Strengths weaknesses and the strategy of IKEA

IKEA is the worlds largest home-furnishing retailer. It was founded in 1943 by Ingvar Kamprad in Sweden. “In terms of scope, IKEA is designed for the total home environment, in order to offer furnishings and fittings for every part of the home, both in- and out of doors.” With the vision: “To create a better everyday life for the many people”, it offers “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.” (IKEA.com). From it first store in Sweden, “today, there are over 300 IKEA stores in 39 countries, with turnover in 2009 of more than €22.7 billion. According to Forbes Magazine, Ingvar Kamprad, now in his eighties, is the 11th-wealthiest person in the world, with a fortune estimated at U.S. $23 billion in 2010”. (Mary Albon, The Sun Never Sets on IKEA, 2010). I would like to address some issues to understand more about IKEA success as follows:

Since its establishment, IKEA has always taken care of people and the environment as it stated on its vision. That is the reason why in manufacturing process, IKEA tries its best to have a better use of both raw materials and energy. They even have a brochure presenting a brief overview of how the IKEA groups work to in a high sense of responsibility to people and environment. We also can easily see how much they concern people and the environment by knowing IKEA stakeholders. Like other business organisations, the stakeholders who have high power and high interest are Inter IKEA system BV, investors and customers. However to me the most impressive and important stakeholders of IKEA are environmental organisations of which IKEA Group also is a member such as:

BCI, Better Cotton Initiative, aims to promote measurable improvements in the key environmental and social impacts of cotton cultivation worldwide. (IKEA.com)

Building and Wood Workers’ International (BWI) is the Global Union Federation of democratic and free trade unions, protecting more than 12 million members in 350 trade unions around the world in the building, building materials, wood, forestry and allied industries. IKEA and BWI meet frequently to exchange experience and discuss working conditions and social responsibility. (IKEA.com)

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The IKEA Group is member of BSR and has an representative on the board is a global, non-profit organization that helps member companies achieve business success while respecting ethical values, people, communities and the environment. BSR provides information, tools, training and advisory services to make corporate social responsibility an integral part of business operations and strategies. (IKEA.com)

Clean Cargo Working Group (CCWG) which is working to promote sustainable product transportation. (IKEA.com)

European Retailers Round Table (ERRT) which is Focus for activities include consumer protection, food safety, environmental issues, corporate social responsibility and trade issues’ Forest Stewardship Council (FSC) (IKEA.com)

Refrigerants Naturally is a United Nations initiative acting as a catalyst, advocate, educator and facilitator to promote the wise and sustainable development of the global environment. (IKEA.com)

The Network for Transport and Environment (NTM), aiming to establish a common base of values on how to calculate the environmental performance of various modes of transport (IKEA.com)

And IKEA also is the partner of:

IKEA Foundation and UNICEF are long term partners working together on both a global and local level (IKEA.com)

WWF and IKEA co-operate on projects which focus on sustainable forestry, sustainable cotton production and climate change (IKEA.com)

During working and sharing experience with these organizations, IKEA not only has better knowledge about social responsibilities but also has built its reputation of being green.

In 2010 and beyond, the world economy would be a key issue to impact Ikea’s business. IKEA and other companies in the world had to face the worse economic situation since many decades as its financial sector was deeply in crisis and then the global economy was felt into the depth of recession. The world economic growth reached only 1.1 % if compared to about 5% in previous years (VietnamPlus and World Economy, n.d). However, the world economy improved in 2010 with the economic growth increased to 4.2% as the economy of the United States of America is expected to grow by 2.1 per cent in 2010, following an estimated downturn of 2.5 per cent in 2009. Recovery in both the European Union (EU) and Japan is projected to be much weaker, reaching GDP growth of no more than 0.5 and 0.9 per cent, respectively, in 2010. At this pace of recovery, the major developed economies are not expected to provide a strong impetus to global growth in the near term (World Economic Situation and Prospects 2010 Global outlook, p.2). Nevertheless, the UN stresses that ” the recovery is uneven and conditions for sustained growth remain Fragile. In 2010, global growth will remain below potential and unemployment will stay high” ( p.1 ). Though the situation was still difficult because fewer people have moved home but the company sales increased 7.7% in 2010 compared to fiscal year 2009 is surprised outcome.

The company also faces increased competition of other competitors all over the world. For example, it is ddifficult to sustain good design quality products at low cost when the number of competitors keep increasing e.g. In the US, Kmart, Target Corp, Fly in France and Japan Nitori Co in Japan (Ikea case study). In particular sales case, competition cut Ikea sales in UK as profits dropped to £17 million to August 2009, according to documents filed at Companies House last week. Sales fell 1.4 per cent to £1.23 billion. The company has reported falling profits for five years and falling sales for three years in Britain. Ikea has come under increasing pressure from DIY retailers that are selling more home furnishings, as well as growing competition from supermarkets (“Neil Craven, daily mail”, n.d)

IKEA is positioning as a cost leader of home furnishing retailers. Ikea states firmly its market position by a statement that “Your partner in better living. We do our part, you do yours. Together we save money” (Ikea Portal, Student Info, n.d). It is clear to see that IKEA is regarded as low price products with high quality by using inexpensive materials in a novel way and minimizing production, distribution and retail costs, customers benefit from low prices. This cost leadership has been making IKEA differently from other competitors. Due to high inflation increasing every year, it is hard to find any other companies who can announce that last year our price is 8.99 euros, this year 4.90 euros or 10 year ago 260 euros, today 169 euros (Ikea Welcome inside 2010, p.20). Ikea has been making it for many decades.

Low prices are one of the cornerstones of the IKEA concept and help to make customers want to buy from IKEA. This low price strategy is coupled with a wide range of well designed, functional products. IKEA’s products cater for every lifestyle and life stage of its customers, who come from all age groups and types of households. This is vital in times when the retail sector is depressed, as it increases IKEA’s potential market.

While the price of other companies’ products tends to rise over time, Ikea says it has reduced its retail prices by a total of about 20 percent during the past four years. Ikea’s corporate mantra is “Low price with meaning.” The goal is to make things less expensive without ever making customers feel cheap. Striking that balance demands a special kind of design, manufacturing, and distribution expertise. But IKEA pulls it off in its own distinctive way: tastefully, methodically, even cheerfully, and yet somehow differently than any other company anywhere. Lisa Magonelly therefore presents guide to how IKEA designs, builds, and distributes the furniture that the entire world wants to buy.

Based on low prices strategy, IKEA’s segmentation is targeting to young low and middle-income family who are willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. IKEA offers customer experiencing in actively involve in shopping at its stores. Definitely, customers involvement contributes to IKEA low prices.

To explore the successful of the IKEA, analyzing its opportunities and threats is an essential. Before looking at the opportunities of IKEA, we can come over its strengths. First of all, Brand is one of the most important that IKEA has. It is already a global brand therefore it will be a very attracted factor to customers because it like a promise to customers that where ever they are, they will be provided the same quality. Second strength is its vision “to create a better everyday life for many people”. The concept that offers a wide rage of well designed and functional home furnishing products at the inexpensive prices is the third strength. Fourth is the sustainability is fully-integrated into all business strategies. 

The IKEA’s strengths bring its opportunities, especially in this dedicate, people more and more care a bout a sustainable environment. By caring about environment, people will care about Green products and IKEA has reputation of being green so that its products will be their choices. IKEA shows their care about environment clearly on its statement:

Each and every one of our business strategies – whether local, national or global – must now clearly and systematically integrate sustainability as a part of everyday operations.  I see this as a milestone. It will help us move forward in our relentless work with the many challenges we have to solve on our route to becoming a sustainable company. (Greeneconomics.com)

As a member of number of environmental organizations enables IKEA to work with sustainability in different ways:

IKEA reduced overall CO2 emissions by 5% in FY 2009.  The company plans on participating in the Greenhouse Gas Protocol in 2010. (Greeneconomics.com)

The company has a pilot program with select suppliers to reduce energy consumption by 30% or more by 2011. (Greeneconomics.com)

IKEA has also started four new climate change projects with the WWF, which will “focus on measuring supply chain emissions, helping our customers tackle climate change through transport initiatives, reducing emissions from IKEA food product transport, and improving the reuse and recycling of used products.” (Greeneconomics.com)

One climate change project is to install solar panels in 150 of its stores, with the long-term goal of supplying all buildings with 100% renewable energy. (Greeneconomics.com)

Because of the economic downturn, customers tend to be looking for products with low prices than expensive one. The excellent thing to be come IKEA customer is you can buy good things with well designed and good quality but inexpensive prices. It means that, even the economic crisis, the demands for IKEA products still raising and the turnover also high more than €22.7 billion in 2009 (Mary Albon, The Sun Never Sets on IKEA, 2010).

However the strengths and opportunities of IKEA can also drive the organisation to its weaknesses. IKEA with hundreds stores in different countries is really hard to control the quality as well as the standard of the products and services. The low cost is a strength however in the management aspects it is not easy to control the low cost but keep the standard of quality in the same time.

The threats that IKEA is facing are:

The competition in the retails market: there are more and more organsations have strategy of producing products with high quality with reasonable prices. They will become competitors of IKEA so this will be one of the main factors can impact to IKEA.

The economics down turn in 2010 and will continues in 2011 makes the disposable income decrease but the living expense is rising. This will definitely affect the business operation of IKEA.

By analyzing these factors IKEA can have plan to reduce the threats and take advantage of the opportunities.