end ed as a basis for class discussion and not as an illustr ation of good or bad manage ment practice. Copyright Kevan Scholes 2019. Not to be reproduc ed or quoted without permission .

THE QUESTIONS ARE:

1.What do you learn from the experience of IKEA which could be useful to launching YOUR a new enterprise?

2. Carry out a five forces analysis of the furniture industry" PORTER ". What are the strengths of the five forces and what understanding factors drive them "SWOT"? What is the industry attractiveness in Saudi Arabia?

3. What strategic fundamentals would you consider for a strategic option of IKEA? What alternative strategies do you see for IKEA?

4. To what extent and why might the IKEA resources and capabilities be the basis of sustained competitive advantage?

5. What internationalization drivers do you think were most important for IKEA decision to enter its specific markets?

PLEASE ANSWER ALL 5 QUESTION IN STARTEGIC MANAGEMT WAY ?