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I.

Current Results of Strategy The financial results of Ikea are limited as to their availability due to the companys private ownership and structure which is primarily devised as a group owned by a non-profit for tax savings purposes. However, since 2010 Ikea has released limited financial results, in an attempt to provide a bit of transparency for its stakeholders and especially its customers.1 Nevertheless, Ikeas financial results of revenue increasing from 25 to 27 Billion Euro despite being a company that derives 70% of its revenue in the declining markets of Europe demonstrates, Ikea as the go to low cost furniture retailer in the region.

Ikea Consolidated Income Statement (In million of EUR) 2012 2011 Revenue 27,628 25,173 Cost of Sales 15,723 13,733 Gross Profit 11,905 11,400 Operating Cost 8,423 7,808 Operating Income 3,482 3,592 Total Financial Income & 427 165 Expenses Income before minority 3,909 3,757 interest and taxes Tax 695 781 Income before minority 3,214 2,976 interest Minority Interest -12 -10 Net Income 3,202 2,966
Source: Ikea Welcome Inside 2012 Report

The strategy seems especially effective, however, one can derive from the financials that the increased revenue is attributable to increased sales volume due most likely to decreased prices, since the gross profit margin has shrunk from 45% to 43%, while the net income margin remained relatively constant from 11.8% to 11.6%. Ikeas ability to achieve top line growth and bottom line growth was aided by the growth in financial income most likely derived from increase use of customer financing to drive sales.

Source: Ikea Welcome Inside 2012 Report

II.

Strategic Fit Addressing Opportunities and Threats Ikeas strategy and utilization of global sourcing has played rather well into the opportunities of expansion in emerging markets, especially China and India. The long standing relationship Ikea has with its suppliers in those markets like India has created the launch pad for Ikea to seize the opportunity India presents in the retail context. Indias 2011 amendment of the law allowing only 51% ownership

IKEA (2012, August). Welcome Inside FY 2012. Retrieved from http://m.ikea.com/ms/en_JP/pdf/yearly_summary/ys_welcome_inside_2012.pdf

by foreigners to 100%, coupled with Ikeas strong sourcing ties has paved the way for Ikeas proposed 1.85 Billion USD retail investment in the country.2 Ikea undoubtedly leveraged its deep ties to its Indian sourcing partners, which date back to 1982, to secure Indias often excessively bureaucratic governments final approval of Ikeas planned investment. Fittingly, the planned investment was coupled with Ikea announcing to double the existing 500 Million USD of sourcing from its Indian vendors.3 Ikea foray into China has been met with much skepticism, but their strategy for new growth markets is fits the global opportunities earlier identified. Ikea plans to add five stores to the 11 it currently has in China and boost the total to 40 by about 2020, demonstrates their continued commitment to pressing ahead in the face of massive doubt of the business model of Do It Yourself (DIY) furniture retail in untapped markets.4 In fact, Ikeas entrance in to the United Kingdom in 1956, was met with similar commentary about the consumer cultures readiness for DIY flat pack furniture. Yet, over 50 years later Ikea enjoys 10% market share in the UK, despite the highly fragmented nature of the retail furniture market.5 Yet, Ikeas growth into the emerging markets does present a quite different consumer value proposition then historically faced when entering developed markets as the low cost mass market brand. Ikea in emerging markets represents an international lifestyle rather than emphasizing price in the marketing mix since low prices for furniture is the norm. The threat of the decreasing purchasing power of Ikeas consumers would increase while the firm grows in the emerging economies among middle class consumers, especially since those markets have less social safety nets. For example, Four out of five middle-class Indians are in the lowest
2

India Clears IKEA's $1.95 Billion Proposal - WSJ.com. (May 2, 2013). Retrieved from http://online.wsj.com/article/SB10001424127887324266904578458840277908564.html 3 Asian Fabricx gears up for IKEA's India operations | Business Standard . (June 11, 2013). Retrieved from http://www.business-standard.com/article/companies/asian-fabricx-gears-up-for-ikea-s-india-operations113061100003_1.html 4 Ikeas Ohlsson Targets Fourfold Increase in China Stores by 2020 - Bloomberg. (April 2, 2013). Retrieved from http://www.bloomberg.com/news/2013-04-02/ikea-s-ohlsson-targets-fourfold-increase-in-china-stores-by2020.html 5 50 YEARS OF THE FLAT PACK - Mirror Online. (June 30, 2006). Retrieved from http://www.mirror.co.uk/news/uknews/50-years-of-the-flat-pack-631553

bracket of spending power, meaning they can spend $2 to $4 a day. Many of these 224 million people are not well educated, employed in unstable jobs in the unorganized sector.6 Consequently, Ikea may face larger spikes and troughs of the global market since its consumer base will be more susceptible to economic downturns and unlike in Europe where Ikeas low cost leadership makes its furniture as haven during recessions, the international lifestyle value proposition does not play well with economic hardship.7 Addressing Resources & Capabilities Ikeas susceptibility to the rise in price of raw materials is addressed with its strategy for stakeholder engagement, especially with its vendors. Ikeas ability to work with suppliers to design products that use less material but are higher in quality demonstrates the drive for innovation at the core of Ikea. (Ikea Welcome Inside report). This keen drive for adaptation is what Ikea must see be aggressively pursued utilizing Ikeas vast design focused resources. Moreover, Ikeas recent leadership change where 87-year-old founder Ingvar Kamprad, Ikea founder, stepped down as Ikea Group chairman and the appointment of his youngest son, Mathias, demonstrates the energy the continued innovation at Ikea will require. III. Recommendations Diversify Design Concepts In order to achieve Ikeas planned 50% expansion by 2020 in existing and emerging markets and will depend largely of the contours of the firms strategy for market entrance with consumers motivated and accustomed to different furniture.8 At present Ikea sells 86% of its products to developed markets and its international design and branding are highly recognizable to those European style inspired and influenced consumer.9 Ikeas growth has been largely shaped by both pull and push strategies for its products with consumers, the push strategy has largely worked due to the cultural similarities of Europe and the United States. Therefore, Ikea must develop a boarder scope of designs that capture Ikea aesthetic but strongly incorporate different regions of world, like Africa, Southeast Asia and Latin America in to their collections.

The myth of the great Indian Middle class: Roughly 30% of India's population still lives below the poverty line | Mail Online. (May 20, 2013). Retrieved from http://www.dailymail.co.uk/indiahome/indianews/article2327182/The-myth-great-Indian-Middle-class-Roughly-30-Indias-population-lives-poverty-line.html 7 One size doesn't fit all: IKEA goes local for India, China| Reuters. (n.d.). Retrieved from http://in.reuters.com/article/2013/03/07/ikea-expansion-india-china-idINDEE92603L20130307 8 Ikeas Ohlsson Targets Fourfold Increase in China Stores by 2020 - Bloomberg. (n.d.). Retrieved from http://www.bloomberg.com/news/2013-04-02/ikea-s-ohlsson-targets-fourfold-increase-in-china-stores-by2020.html 9 IKEA (2012, August). Welcome Inside FY 2012. Retrieved from http://m.ikea.com/ms/en_JP/pdf/yearly_summary/ys_welcome_inside_2012.pdf

Formalize Furniture Assembly In low wage emerging markets, like China & India, Ikea should develop a channel supply chain of installers as an add-on service for its patrons. Ikeas target market for emerging markets is the middle class that seek symbols that represent their international lifestyle. Ikea must create methods to ease the transition to flatpacked self assembled furniture that maintains the value proposition of an international lifestyle, which unlike in developed markets wont simply be written off because of the low price. The emphasize on the product delivery and assembly services Ikea already has and the creation of a training certificates for independent assembly companies would formalize and seemingly internationalize the assembly process for consumers seeking to bypass the DIY Ikea element. The engagement of these independent assembly companies would also expand the brand recognition of Ikea furniture. The workers exposure to the furniture would generate desire to one day own the furniture they assemble and thus further the Ikea brand reach beyond the middle class consumers that have the disposable income to afford the furniture to the lower wage workers who may aspire to own such. Expected Benefits The recommendations above are designed to set Ikea to capture the opportunities the emerging markets present. Ikea capturing the global standards middle class of those emerging markets with the aim of achieving the companys 50% growth target by 2020 and providing an even greater opportunity beyond that period. Crafting new product design mix, sourcing ideas from all corners of the world will place Ikea into the position to maintain its international allure by marketing the new designs to the domestic markets of origin and as specialty lines in other markets. Adjusting to local consumer taste is nothing new for Ikea, however the drastic shift in cultures from the developed markets to emerging economies is key to meeting or exceeding sales targets. Ikea would benefit from the development of a robust formal independent assembly supply chain by deepening its reach in new communities prior to establishing its center. This would create broader brand awareness and create brand value to potential consumers. An additional revenue stream proposition is also available through the establishment of a certification program for independent furniture assembly providers. The nature of emerging markets would present an opportunity to engage the community and grow deeper relationships, creating sustainable family income which is the hallmark of the Ikea Foundation. Conclusion Overall, Ikeas strategy moving forward should be embarked on with emphasis placed on careful and deliberate market entrance that stays true to Ikeas balanced growth, expanding from existing resources. The key to Ikeas future growth is centered upon how

the Swedish furniture giant learns, understands and adapts beyond global sourcing in emerging economies to retailing in those markets. The benefits of reduce shipping costs for goods to stores thereby increasing margins and the ability to ride the wave of the rising middle class will set Ikea up for another 70 years of growth.

COPE Document Sources: Ikea Found Ingvar Kamprad step down as Chairman, The Telegraph June 5, 2013 Szu Ping Chan http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10100082/Ikea-founder-IngvarKamprad-steps-down-as-chairman.html 50 Years of the Flat Pack, The Mirror, June 30, 2006 Nick Webster http://www.mirror.co.uk/news/uknews/50-years-of-the-flat-pack-631553 The Myth of the Great Indian Middle Class: Roughly 30 percent of Indias population still lives below the poverty line, May 20, 2013 Radhika Saraf http://www.dailymail.co.uk/indiahome/indianews/article2327182/The-myth-great-Indian-Middle-class-Roughly-30-Indias-population-lives-poverty-line.html Indias Middle Class: Growth Engine or Loose Wheel, The New York Times International Herald Tribune, May 13, 2013 Sambuddha Mitra Mustafi http://india.blogs.nytimes.com/2013/05/13/indias-middleclass-growth-engine-or-loose-wheel/ India Clears IKEAs $1.85 Billion Investment Plan, The Wall Street Journal, May 2, 2013, Rajesh Roy http://online.wsj.com/article/SB10001424127887324266904578458840277908564.html IKEA Reshuffles the Furniture with New Generation, Reuters, June 5, 2013, Alistair Scrutton and Anna Ringstrom http://www.reuters.com/article/2013/06/05/sweden-ikea-idUSL3N0EH2WT20130605 IKEAs Ohlsson Targets Fourfold Increase in China Stores by 2020, Bloomberg News, April 2, 2013 http://www.bloomberg.com/news/2013-04-02/ikea-s-ohlsson-targets-fourfold-increase-in-china-storesby-2020.html One Size Does Not Fit All, IKEA goes local for India, China, Reuters, March 7, 2013, Anna Ringstrom http://in.reuters.com/article/2013/03/07/ikea-expansion-india-china-idINDEE92603L20130307 Strategy: Ikeas Global Brand & Local Knowledge Drives Expansion into Emerging Markets, Business Studies, April 22, 2013, Jim Riley http://www.tutor2u.net/blog/index.php/businessstudies/comments/strategy-ikeas-global-brand-local-knowledge-drives-expansion-into-emerging Global Furniture & Floor Coverings, MarketLine Industry Profile, April 2013 Welcome Inside, IKEA Group Yearly Summary FY 2012, IKEA Group http://m.ikea.com/ms/en_JP/pdf/yearly_summary/ys_welcome_inside_2012.pdf Asian Fabricx gears up for IKEA's India operations | Business Standard. (June 11, 2013). Retrieved from http://www.business-standard.com/article/companies/asian-fabricx-gears-up-for-ikea-s-indiaoperations-113061100003_1.html

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