How would you go about becoming one of the wealthiest people in the world? Ingvar Kamprad did it by flying coach, taking public transportation, driving 10-year-old automobiles, moving from Sweden to Switzerland (for lower taxes) . . . oh, and incidentally, founding IKEA-now the world's largest furniture store. Kamprad founded IKEA in Sweden in 1943 when he was just 17 years old and while the world was caught up in World War II. He began by dealing pens, picture frames, wallets, and other bargain items out of a catalog. In 1951 he started to sell furniture made by local carpenters, and in 1957 he opened his first IKEA furniture store in Sweden.
Today, IKEA, with 23 billion in sales and 280 retail outlets in 26 countries, is the world's largest home furnishing company that is known for its contemporary designs, affordable prices, and loyal customers. IKEA retail locations are gigantic-roughly three times the size of a typical Home Depot-and they focus exclusively on the furniture and home decorating market. IKEA's size and focus limit the breadth of items it offers, but they do provide a great deal of merchandise depth including furniture, decorative accessories, and lighting fixtures for all rooms of the house.
While the company has historically made only low-priced, flat-packed furniture, it recently introduced a new 82-piece collection it calls Stockholm to offer its shoppers more expensive furniture made from higher quality materials. In designing its store layout, IKEA is responding to consumer interest in one-stop shopping-finding what the consumer wants in one store rather than having to visit numerous stores. Also, IKEA makes it easier for customers to shop once they enter the store. It sets up furniture displays in "lifestyle" themes that show the type of furniture that singles, couples, or young families might need.
The company also uses vignette displays to suggest how a customer can put together various items to create a certain look. These types of displays are perfect for the generation that is no longer interested in buying furniture to last a lifetime but rather that fits their lifestyle now. IKEA has enjoyed great success throughout its history, and that success has not come by accident-IKEA got to where it is today through great marketing planning. Presently, one of the most important decisions facing IKEA is how and where it should look to expand its business and its revenues. The company has announced its desire to add new store locations in Russia, Germany, France, China, Italy, Japan, U.K., Finland, Spain, and Switzerland. But IKEA is more than just a bricks-and-mortar retailer.
In recent years the firm has also become a popular online store. Its Web site is very popular; it got 450 million hits during the year 2007 alone. Despite its renown among online furniture shoppers, IKEA recently announced plans to focus on the instore experience as "the only sales channel." It doesn't plan to invest more money in home shopping or online sales channels. The company bases this decision on its belief that the chain can give customers the best offers and the lowest prices when it makes its products available only through its bricks-and-mortar stores.
Despite IKEA's successful history, there are no guarantees for the future in the hyper-competitive world of retailing. Is focusing solely on the in-store experience the right decision? Can IKEA reach its growth and revenue goals without online sales? In the U.S. alone, Internet sales of home furnishings are over $150 billion a year, and industry experts forecast continued annual growth at double-digit rates. Would IKEA be better advised to continue to push online sales at least in some areas of the world? You Make the Call
1. What is the decision facing IKEA?
2. What factors are important to understand this decision situation?
3. What are the alternatives?
4. What decision(s) do you recommend?
5. What are some ways to implement your recommendation?