IKEA Invades America

By Youngme Moon

Introduction to the Company

I - Ingvar K- Kamprad E- Elmtaryd A- Agunnaryd
A privately held, Swedish international home products company that designs and sells ready-to-assemble furniture, appliances and home accessories. The company is now the world's largest furniture retailer.

Company Background
1943- IKEA was founded by 17-year-old Ingvar Kamprad

1947- Furniture was introduced into IKEAs product range.

1951- IKEAs first furniture catalog was published. 1953-Kamprad opened a furniture showroom in Almhult. 1955- IKEA began designing its own low-priced furniture. 1956- Testing flat packages. 1958- IKEA inaugurated its store, in Almhult, Sweden at 6,700 square meters (the largest furniture display in Scandinavia at the time). 1965- IKEA opened store in Stockholm. 45,800 square meter store with a circular design inspired by New Yorks Guggenheim Museum.

IKEAs Vision, Business Idea and Positioning statement

The IKEA vision is "To create a better everyday life for the many people. Our business idea is "To offer 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." Our market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money."

IKEAs
Culture Pragmatic Cost cutting sensibility Waste considered a deadly sin Differentiation Self Service Experience of touch Unassembled Design (Scandinavian) Cheap

Product Strategy
Product Priorities Product strategy council to decide on product line-up.

Target Retail Price

30%-50% lower than the competitors 1800 Suppliers in more than 50 countries Cost efficiencies

Select a Manufacturer

Determine Materials to be used

Actual Design Process

Internal Competency

Style selection Matrix

Flat Packaging
Disassembled shipping Products were transported flat Transport volume was 6 times less than if shipped assembled.

Low Price with Meaning

4 Ps
Product
Low Priced Furniture. Case goods (dressers, tables, bedroom furniture, dining room suites, etc.) Upholstered Furniture Ready to assemble furniture and casual furniture Scandinavian design (unique furniture) Concept of flat packaging Can be assembled and disassembled easily Quality Products Offers variety of styles Around 10,000 different products (ticka alarm clocks, fniss trash cans, boomerang clothes hanger)

Price
Became famous for its low- price furniture concept

Passes its cost savings to customers (flat packaging easy to take home, saving on shipping).
Slogan- Low price with meaning. (design) Separate matrices (including both price and style) for each product type IKEA sold. Favored destination for price sensitive customers.

Place
2002- operated 154 stores in 22 countries and served 286 million customers a year. IKEA opened low price stores in Scandinavia followed with stores in Asia and N. America.
IKEA Sales by region
N.America 15% Asia 3%

N.America Asia Europe

Europe 82%

Sweden

8%

France
US UK Germany

9%

Sweden France US UK Germany

11%

12%

20%

IKEA Sales by countries

Promotion
High profile advertising campaign IKEA store (atmosphere, Layout, restaurant) IKEA catalogue

U.S. Market
Furniture retailing accounted for US$67 billion in sales in 2002. Furniture Market consisted of Case goods (dressers, tables, etc), upholstered furniture, bedding, ready-to assemble furniture and casual furniture. Furniture market was Highly fragmented Top 10 Furniture retailers accounted for only 14.2% of market share

US Furniture Market
High End Retailers Jordans Furniture Thomasville Ethan Allen
Low End Retailers Wall Mart Costco Office Depot

Features of the Retailers

High end Retailers
Luxurious Store Environment Various Payment options Wide collections Interior design options High quality and service Delivery Services

Low End Retailers

Targeting price sensitive customers Dingy and inconsistent environment Poor/non existent sales assistance Limited product selections (limited to utilitarian, dull or unattractive furniture) Some offered delivery services

invades America
First Opened in 1985 in Philadelphia Difficulties - Style and Measurement - Reluctance to buy Furniture

Leading U.S. Furniture Retailers (ranked by 2002 sales of furniture and bedding)
Rank/ Name

1 Wal-Mart 2 Rooms To Go 3 Ethan Allen 4 Levitz 5 La-Z-Boy 6 Office Depot 7 Sams Club 8 Federated Department Stores 9 Berkshire Hathaway (incl. Jordans) 10 Costco 11 Staples

12 Havertys 13 Value City 14 IKEA 15 Pier 1 Imports 16 JC Penney 17 Kmart 18 May Department Stores 19 Art Van 20 Rhodes 21 Office Max 22 Thomasville Home Furnishings 23 Lowes 24 Big Lots 25 W.S. Badcock

CASE ANALYSIS

What factors account for the success of IKEA?

Product differentiation Restaurants and Childrens area also accounted for its success. Scandinavian designs. Cost leadership Keeping the cost between manufacturers and customers down. Costs were kept under control starting at the design level of the value-added chain, by packing items compactly in flat packaging and stacking as much as possible to reduce storage space during and after distribution in the logistics process. IKEAs outlets were also designed on strictly self-service theme. Customers were required to transport and assemble the products themselves in order to keep the cost low.

SWOT ANALYSIS
Strength
Powerful Brand image Wide range of products and designs Cheap and affordable Furniture is easy to assemble and ship One stop Shop Friendly atmosphere/store layout Facilities- child care/restaurants Strong global sourcing capabilities

Weaknesses
D.I.Y approach can be unappealing to customers Relatively few locations (14 stores) Swedish designs may not appeal to American customers Furniture is not long lasting

Opportunities
Untapped markets Educate consumers regarding IKEA through advertisements Increase online sales and internet presence

Threats
Competitor- Walmart, Office Depot, Costco Highly fragmented market

IKEAs Problems in U.S.

Durability- Products fall apart after a few years. Different dimensions and sizes in American houses Style selection from the Matrix- Limited style. More IKEA lovers?- Need to appeal to wider
range of shoppers in U.S.

Adjustments to Overcome Problems

Increase Product line-ups and Merchandising (Market Research).
Commitment-free Ad campaign

Conclusion
Hardly, any furniture store has powerful brand image and loyal following as the furniture market in US is highly fragmented. Other furniture stores in US have gained market share by offering American designs and IKEA has gained the 14th position by offering a Niche style. IKEAs unique offerings and shopping experience along with the addition in their product line-up, IKEA will be able to compete in US market.

Suggestions

In order to reach their goal of 50 stores in US by 2013: New Designs- Localize the designs to appeal to Americans. (focus groups, Hire American designers) Ad campaigns- Re- introduce and re- market their national style to the world and remain true to their heritage.

Thank you.