IKEA is a Swedish company which deals with the sales of furniture which are elegantly designed and are low-priced. It is one of the world’s most successful global retailers with 320 home-furnishing hyper stores and has a presence in 40 countries according to its 2012 report which also states that more than 776 million shoppers visited these stores. IKEA can be placed in the category of global retailers who are expanding at very a high rate with a target of opening 25 new stores every year.
One notable difference of IKEA from other global retailers is that its quick expansion can be traced for several decades while others are about one decade old. One distinctive feature in their development is their succession rate. In almost all countries they have expanded to, they have able to establish themselves fast enough that profits start pouring in after a concise period, unlike other retailers who usually struggle and take a lot of time when expanding in a new country or region. Since its establishment in 1943 by a 17-year-old Ingvar Kamprad, IKEA has recorded significant success that can only be enjoyed by very few companies created in that era.
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Opportunity Identification
What were the expansion and competitive advantage of IKEA in Sweden and Europe? Why did the company stumble in North America? What lessons did it learn and how did it apply those lessons? In this case, we will analyze the above questions so as to understand the specific opportunities that helped IKEA to be successful. IKEA was able to expand rapidly because it was able to organize itself in a way that it possessed a competitive advantage over its competitors. The IKEA was able to observe that the furniture market was fragmented and saw the opportunity of exploiting this loophole. The market lacked low-priced elegant designed furniture, and even the expensive ones were not readily available, and the customer had to wait for a while.
Therefore, IKEA started creating elegantly designed furniture that would be highly appreciated by the young middle- level people. It started making the furniture at the lowest cost that could be achieved and also searched for suppliers who could make the same design at a very low price which would allow them to sell the furniture at a cost lower than their competitors. It made sure that all its products were readily available and also offered delivery services to its customers either for free. IKEA also designed furniture that could be dismantled and then reassemble at the customers’ homes. IKEA designs were well accepted as middle-class households due to their elegance as well as their low prices but often got criticism from its rival that the products were of low quality. These three factors helped the company to have a competitive advantage over its rivals and contributed a lot to its expansion. In its expansion, IKEA opened stores which restaurant that relax and refresh customers while they were doing their shopping which attracted a lot of customers.
IKEA company was able to expand rapidly in Europe because just like Sweden, the market was fragmented, and there was also high demand for cheap but elegant furniture. This made the company grow rapidly in Europe especially in Germany because they perfected in customer services which were not common except in England where they met resistance from a company that offered almost the same services as they did. IKEA understood that the need for middle-class to elegantly designed products which are cheaper is global and that more consumers appreciated more customer services. Using these tools, IKEA was able to expand not only in Europe but even to other parts of the world. IKEA success can also be traced by the company having an informal management style where titles and privileges are prohibited. Even though most employees complain that the salary they get is little, they appreciate the working conditions because everyone is treated like family.
IKEA expansion to the US was not as easy as they had anticipated. They had targeted consumers who had traveled abroad and who liked fine food and wine, but the plan worked for a while the company was not selling as it had aimed. It learned that the Americans did not always resonate with European-style offerings, the difference in Swedish kroner and the US dollar drove the price up and also, they had a different culture and taste. For them to survive, they were forced to take decisive action that would help them make profits. First, they embarked on redesigning their products so that they can satisfy the Americans’ needs. Second, they started sourcing products from lower-cost locations and local suppliers so as to cut the cost of shipping as well as the dependency on the value of the dollar. They also started advertisements targeting the younger demographic that was shifting the American culture. All of these actions were costly, but as compared to how much they had used to settle up in other countries, it took them a while before they could recover that cost. The change in tactic worked to their advantage where their revenue increased significantly and by 2012, the US was the second largest market of IKEA products after Germany.
Recommendations
It is a dream of any retail company to be globally established and as successful as IKEA, but for the company to reach there, the company is supposed to evaluate itself and set its own goals on how to achieve such heights. For a company to be able to excel in its field highly, it supposed to redesign itself so that it can have a competitive advantage over its competitors. The company should find loopholes in the business structure that it can exploit to its advantage. Referring to IKEA, it observed the fragmented furniture market and used that to create a business model that would be favored by this market characteristic. The company also started designing quality products that were cheaper than those of their rivals making it unique from others. Therefore, to be competitive advantaged, your business has to be unique from those of your competitors. To be able to achieve long-term success, a company should be able to conserve its uniqueness and be able to change fast enough to emerging issues to avoid failure and also maintain its advantages over its rivals.
A company that is planning to a new region or country is first supposed to do enough research of all variables of that place so that it can avoid losses that may be caused by the business failure. These variables include; a business structure in that region, labor cost, taxes, political stability, competitors’ pros and cons, business culture and taste of the intended consumers, international laws that affect business in that particular region among many more factors. IKEA entered the US market without first studying the market demand, and it almost caused failure of its expansion to that region. Learning from its own mistakes, IKEA now does a thorough study of all market variables before expanding its business to a new region. This example emphasizes that before any expansion, in-depth research is needed because if a company is not as big as IKEA was then, such a mistake could bring the whole company down.
