Function At Low Prices

IKEA was founded by Ingvar Kamprad. Ingvar grew up in rule Småland, Sweden were the inhabitants manage to get by with few resources. In 1943 IKEA starts out as a mail-order business in the village of Älmhult, Sweden. The name IKEA are the founder’s initials (I.K.) and the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village respectively near where Ingvar grew up (IKEA, n.d.; Ciment, 2019). The original product line was small and simple consisting of pens, wallets, pictures, frames, table runners, and watches (Ciment, 2019).

As Älmhult is remotely located, the IKEA catalog was established in 1951. From the origins of Ingvar, his business started with low prices. The prices were so low in the first IKEA catalog that people were skeptical. From this was born the first IKEA showroom in an old workshop in 1953 (IKEA, n.d.; Ciment, 2019). From difficulties of shipping assembled furniture and damages, flat packing and self-assembly was created.

“Why are beautiful products only made for a few buyers? It must be possible to offer good design and function at low prices.

” – Ingvar Kamprad

IKEA began selling furniture in 1948 and published its first catalog of furniture in 1958 (Ciment, 2019). The first IKEA store open in Älmhult, Sweden in 1958 and was a massive 6,700 square meters in size making it at the time, the largest furniture display in Scandinavia (Ciment, 2019). IKEA expanded to the United States in 1985 with its first store in Philadelphia (Ciment, 2019). The first IKEA instore restaurant opened in 1960 at the Älmhult store location.

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It is rumored that Kamprad said it was difficult doing business with someone on an empty stomach (Ciment, 2019). Considering that in Älmhult, Sweden is remotely located, a restaurant makes perfect sense.

IKEA has a brand architecture that includes both line extensions and sub-brands.

Line extensions are used in the brand architecture to establish products under the same category. There are two main line extensions, “Products” and “Rooms.” There are 21sub-catagories within “Products,” ranging from “Furniture” to “Leisure & Travel.” In each category there are sub-brands. There are 12 categories within “Rooms,” ranging from “Bedroom” to “Outdoor.” Within “Products” there are sub-brands and a category called “Series” that list sub-brands of products, there are 242 different “Series” of products. Each “Series” has multiple products that correlate to the “Series.” The taxonomy of products is unique. All of the products are Swedish words that follow a strict naming process (Quito, 2018). Examples include, outdoor furniture is named after Scandinavian islands, rugs are names after cities and towns in Denmark, and bedding is named after flowers and plants (Quito, 2018). This naming system was created by IKEA founder as he was dyslexic and had difficulty remembering the sequence of number codes of products (Quito, 2018). All IKEA stores in all different markets follow the same naming process. The data base that is used to manage the taxonomy system ensures product names are not offensive in other languages (Quito, 2018).

IKEA Group operates 374 stores in 30 different countries. Ingka Group operates the United States franchise system. For fiscal year 2019 IKEA reported 41.3 billion EUR or 46.2 billion USD. This is up from fiscal year 2018, earnings were 38.8 billion EUR or 37.8 billion USD. This boost accounts for a 43% increase in online sales and the addition of new stores (Ringstrom, 2019). Chief executive of Ingka IKEA contributed sales to new showrooms in certain markets, IKEA’s bedroom and ranges, and roll out of e-commerce in more markets (Ringstrom, 2019). Abrahamsson Ring, new chief executive is slated to take over this September. He feels that the lower price range products can be expanded, more affordable materials, advancing production techniques, and distribution methods can help make IKEA more affordable (Ringstrom, 2020). IKEA is also taking notice that customers are shopping online more to prevent them from having to drive out-of-town and hall boxes of unassembled furniture home. This has prompted IKEA to increase online services and establish more small-format inner-city stores and showroom (Ringstrom, 2020).

While IKEA’s growth has been impressive, it needs to continue to innovative to stay ahead. A focus for IKEA will be expanding urban stores that will offer design services and less expensive delivery options and offer assembling services via TaskRabbit that it acquired in 2017 (Shoulberg, 2019). IKEA is planning to expand to 40 plus cities in the next few years (KPMG Advisory N.V., 2020). IKEA is now dropping names now by collaborating with known designers and companies on various products. IKEA is also big on renewable energy. In its Space10 lab a prototype neighborhood using solar panels has been made to illustrate how it would function in real-life and adapt lessons learned into real houses (Ringstrom, 2020). IKEA Ingka Group has an ambitious goal of having all home delivery 100 percent electric or other zero emissions (KPMG Advisory N.V., 2020). By the end of this year IKEA home deliveries in Los Angeles will meet this goal.

IKEA identifies its self as passionate about life at home, making sustainable living affordable, shaping the future of home furnishing retail (KPMG Advisory N.V., 2020). IKEA is about purpose that was establish by its founder. Ingvar believed that low prices must have a meaning and that waste is one of mankind’s greatest disease (KPMG Advisory N.V., 2020). To hold itself to these core ideas, IKEA is working to transform itself to meet the many challenges of today and to positively impact the lives of people. The shared values of IKEA include togetherness, caring for people and the planet, cost-consciousness, simplicity, renew and improve, different with a meaning, give and take responsibility, and lead by example (KPMG Advisory N.V., 2020). IKEA is embraces diversity and creates a workplace where everyone has an equal opportunity, feels included, and can thrive (KPMG Advisory N.V., 2020). IKEA supports the LGBT plus community, has a set of principles in place to support and empower woman, and is a member of the Equal Pay International Coalition (KPMG Advisory N.V., 2020).

From a 2018 Market Force nationwide study in the United States, IKEA earned a 75% on the Composite Loyalty Index, Target scored a 63%. This loyalty can be attributed to the IKEA effect. The IKEA effect in marking is this idea were you have the consumer do work, resulting in increased customer satisfaction (Budd, 2019). There has to be a correct balance of work, too much work can make a customer dissatisfied. Another result of the IKEA effect is that it makes a customer feel accomplished and helps builds loyalty (Smartt, 2017).

The shopping and spending habits of over 10,000 people were analyzed to determine when people stop shopping at IKEA – approximately at age 34 (Crockett, 2016). This same data concludes that IKEA shoppers start at around mid-20s. IKEA has a broad customer profile as it is in multiple markets throughout the world and across the United States. With IKEA having a low price point and working to expand low price range items, its major market is bargain shoppers, people on a budget, college students, young families, and people simply looking for a good bargain. IKEA is marketing to the city population as it expands new concept stores into dense urban areas. The first United States IKEA Planning Studio store opened in Manhattan, New York April 15, 2019. The store will cater to smart home designs for small living spaces and provided home delivery. IKEA is also focusing on marking to the internet inclined segment as 80% of their customers begin their shopping journey online (KPMG Advisory N.V., 2020). IKEA’s internet sales increased by 46% last year, accounting for 10% of retail sales (IKEA, n.d.).

IKEA is environmentally conscious and attracts individuals that are likeminded and want to support a company that is being environmentally responsible. IKEA listens to its customers and puts them first. To better understand its customers and feelings toward climate change, IKEA performed a global climate action report. IKEA’s Ingka Group CEO states IKEA is dedicated to bringing sustainability to individuals with limited income (IKEA, n.d.). Moreover, IKEA partnered in December 2019 with Optoro, a leading company in returns optimization. This is an effort for IKEA to become a “circular business.”

IKEA Family is a customer club and was first launched in 1984 at a store in Linköping, Sweden. Benefits of the include, special discounts, free hot drinks, extra time in Småland, and free workshops and events. There are 14 million IKEA Family members and 6,000 new members joining each day (KPMG Advisory N.V., 2020). In line with IKEA helping customers to enjoy a better life and making purchasing affordable, IKEA offers a loyalty-driven Visa credit card. The credit card boast 5% back in rewards on IKEA purchases, 3% for dining, grocery, and utility purchases, and 1% on other purchases.

IKEA for 2019 experienced positive sales growth and is expecting continued growth in 2020. Presently with the novel Coronavirus (COVID-19) pandemic IKEA is cancelling all non-essential co-worker traveling and any large meetings. IKEA has closed all Småland Play Facilities at its stores. The Pennsylvania IKEA store, IKEA US Headquarters, and IKEA IT Center are closed for two weeks as directed by the state. IKEA is monitoring the COVID-19 situation as it develops and will update customers as needed. The most recent decision made by IKEA was to close all 50 stores across the United States, but still offering online shopping with home delivery. IKEA states it will support its employees through its comprehensive benefits package and paid leave policy. The current pandemic will affect IKEA as its business is being disrupted and consumers refocus their spending on essential items. The economic impact of the pandemic is to be determined once daily life returns to normal.

IKEA on March 27, 2020 released a statement about its commitment to the community that it is involved with. IKEA will be donating millions to support local communities with needed supplies during the COVID-19 pandemic (KPMG Advisory N.V., 2020). The IKEA Foundation will support partners with Coronavirus specific program (KPMG Advisory N.V., 2020). IKEA states it is committed to support its 166,000 plus co-workers for as long as possible. IKEA is also working with its small and medium suppliers that are greatest risk. IKEA is implementing proactive measures and extending cash flow relief. Moreover, IKEA is suspending rent and service fees for some 2,000 tenets as long as it is mandated to have IKEA stores closed.

The most recent and significant legal issue IKEA has faced was in 2016. IKEA issued a recall for the Malm dresser line after the product were tied to tip-over death of several children. According to the Customer Product Safety Commission, the dressers did not meet industry standards. Jozef Dudek a two-year old boy died in 2017 after the dresser recall. The parents of Jozef never received a recall notice. The Dudek’s were a member of the IKEA Family and their contact information and purchase was on file. It was announced earlier this year that IKEA agreed to pay $46 million to the Dudek family, the largest wrongful death of a child in the US (Peachman, 2020). As of date IKEA has the Malm dresser line and other dresser lines listed on their website under Product Recalls. IKEA also has a wall-anchoring kit request form online that a customer can request free of charge.

IKEA has taken notice of the increasing customer introduction to IKEA via online. To support this IKEA has made improvements to its online websites to improve the customer experience. A new IKEA app launched in fiscal year 2019 is aimed at having customers interact with products via augmented reality. Later this year Studio Mode is scheduled to launch. This is app will work iPad Pro using augmented reality too. This new app will interact with customers and home furnishing solutions with detailed 3D imagery. IKEA calls it, “taking it to the next level” and giving the customer a valuable and personal experience (IKEA, n.d.).

IKEA is working to become more circular with its supply chains. In effort to close the loop IKEA is refurbishing its IT products, researching options for co-worker uniforms, and replacing single use plastic with environmentally friendly options (KPMG Advisory N.V., 2020). IKEA uses an IWAY approach when purchasing from suppliers that have minimum requirements on environment, and social and working conditions (KPMG Advisory N.V., 2020). With the size and complexity of IKEA and its supply chain, a risk-based approach is used that uses a 10-step process to mitigate risk (KPMG Advisory N.V., 2020).

IKEA considers people in its supply chain and believe they have a responsibility to respect the right of humans (IKEA, n.d.). IKEA guides it practices using the United Nations Principles on Business and Human Right. IKEA only works with suppliers who meet their standards and regularly conducts audits on their compliance. In fiscal year 2019 IKEA found 85 suppliers to be non-compliant with their standards (IKEA, n.d.). When a supplier is non-compliant, IKEA creates an action plan to correct the issue. If a supplier does not implement the corrective plan, they will be phased out. IKEA is committed to implementing children rights practices jointly with Save the Children, UN, and UNICEF in 100 locations by 2025 (IKEA, n.d.). IKEA has a zero tolerance for child labor and did not find any cases of child labor abuse for fiscal year 2019.

One of IKEA’s main sponsorship programs is the IKEA Foundation. The IKEA Foundation was founded in 1982 when the founder of IKEA gave the company to a foundation to ensure that IKEA could remain as an impendent company and that some profits would benefit others to create a better life (IKEA, n.d.). The IKEA Foundation believes, “that home is the most important place in the world and children are most important people” (IKEA, n.d.). At the beginning, the IKEA Foundation focused only on architecture and interior design. However, over the years, IKEA has become part of the anti-child labor and children rights and education movement in developing countries. Thanks to IKEA’s dedicated co-workers and customers, by 2015, 100 million children will have benefited from their fund programs. The IKEA Foundation supports survivors of large natural disasters by making shelters for them; they provide preventive care, nutrition, and sanitation initiatives for children. Also, through their annual campaign “Soft Toys for Education” (donate €1 for every soft toy sold in IKEA stores), the brand funds UNICEF’s Schools for Africa and Save the Children’s educational projects in Asia and Eastern Europe. In addition, IKEA provides children in Africa with solar lamps so that they can continue to learn even after the sun sets. Additionally, the IKEA Foundation supports programs that help women gain knowledge about children’s rights and the importance of their education.

Major competitors to IKEA include At Home, Target, Wayfair, and Amazon. The benefits of IKEA are a large selection of furniture to choose from in their traditional store. With IKEA, all the furniture is on display to view and try out. One advantage Target has, is there are more locations of their stores and are easier to navigate because of their smaller size. Downsides to Target is that some of the products are boxed and not on display and kitchen products generally cost more (Tyler, 2018). At Home is a large home décor store at approximately 110,000 square feet, still smaller than an IKEA traditional store. At Home offers more furniture styles than IKEA like transitional, contemporary, midcentury, bohemian, modern, shabby chichi, and other styles. At Home from time-to-time will send you 10%-15% off coupons, but will generally cost more. At Home Kitchen products will cost more, and their linens are lower quality. Wayfair is an online furniture and décor store. Wayfair spends money dominating Google search results and other advertisements but lacks a meaningfully connection with the customer (Danziger, 2018). Wayfair is developing an in-house delivery system, charges a flat $4.99 for order under $49, shipping is free for order over $49, and offer a 30-day return. Amazon has recently launched two new furniture lines; one is midcentury modern-inspired and the other is family-friendly comfort and durability (Green, 2017). Both brands ship free, offer a 30-day return, and Amazon Prime is not required. Both furniture lines are priced substantially more than that of IKEA. IKEA charges $50 for furniture delivery, does not sell all of its items online, and requires assembly (Green, 2017).

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Function At Low Prices. (2022, May 10). Retrieved from

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