No Executive Summary, Introduction and ConclusionPESTEL and SWOT is required
IKEA 9-716-458 R E V : J A N U A R Y 4 , 2 0 1 7 Professor Eric Van den Steen and Research Associate Alon Galor prepared this case with the assistance of Research Associate Ashley Hartman. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. E R I C V A N D E N S T E E N A L O N G A L O R IKEA In 2016, IKEA was in an enviable position: a wildly successful global company – in a largely local business – with no comparable competitor, despite a business model that seemed easy to imitate. Yet no imitator had survived direct competition or come close to IKEA’s success. Yet for all that success, the company was ambitious. Barely two years earlier, Ingvar Kamprad, the company’s founder, had in fact – in an usually public show of disagreement – criticized management for its overly ambitious growth plans.1,2 Kamprad had built IKEA from a small mail order business into the world's largest furniture retailer (Exhibits 1 and 2), but had kept the company private to protect it from pressures for profitability and growth.3 Now IKEA planned to grow by more than 50% in 5 years, to a Euro 50 billion ($55 billion) by 2020. And whereas 2015 growth had been almost on pace, 2016 growth had fallen below target. Moreover, in a separate but important development, the company also opened in 2016 for the first time more ‘click and collect’ stores than traditional stores. Launched only a year earlier, Peter Agnefjäll, IKEA’s CEO, described the shift as a “total conversion of IKEA from a traditional brick-and-mortar retailer to a multichannel retailer (…).”4 As it closed its 2016 fiscal year, IKEA faced some fundamental questions. Should it keep to its ambitious growth plans or might that be its downfall? Was the ‘click-and-collect’ store the right model for the future? Would IKEA remain essentially unchallenged? How could it keep it that way? Early History5 Ingvar Kamprad founded IKEA – a name derived from his initials and those of his parents' farm Elmtaryd and his hometown Agunnaryd – in 1943 at the age of 17. At its founding, the mail order company sold everything but furniture, from pens and postcards to seeds and nylon stockings. Five years later, in an effort to imitate the company’s chief competitor, IKEA began advertising an armless chair named Ruth, along with a coffee table, in a thin brochure called Ikéa News, a precursor to its famous catalog.6 Soon thereafter, furniture became IKEA’s dominant product, overtaking sales of other merchandise. By 1954, sales had reached 3 million Kronor ($0.6 million). This document is authorized for use only in Christine Soo's MGMT3347 Sem 2, 2019 at University of Western Australia from Jul 2019 to Nov 2019. 716-458 IKEA 2 The Boycott As a reaction to IKEA’s success with low-priced furniture, the company and Kamprad himself were banned from furniture trade fairs.7 Sweden’s National Association of Furniture Dealers issued an ultimatum to suppliers that “[i]f you sell to IKEA, we will no longer buy from you.”8 The National Price and Cartel Commission and the Council for Free Trade even issued a special report on the matter. In spite of efforts to stifle its progress, the firm remained persistent – “a monster with seven heads. If you cut one off, another soon grows,” a letter from the National Association of Furniture Dealers read.9 On one occasion, Kamprad was smuggled into a trade fair covered by a carpet. And for the largest annual trade fair, he rented his own premises just adjacent to the fair. As pressure from the National Association of Furniture Dealers mounted, however, many suppliers would no longer sell to IKEA. Moreover, with furniture retailers complaining about copied designs and refusing to buy furniture also sold to IKEA, the other suppliers agreed to supply the company only if its designs were unique. Soon, IKEA began churning out its own designs. Targeting young families furnishing their first home or apartment, it focused on modern Scandinavian designs and balanced cost with quality. "Quality must never be an end in itself,“ Kamprad would later write.10 IKEA’s first knockdown table, "Max,” was born when an IKEA worker decided to remove the legs of a table to fit it into a car. The company quickly discovered that flat-packaged, knockdown furniture not only saved space but also prevented damage, and worked to systematize the process.11 Supply Chain Growth In 1958, the company opened its first store in Älmhult, in Kamprad's home region of Småland, Sweden. At a size of over 60,000 square feet, it was at the time the largest furniture display in the world. IKEA’s orders to manufacturers grew in tandem with its growing store visits, and the boycott made itself felt. In 1961, IKEA needed 40,000 wooden chairs to satisfy demand, but its suppliers could provide only 20,000. Following an exchange with the Polish foreign minister, Kamprad flew to Poland to secure suppliers to produce the chairs. Starting with that order of chairs, Polish manufacturing soon accounted for more than 50% of IKEA’s catalog. With wages in Poland at the time no more than one-quarter of those in Sweden, Kamprad had turned the boycott into an opportunity.12 While it was the custom of companies in Germany and Britain to buy in small quantities and pay a sizable premium for expedited delivery, IKEA maintained high-volume, fixed contracts with its suppliers. IKEA would often order goods that weren’t immediately needed and keep them in stock in large warehouses. And when suppliers struggled, Kamprad often backed them. Years later, for example, when the Berlin Wall fell and the worth of the Polish zloty collapsed, he saved his manufacturers from default by paying them higher prices than their contracts stipulated.13 Opening the Flagship Store On June 18, 1965, IKEA opened its second store, just south of Stockholm. Whereas traditional furniture retail stores were located in the center of town – where people could choose and order the furniture with the help of salespeople and then have it delivered at their house a few weeks later – IKEA located its store in the suburbs, where it had lots of space for a large store with ample parking, consistent with its cash-and-carry model, but where it was also sufficiently close to the city-center to be accessible to major roads. This document is authorized for use only in Christine Soo's MGMT3347 Sem 2, 2019 at University of Western Australia from Jul 2019 to Nov 2019. IKEA 716-458 3 The store was an instant success – bringing in 70 million kronor in revenue in its first year.14 In fact, the rush on opening day was apparently such that a store manager allowed customers into the warehouse to pick up products themselves. IKEA soon realized that the practice increased efficiency. When the store needed to be rebuilt in 1970 after a fire, the company added a large self-service warehouse where customers themselves could pick up the knockdown kits for the products that they had selected in the store’s catalog or showrooms. 15,16 In the showroom, furniture price tags now included not only detailed information about the product to help customers make their decisions independently, but also the location of the item in the store's warehouse where the customer could find the knockdown kit. Moreover, as IKEA targeted young families furnishing their first home, the store also introduced a supervised children’s play area with a pit of colorful plastic balls, and a self-service restaurant, to accommodate long visits – often full-day excursions. As Kamprad said, “no good business is done on an empty stomach”.17 IKEA Culture From its very beginning, IKEA had a strong culture rooted in the values of its founder and of the Småland region. Kamprad described IKEA's culture as “the art of managing on small means […]; cost- consciousness to the point of being stingy; humbleness, undying enthusiasm and the wonderful sense of community through thick and thin.”18 And as the firm grew in size, Kamprad maintained the same firm insistence on thrift he learned growing up on his parents’ farm. “To this day at IKEA we try to translate everything into a clear price and state it,” Kamprad said decades later. “Our advertising brochures have information on what they cost to compile, […] it is, in the end, the costumer who has to pay for whatever we waste,” he added.19 In IKEA, every product design started with a target price.20 In contrast to his rigid frugality, Kamprad warmly expressed his appreciation for his workers and customers alike. In a Christmas message to his employees, Kamprad began his letter with: “Dear IKEA family, a great hug to you all,” and concluded with thanking his employees for their support during hard times.21 Similarly, in letters sent to consumers along with the catalog, Kamprad conveyed his understanding of their struggle. IKEA’s mission was to “create a better everyday life for the many people.”22 Expansion and Internationalization23 In 1973, IKEA’s first store outside Scandinavia was opened in Spreitenbach, Switzerland. The next years marked the beginning of rapid expansion and globalization, with 20 store openings in four continents over 6 years. Driving Expansion When the company began its expansion, Kamprad placed his right hand man, Jan Aulin, at the helm of a unit that opened and ran new stores for the first few months. The group’s techniques were unorthodox. Customers would be handed out one Swedish