Strategic Management

Case study & analysis

Introduction:
In this case, I've studied the internationally known home furnishing
retailer, which is (IKEA) the largest furniture retailer in the world. The
purpose of the case study is to analyze the objectives and strategies used by
IKEA, analyze the company financially, SWOT analyzing and discuss major
issue that the company faced.

About:
IKEA is a privately‐held, international home products retailer that sells
flat pack furniture, accessories, and bathroom and kitchen items in their
retail stores around the world. The company, which pioneered flat‐pack
design furniture at affordable prices, is now the world's largest furniture
retailer. IKEA was founded in 1943 by 17‐year‐old Ingvar Kamprad in
Sweden and it is owned by a Dutchregistered foundation controlled by the
Kamprad family.
The company that was originated in Småland, Sweden, distributes its
products through its retail outlets. As of August 2009, the chain has 301
stores in 37 countries, most of them in Europe, North America, Asia and
Australia.

History:
The IKEA Concept began when Ingvar Kamprad, anentrepreneur from the
Småland province in southern Sweden, had an innovative idea. In Småland,
although the soil is thin and poor, the people have a reputation for working
hard, living frugally and making the most out of limited resources. So when
Ingvar started his furniture business in the late 1940s, he applied the lessons
he learned in Småland to the home furnishings market. Ingvar's innovative
idea was to offer home furnishing products of good function and design at
prices much lower than competitors by using simple cost‐cutting solutions
that did not affect the quality of products. Ingvar used every opportunity to
reduce costs, and he scraped and saved in every way possible ‐ except on
ideas and quality. The name IKEA comes from the initials of Ingvar Kamprad,
I and K, plus the first letters of Elmtaryd and Agunnaryd, which are the
names of the farm and village where he grew up.

© 2011 by Osama Albarrak. All rights reserved 2

Vision:
IKEA vision statement is "To create a better everyday life for the many
people."

Mission:
IKEA mission statement 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."

Market positioning:
IKEA market positioning statement is "Your partner in better living. We
do our part, you do yours. Together we save money."

© 2011 by Osama Albarrak. All rights reserved 3

 Objectives of IKEA:

‐ To produce cheap and affordable product for the public/customers.

‐ Better life for those who can't afford expensive products.
‐ Ensure the customer finds what they are looking for in store.
‐ Low prices.

IKEA Organizational chart:

CEO
Micheal ohlsson

CFO Legal Asia pacific Vice President Industry I & D

Soren Hansen Christer Thordson Ian Duffy Hans Gydell Goran Stark

CEO
Micheal ohlsson

Inter IKEA
centre group Managing Director CS Region West Germany North America UK
Richard Vathaire Josephine Rydberg Torbjorn Loof Werner Weber Pernille Lopez Peter Hogsted

© 2011 by Osama Albarrak. All rights reserved 4

IKEA Financial Analysis:
Income Statement

 Net income:
2009 >> 2010: + 154 m €
 Revenue:
2009 >> 2010: + 1693 m €
 Gross profit:
2009 >> 2010: + 1117 m €
(more cost in 2010)

Increase of net income:

 2010: (12) new stores +
investments other stores.
 Sales increase: +2.4%.
 Overall sales: +7.7%.

Balance Sheet ‐ Assets

 Assets:
2009 >> 2010:
37,1 bln € >> 41,3 bln €
(+ 4168 mln €)
 Property, plan and equipment:
2009 >> 2010:
14,2 bln € >> 15,9 bln €
(+ 1776 mln €)
 Cash and securities:
2009 >> 2010: +2621 mln €

Total increase: about 4 bln €

© 2011 by Osama Albarrak. All rights reserved 5

 Balance Sheet – Equity & Liabilities

 Group equity:
2009 >> 2010: + 3066 mln €

More stores = more equity

© 2011 by Osama Albarrak. All rights reserved 6

Financial Analysis:
FY10 was an unpredictable year with the effects of the financial crisis in
2009 still a reality for many of our customers. The conditions in our markets
ranged from favorable to difficult. FY10 turned out to be a very good year
for our retail operations, with growth in most markets, further increasing
our market shares.
Increasing sales, gross margin and improvements in the cost structure,
adjusted for one‐off items, led to a strong result. New stores, refurbishments
and other investments were funded with our own cash flow.

Good profit level:

Sales increased to 23.1 billion EURO in fY10, an increase of 7.7% compared
to the previous year. The growth came both from existing stores, which grew
by 2.4% and new stores. Sales grew in almost all countries, with China,
Russia and Portugal showing the strongest increase.
Gross margin improved to 46.1% from 44.6% in fY09. This increase was
driven by higher sales and reduced costs in our supply chain, strongly
supported by steps taken together with our suppliers. As a franchisee of the
IKEA concept, IKEA Group pays a franchise fee of 3% of sales to the concept
owner Inter IKEA Systems B.V.
Operating cost increased from 7.2 billion EURO in fY09 to 7.9 billion EURO
in fY10. The increase in expenses is mainly due to two one‐off items, being
the settlement of the dispute about the lease of diesel generators in Russia
and the impairment of assets in our industrial groups. Adjusted for these
one‐off effects, expenses as a percentage of total revenue decreased by 2.3%
compared to fY09, reflecting an improvement in cost structure. This
improved efficiency will be invested in lower prices for our customers.
Financial net decreased due to lower net interest income, partly compens‐
ated by higher currency results.
The effective tax rate increased from 13.2% in fY09 to 17.6% in fY10. The
increase in effective tax is primarily due to higher taxable profits in countries
with higher nominal tax rates. Corporate income taxes amounted to 577
million EURO in fY10. In addition, property taxes of 150 million EURO were
incurred.
Net income increased by 6.1% to 2.7 billion EURO.

Strong financial position:

Total assets increased from 37.1 billion EURO to 41.3 billion EURO, mainly
due to investments in properties and a further increase in cash and
securities.
The increase in property, plant and equipment is related to the
establishment of 12 new stores and additional investments in IKEA stores
and factories. We have also invested an amount of 66 million EURO in wind
farms in accordance with our strategy on renewable energy. The total

© 2011 by Osama Albarrak. All rights reserved 7

investment in tangible fixed assets amounted to 2.1 billion EURO, staying flat
compared to the previous year.
Our securities portfolio grew by 2.5 billion EURO during fY10 to 15.2
billion EURO. No credit losses were incurred during this period.
The assets are for a significant part funded through equity, with the equity
ratio increasing to 55% by August 31, 2010. Total equity amounted to 22.8
billion EURO on August 31, 2010. No dividend was paid to the Stichting
INGKA foundation during the year.
We reduced our long‐term debt by 213 million EURO during fY10.
We are pleased that during fY10 we were able to further grow our
business in accordance with our financial principles, and we have thereby
strengthened our financial base for the future.

SWOT Analysis

Strengths:
 Powerful brand image.
 Wide range of products and styles.
 Hip, Swedish designs.
 Cheap and affordable.
 Furniture is easy to assemble and ship.
 One stop shopping.
 Friendly atmosphere/store layout.
 Facilities: restaurant/daycare center.
 Strong global sourcing capabilities

Weaknesses:
 Assembling furniture yourself may be unappealing to certain groups of
consumers.
 Relatively few locations.
 Store layout – a hassle for those who want a particular item only.
 Swedish designs may not appeal to all American markets.
 Advertising doesn’t appeal enough to target market (young people).
 Furniture is not built to last a lifetime.

© 2011 by Osama Albarrak. All rights reserved 8

Opportunities:
 Untapped markets (Midwest, Corporate…etc.).
 Educate consumers on IKEA thru advertisements.
 Different type of stores such as outlets or high‐end labels.
 Increase online sales and Internet presence.
 IKEA can expand into many more cities in the world.
 Use the popularity among young people to expand to college markets.
 Existing stores are few and large, new stores could be many and
smaller.

Threats:
 Indirect threats from Wal‐Mart, home depot, pier.
 The global economic crisis.
 Social trends – such as the slowdown in first time buyers entering the
housing market. This is a core market segment for IKEA products.
 Market forces – more competitors entering the low price household
and furnishings markets. IKEA needs to reinforce its unique qualities
to compete with these.
 Economic factors –the recession slows down consumer spending and
disposable income reduces.

Major issues that face or may face IKEA:

Problem #1:
The high flow of visitors at one‐time leads to many problems resulted
from the lack of manpower who can meet this climax.

Solution:
Since its December 2004, IKEA has used Beonic’s Traffic Insight
visitor flow system to ensure its checkouts are never short‐staffed.

Highly accurate Beonic sensors at each IKEA entrance track the number of
people entering the 26,000 square meter store, ensuring that its checkout
sales attendants are in position by the time customers reach the exit.

© 2011 by Osama Albarrak. All rights reserved 9

Problem #2:
IKEA suffers from a lack of innovation and faces the possibility of offering
a very similar product base. This is due in part to the lack of fresh blood in
the organization. IKEA's policy of hiring the same genre of people leads to
inhibiting diversity and innovation to meet change in new markets.

Recommendation:
IKEA should broaden its selection base of hiring people. Whilst not
changing the core competencies required of key staff, a new emphasis should
be placed on the hiring of people from a mix of backgrounds and
personalities. This will promote diversity, infusion of new ideas and ensure
the richness of the culture.

Limitation:
This diversity may however lead to lack of goal congruence and a
distraction from the common goals. There may be a waste of resources to get
such a diverse group to agree to a common viewpoint.

Problem #3:
Not enough like‐minded managers (Swedes) to manage stores.

Recommendation:
There are two options to solve this issue. Firstly, a solution would be to
hire more Swedes with similar work ethos and cultural similarities.
Secondly, another option is to promote successful managers from various
countries to expatriate jobs in other geographies. This would not only
achieve strong transplantation of talent but also build strong and committed
global managers.

Limitation:
There may not be enough capable candidates in the overseas poll of
Scandinavian expats. Additionally, looking at the second option of
transplanting foreign mangers in businesses outside their home countries
may foster feelings of resentment of locals, inhibiting individual
advancement.

Strategies Used by IKEA:

1‐ Low‐cost leadership strategy:

IKEA has a unique business model that connects the needs of our
customers with the possibilities on the factory floor. With a deep knowledge
about life at home and the challenges most of us have with limited space and
wallets on one hand and big dreams on the other, IKEA often develops its
products directly on the factory floor. The starting point for product
© 2011 by Osama Albarrak. All rights reserved 10
developers and designers is always the price. Together with our very skilled
suppliers, we make sure to get the most out of the possibilities in the
production plants. We adapt the sizes and constructions of our products so
we can produce, package and transport them in the most efficient way. We
also put a lot of effort into developing materials, to improve them and save
resources.
A limited range of articles and big sales volumes make it possible for us to
keep costs and prices down. On top of this, our customers contribute to the
low prices by collecting, taking home and assembling the products
themselves. Today, they can even design their kitchen or wardrobe
themselves using our computerized planner tools. We do our part, you do
yours – together we save money.

2- Product strategy:

 Wide range of products according to the need of consumers.

 Products available for different sections of the society.
 Products adaptation according to the need of different market.
 Diversify product line and product depth.
 Low priced furniture store provides reassemble furniture and
casual furniture.
 Most of IKEA’s product are stylish that makes the company
unique.
 Concept of Flat packaging, which makes it easier to consumers to
transport the furniture.
 IKEA designs its own furniture.
 IKEA offers a variety of style for interested consumers to choose
from.

3‐ Promotion strategy:
 High Profile advertisement campaigns.
 (Spending 70% of annual marketing budget in printing catalogs.)
 Upon entry to IKEA store shoppers are guided properly.
 Online shopping.
 IKEA providing home delivery service to its customers.
 After sale service to the customers.
 Online advertisements.

4‐ Market Development strategy:

Target new segments and enter new markets with existing
products. The Potential benefits of international expansion are
increased market share, revenues, profit, and buyer awareness.

© 2011 by Osama Albarrak. All rights reserved 11

 � IN EUROPE:
 IKEA is planning to open 10 new stores in Europe.
 Russia is a potential market for IKEA because the economy
of Russia is expanding.
 Germany is a largest market of IKEA.

� IN NORTH AMERICAS:
 America market can be tough for IKEA as there.
 Are big competitors like FORTUNEBRANDS, JARDEN,
MASCO exists?
 IKEA planning to open 5 new stores in USA.

� IN ASIA:
 Asia is a large potential market for IKEA.
 IKEA is planning to enter in INDIA.
 In 2011 IKEA is opened its store in MALAYSIA.
 CHINA, JAPAN and SINGAPORE are profitable market to
expand.

� IN AUSTRALIA:
 AUSTRALIA is a big market for IKEA, there is always
demand for ready to assemble furniture.
 IKEA planning to increase employees in there stores
 IKEA is currently operating in all the states of AUSTRALIA
and planning to open more of stores.

� Potential market of IKEA:

 Currently IKEA is not operating in LATIN AMERICA.
(MEXICO, BRAZIL, CHILE, ECUDOR).
 AFRICA can be a profitable market for IKEA (SOUTH
AFRICA).
 In ASIA, INDIA is a big potential market.
 IKEA is planning to open new store is china.

Competitive Advantage:

There is so much knowledge about IKEA from the web, the interview, and
especially follow the history of IKEA; we can find many methods, which IKEA
used to improve the competitive advantage. According to the theory of
“competitive advantage”.

1. Low price and good quality more than competitors.

2. Good service
3. High quality of design.
4. Wide varieties.
© 2011 by Osama Albarrak. All rights reserved 12
 5. Good brand image in consumer’s brains.
6. IKEA has a special team develops new products, updating
technology, promoting technological development.
7. Most of IKEA’s product are stylish that makes the company
unique.

Conclusion:

 There are so many reasons that make IKEA so popular, for example,
cooperating with the suppliers from all over the world, high‐efficiently
of logics, using “life system” to find what customer need, and so on.
Follow the concept, IKEA try their best to give the customers what
they promised: low price, well‐design, creating a better everyday life
for many people.

 As a world famous international company, IKEA is like a fresh air in to

new target markets such as: Middle East Australia and China market. It
not only brings new strategy and model to their competitors, but also
brings the new life style and service to the customers.

 For the dilemma of IKEA in China market right now, IKEA should try to
change the supply base to “supply‐ product‐ sale” base. Though the
centralized procurement, flat‐package, and more cooperation with
local suppliers, IKEA can get more cost leadership. So IKEA can reduce
the price and get the virtuous circle of “reduce price‐increase demand‐
scale effect‐ reduce price”.

 IKEA already understand Middle East Australia and China markets

more than before. With accelerating the speeds of expand, IKEA will
get more customers; the success of IKEA in these markets is only the
problem of time.

References:
⚫ IKEA. (2010). Retrieved 21/12/2011, from:
http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_inf
o.html
⚫ The official board. (2011). Retrieved 22/12/2011, from:
http://www.theofficialboard.com/org‐chart/ikea
⚫ IKEA. (2010). Retrieved 22/12/2011, from:
http://www.ikea.com/ms/nl_BE/pdf/yearly_summary/Welcome_insi
de_2010_update.pdf

© 2011 by Osama Albarrak. All rights reserved 13