An ikea business analysis

IKEA was founded by Ingvar Kamprad in 1943.It is one of the world’s largest and most prominent furniture retailer, with operations in 32 countries (in early 2005). The company was well known for its stylish and innovative designs. It was the pioneer of furniture that could be dismantled and packed flat, to allow ease of transportation. With sales approaching $12 billion, IKEA operated 154 stores in 22 countries and serviced 286 million customers a year. Initially, the company sold basic household goods at discount prices later it began selling home furnishings and then IKEA began designing its own low-priced furniture.

The first IKEA store is inaugurated in Almhult, Sweden in 1958 and then IKEA had become the favored furniture-shopping destination for price-conscious Swedes. The 45,800-square-meter flagship which ultimately became the prototype for all of IKEA’s retail outlets. IKEA’s in-house restaurants were the 15th-largest food chain in America.

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SUMMARY:-

Ikea has increased its number of stores by 51. The company comprised 165 stores as of August 2003, and there are plans to open a further 16 new stores in both fiscal 2004 and 2005. However, although the company opened 14 new stores in fiscal 2003, sales growth was only 2.7%, largely as a result of the depressed economic conditions across Europe, the company’s core business region. Thus, it is clear that, in order to improve performance at a significant level, merely opening new stores is not enough. Instead, Ikea must assess its external and competitive environment, determine the key opportunities and threats which face it, and align its strengths and weaknesses to best counter the weak consumer market, and thus generate the strong growth it needs to remain a strong brand and presence in its chosen markets.

STRENGTHS:-

IKEA’s was committed to workforce, which was the source of the company’s innovative concepts.

IKEA has strong international brand recognition.

Design and purchase products that entail low production and transportation costs.

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The “showroom-warehouse” concept, which reduced retailing costs.

Waste was considered a deadly sin at IKEA as employees were constantly reminded to save on electricity which helps in reducing the cost of production.

It focuses always on cost efficiency.

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IKEA has maintained long-term partnerships with its suppliers. This ensures that the company has access to high-quality materials at reasonable prices.

WEAKNESSES:-

It is very much reliable on Europe, with 82% of stores located in this region, and it has difficulty in satisfying customer expectations of service as well as price.

The company discovered that Americans did not like its products especially its beds and kitchen cabinets, sheets and appliances etc.

The style selection at IKEA was limited.

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Customers were expected to put together the furniture on their own.

It was difficult to differentiate its product from competitors’ in terms of good quality and low product.

IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities.

IKEA is a global company, so product standards may be difficult to maintain.

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OPPORTUNITIES:-

Increase of sales can be done via the development of e-commerce sites in each country which improves the customer service, and reduces the demand on existing stores.

IKEA would circulate a description of the proposed product’s specifications and target cost to its suppliers and encourage them to compete for the production package

By plotting the company’s current product offerings on the grid and looking for empty spaces, product managers could readily identify market opportunities.

There is growing demand for greener products and low priced products.

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IKEA can further capitalize on the “green” movement and IKEA’s customers’ desire to have less of an impact on the environment.

THREATS

The extra developments are driving the threat of a possible over saturation of the market, increased by the fact that competitors are following suit, by introducing similar product ranges at low prices.

More competitors entering the low price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete.

The recession slows down consumer spending pattern and disposable income reduces.

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The regulatory environments across the globe vary and can affect how IKEA does business and its product costs, especially the use of natural resources.

POLITICAL:-

IKEA was forced to change some of the elements of its global strategy in the culturally diverse Chinese market.

The interrelationship between IKEA’s culture, structure and strategy and its responsiveness to the needs of local markets are highlighted.

ECONOMIC:-

Producing a model of chair (OGLA) made from 100% post-consumer plastic waste.

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Introducing a series of air-inflatable furniture products into the product line. Such products reduce the use of raw materials for framing and stuffing and reduce transportation weight and volume to about 15% of that of conventional furniture.

Using wood from responsibly-managed forests that replant and maintain biological diversity.

Using only recyclable materials for flat packaging and “pure” (non-mixed) materials for packaging to assist in recycling.

SOCIOLOGICAL:-

IKEA supported UNICEF community educational project.

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IKEA Social Initiative is committed to promote the rights of every child to a healthy, secure childhood and access to quality education.

IKEA focus on the promotion of the economic and social empowerment of women and children’s rights to education, survival, development, protection and participation in the carpet belt region.

TECHNOLOGICAL:-

Low costs, reasonable quality, appealing designs, and adequate product functionality are major goals for IKEA. These goals induce the company to promote a constant product and technical development.

LEGAL

Companies need to look at corruption more as a situational problem and not so much cultural.

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ENVIRONMENTAL:-

While developing the product it should be taken into consideration that while offering low prices must never compromise the quality or safety of IKEA products.

Company definitely uses the wood from intact forests.

CONCLUSION:-

A steady development of the Ikea retail business appears to be the focus for the company in the near future, with strategies unlikely to include aggressive expansion into new areas, but rather building and developing in old. However, some changes may be seen with the development of e-commerce, which in the long term, this may have detrimental effects on the revenue of bricks and mortar Ikea stores, but positive effects on turnover for the company as a whole, and thus is the main example of how the company is aligning itself to address the key threat to its traditional stores. Consumers may find Internet shopping preferable, as the Ikea reputation means that they are already assured of the quality and craftsmanship of Ikea products, which is opposed to the present belief of Ikea that customers should be able to feel and check the quality of products before purchase.

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Ikea has also adopted an aggressive expansion-based strategy over the last few years, although the weakness of the external consumer market means that sales growth over the next few years should remain relatively modest.

The development of e-commerce, making shopping at Ikea more accessible, may also have a positive impact on sales, although no progress has been visible on this front of late, and as such Ikea has been very guarded over its profit levels. However, profit margins may fall in the short term as result of the expansion into existing and new emerging markets, with the company facing high set up costs and low spending power, as well as several other external issues in developing markets

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