A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLD

Abstract : The case study will look into the development of IKEA from a small Swedish
furniture company to global home furnishing giant that it is today.

Keywords : IKEA, case study

3.

How would you characterize IKEAs strategy prior to its missteps in North
America? How would you characterize its strategy today?

Prior the missteps in North America, IKEA strategy was to export Swedish
standardization in term of home furnishings globally. The strategy worked flawlessly
in Europe. IKEA had enjoyed its utmost success in tapping the customers needs and
preferences in selecting furniture for their

homes. IKEA had placed the customers

choice as their priority in designing and tagging the low prices for its products.
Relatively low-priced products, wide selection range of products and fair quality were
the key factors which contributed to IKEAs success.

This paper submits that the underlying reason behind this success is IKEAs
understanding of European consumers perception when buying their products i.e.
buying IKEAs products is perceived by customers as buying something of high
quality at an affordable price at a pleasant store. This in turn is the result of IKEAs
ability to identify the reasons why the European consumers wants to purchase their
products in the first place (the reasons identified by IKEA/Kamprad were invariably
products with chic designs, high quality and low price as revealed by the article
under review). Commenting on the importance for retailers to identify the reasons
why customers wants to buy their products, Mulhern (2004, p.16) stated that
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identifying the reasons why the consumers wants to purchase the products is the first
step in understanding consumers perception in buying the products.

Another factor driving IKEAs success were their innovative approach to retailing.
IKEA understood its customers preferences and insight that influence their behaviour
of shopping at IKEA stores. IKEA stores were designed to offer the experimental (i.e.
customers can test the products themselves e.g. sits on the chairs that they like to
buy) and convenience shopping environment to its customers. For example,
Stockholm store was the template model for IKEA worldwide stores. The Stockholm
store introduced the new shopping ambiance to its customers, among them, ample
parking spaces which were provided conveniently. Later, self-service pick-up solution
was introduced and became the indispensable factor that drove the success of IKEA
in furniture retailing business. Though a common retailing model nowadays, at the
time IKEA introduces the self service retailing concept, it was a fairly new
phenomenon. Commenting on the self service business model, Regan (1963) stated
that most selling innovations by retailers have been to add customer services and
conveniences, thereby increasing the cost of retail service. Running contrary to this
trend has been the developments of self-service which transfers to customers
greater responsibility for buying and thereby lowers the store cost of retail service.
This is the cost leadership competitive advantage as described by Michael Porter
above (1985, p.3 cited in Bredrup 1995,p. 43).

IKEA therefore had created a new environment of shopping in retailing atmosphere,

which is the differentiation competitive advantage as described by Michael Porter
(1985, p.3 cited in Bredrup 1995,p. 43) . According to Hancock and Bolling
(2005,p.49), IKEA has always been distinctive in its approach to retailing. For
example, it does not have customers, it has visitors, and it sets out to offer a
shopping experience rather than a quick sale. Its stores are built on large sites
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outside city centres and include restaurants and children play areas. The restaurants
serve Swedish food such as meatballs. The products sold have Swedish names like
Ektorp, Dalarna and Aivak, and the corporate colours of the Swedish blue and yellow
are used everywhere.

The unique shopping experience at IKEA was also shared by Alfuah

(2009,p.418) where he stated that, the inside of the store was designed around
a one-way layout to make it easy for customers to see all products and
displays. This layout contrasted the layout of traditional US furniture stores
where the inside was laid out so that a customer could go straight to what he
or she was looking for. The

goal

of

the

layout,

furniture

samples,

displays, sample rooms and atmosphere was to delight the customer with the
shopping environment, ideas and IKEA experience.

By taking all key points such as customers preferences, local culture, peoples
lifestyle,currency value and goods logistic in proposition its business strategy,
IKEA had managed to be the European, if not the worlds leading furniture
retailer at that time.

Unfortunately, despite of all strong customer-oriented factors that boosted the IKEA
sales in Europe, the business venture in North America was beyond their
expectation. Overlooking of the American culture and lifestyle brought the IKEA sales
projection of the year down to frustration. The design and measurement of IKEA
furniture that were adopted from European lifestyle were blameworthy. Hence a

drastic move was made by IKEA i.e. redesigning their products in line with their
American customers preferences.

Not only they redesigned the products, IKEA also relocated its stores to a larger area
so they could cater the needs of the American customers even better. The reshuffle
of the entire business operation and management including the source of suppliers
and currency issue had tremendously changed the scenario of IKEA business in
USA. Their sales had skyrocketed positively since ever (Acra and Fischer
2008,p.20).

When retail companies expand internationally, they often choose countries which has
close similarity physical and psychological make up. Though retail companies must
adopt standardized store format when expanding internationally in order to minimize
the risk, they must differentiate themselves based on products, store concept and
customer services. Retailers must decide to what extent these factors can be
standardized or have to be adapted to each specific market (Acra and Fischer
2008,p.20). IKEA learnt this the hard way.

Apart from the above, another negative factor contributing to IKEA initial failure in the
USA was lack of American consumers awareness toward the brand IKEA. The
brand IKEA was not sufficiently introduced to the Americans. Even though 9 out of 10
American had heard about IKEA, only 3 of them knew that IKEA was in furniture
business. There was thus insufficient publicity to announce IKEAs arrival in U.S
(Rothacher 2004,p. 115).

Learning form their substantial misunderstanding for American market, IKEA

expansion drew a careful measure towards their new locations such as Asia and
Australia. Undeniably, IKEA had learnt lesson from priceless experience
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in running

its American stores. Every country has its own people with their very own lifestyle,
culture and preferences. As IKEA understands its customers needs quickly, therefore
IKEA managed to overcome the problem without further delay.

The American experience was actually not the first time IKEA stumbled in their
attempt to open their store outside Europe. In year 1974 IKEA decided to enter the
Japanese market by establishing a joint venture with a Japanese company but it
wasnt successful and IKEA had to make a withdrawal. According to the then-CEO of
IKEA Japan, Lars Petersson, the withdrawal depended on the collaboration with the
Japanese partner that didnt work out well and that IKEA was a much smaller
company with a less developed distribution system at that time.

The former CEO of IKEA Japan, Tommy Kullberg, mentioned that IKEA couldnt live
up to all the product adaptation requirements of the Japanese partner and that
Japanese consumers were not ready for IKEAs concept at that time. A quote of CEO
of IKEA Japan in 2007 may be a good summary of IKEAs first establishment try in
Japan; Japan wasnt ready for IKEA and IKEA wasnt ready for Japan (Leroux,
Thamhaksa & Yokoi 2007, p. 9).

But in 2006, coupled with their previous bad experience in the US and Japan, IKEA
came back in style to Japan, opening two stores in the vicinity of Tokyo. This time
IKEA prepared itself by doing market surveys where they both visited Japanese
households and studied roughly 25 000 pictures of them.

On the opening day of IKEA Funabashi, the store had 35 000 visitors and it had 30
000 to 40 000 visitors on weekends in 2007. IKEA Funabashi had seven million
visitors during the period of May 1st 2006 to April 30th 2007 or approximately 19 400
visitors per day. Together with the IKEA store in Chicago, IKEA Funabashi and IKEA
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Yokohama in Japan have the biggest floor area, 40 000 squared meters, among all
the outlets of the company. The restaurant at the IKEA Funabashi store offers 730
seats and is the biggest IKEA restaurant in the world according to its store manager.
(Leroux, Thamhaksa & Yokoi 2007, p. 9)

As such it is clear that, adaptation has become the strategy of IKEA in their
expansion drive.According to IKEA website, currently there are a grand total of 301
IKEA stores in 37 countries / territories. The IKEA group itself owns 267 stores in 25
countries whereas the other 34 stores are owned and run by franchisees outside the
IKEA group in 16 countries / territories.