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Since 1997, Ikea has increased its number of stores by 51.

The company comprised 165 stores as of


August 2003, and there are plans to open a further 16 new stores in both fiscal 2004 and 2005. (Ikea
United Kingdom, 2005) However, although the company opened 14 new stores in fiscal 2003, sales
growth was only 2.7%, largely as a result of the depressed economic conditions across Europe, the
company’s core business region. (Global Market Information Database, 2004) Thus, it is clear that, in
order to improve performance at a significant level, merely opening new stores is not enough. Instead,
Ikea must assess its external and competitive environment, determine the key opportunities and
threats which face it, and align its strengths and weaknesses to best counter the weak consumer
market, and thus generate the strong growth it needs to remain a strong brand and presence in its
chosen markets (Johnson, Scholes and Whittington, 2005)

Introduction

Ikea’s business grew from strength to strength since Kamprad took the decision to transfer ownership
of the business to Stichting Ingka. Known for its Scandinavian style, the company has gone from
selling fish, vegetable seed and magazines as it did in 1943 to furniture other household items,
including dinnerware, pillows, lighting and rugs. A number of stores also include restaurants and
cafés. Recent years have shown a reduction in the growth of sales. A downturn in economic
conditions in the company’s core European market has played a considerable part in the deceleration.
Another key factor in the slowdown is perhaps a lack of strategic direction. Controlled by Ikea of
Sweden, marketing strategy is set worldwide with little variation and this is perhaps a factor in its
recent downturn of growth in sales.

However, an improvement in the economic climate in Europe and the company’s intention to strongly
develop its business in China, Japan and Russia may lead to an upturn in performance. The
developed nature of the Japanese market offers marked short-term potential, with its westernised
spending patterns, although Russia and China offer more medium-term potential: although spending
power is increasing, it remains relatively low. However, in order to generate this upturn in
performance, Ikea has to carefully analyse and consider the key issues in its external environment,
and act accordingly.

Changing Headquarters

Until September 2001, the company was headquartered in Denmark but due to problems such as
poor flight connections, a decision was made to relocate Group management, finance and treasury
departments to Leiden in the Netherlands and the rest of the headquarter departments to Sweden.
The move to the Netherlands was justified as Ikea’s parent company already has its registered office
in the Netherlands due to favourable government policies that benefited the company over and above
any other country in Europe, and Sweden is where the company originated. Sweden also plays a
significant role in Ikea’s marketing strategy. Ikea’s strategy has built its reputation through in-house
design of inexpensive furniture, and has included the formation of distribution and manufacturing
operations to complement the retail business. This shift in the company’s strategy has, for the most
part, proved highly successful and profitable, and has enabled the company to better align itself to the
issues in its key markets in mainland Europe and Scandinavia. (Global Market Information Database,
2004)
Marketing Strategies

Ikea’s success is based on principal marketing strategies that remain the same throughout the world,
which include a catalogue that is printed in 17 languages, for 28 countries, and the use of the colours
of the Swedish flag blue and yellow in the Ikea logo. This is combined with an emphasis on customer
freedom and choice with regard to buying and taking home products, and low prices intended to
create a “sale” mentality amongst customers. This aggressive price strategy coupled, with a wide
product range catering for every potential lifestyle and life stage of a consumer, can best summarise
the company’s recipe for success. The fact that Ikea targets all age groups and households makes it
an attractive proposition to a wide spectrum of most countries’ consumers, especially amongst
depressed retail markets, such as Europe at the moment.

External Operations

Unlike most other international retailers, the company does not involve itself in many joint ventures or
partnerships, and as of February 2004, Ikea was involved in three agreements. In February 2004,
Ikea announced the signing of an agreement with Telecoms giant Nortel Networks to deploy
interactive voice response technology for its customer service centres in Germany and Switzerland.
Ikea deployed Nortel Networks’s Voice Processing Series Information Server (VPS/is), a multimedia,
self-service platform that automates the transaction processing traditionally conducted by contact
centre agents. The agreement has improved the efficiency of Ikea’s services in these countries, which
was becoming a key issue for the company.

In July 2001, Ikea announced the signing of an agreement with Musicmusicmusic inc., a leading
music content provider, for the introduction of Industrial Sounds Services (ISS) into the new Ikea store
in Toronto. The service consists of a 12-zone system strategically situated throughout the various
departments and offices of the building, with its aim being to ensure that the store keeps and
motivates customers, as well as encourages staff. Ikea also currently has a SEK3 million agreement
with Nocom AB for the provision of server access products and services for Ikea’s standard platform.
The agreement also covers maintenance and support and applies to its use in the Ikea organisation
globally, enabling the company to rapidly grow and develop its online offering in order to counter one
of the key issues in its competitive environment: the move towards online retail

SWOT Analysis

Ikea’s main strengths are a strong international brand recognition built upon a unique philosophy and
low product prices, combined with solid sales performance since 1997. The company also maintains
total control of its design, pricing and supply of product ranges globally, and thus has a product
portfolio that caters for most consumer lifestyles and budgets. The firm’s main weakness is the fact
that it is very much reliant on Europe, with 82% of stores located in this region, and it has encountered
difficulty in meeting customer expectations of service as well as price, especially so in the UK where
large queues at the tills at weekends are a common feature.

However, Ikea is countering its main weakness with its key opportunity, which is expansion into
emerging markets in Asia and Eastern Europe. The development of premium lines, whether within
existing stores or through new high street fascias complementing the out-of-town stores, and an
increase of sales via the development of e-commerce sites in each country, are both improving
customer service, and reducing the volume demand on existing stores. Unfortunately, these extra
developments are driving the threat of a possible over saturation of the market, increased by the fact
that competitors are following suit, by introducing similar product ranges at low prices. This is
compounded by the negative impact on sales of continued depressed economic conditions in its core
European market as well as the adverse effect of a weak dollar on sales in the US, and the political
and economic instability of the Chinese and Russian markets, in which the company plans to invest
heavily in the short-mid term, also presents a potential threat. (Johnson, Scholes and Whittington,
2005)

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Conclusion

A steady development of the Ikea retail business appears to be the focus for the company in the near
future, with strategies unlikely to include aggressive expansion into new areas, but rather building and
developing in old. (Ikea United Kingdom, 2005) However, some changes may be seen with the
development of e-commerce, which in the long term, this may have detrimental effects on the revenue
of bricks and mortar Ikea stores, but positive effects on turnover for the company as a whole, and thus
is the main example of how the company is aligning itself to address the key threat to its traditional
stores. Consumers may find Internet shopping preferable, as the Ikea reputation means that they are
already assured of the quality and craftsmanship of Ikea products, which is opposed to the present
belief of Ikea that customers should be able to feel and check the quality of products before purchase.

Ikea has also adopted an aggressive expansion-based strategy over the last few years, although the
weakness of the external consumer market means that sales growth over the next few years should
remain relatively modest.

An upturn in economic conditions in Europe and the US, and the continued development of business
in China, Japan and Russia should lead to acceleration in growth from 2006, with year on year growth
predicted to reach double figures. (Ikea United Kingdom, 2005) The development of e-commerce,
making shopping at Ikea more accessible, may also have a positive impact on sales, although no
progress has been visible on this front of late, and as such Ikea has been very guarded over its profit
levels. However, profit margins may fall in the short term as result of the expansion into existing and
new emerging markets, with the company facing high set up costs and low spending power, as well
as several other external issues in developing markets. The company has already faced a number of
bureaucratic obstacles in Russia and further hurdles cannot be ruled out, with similar problems
potentially arising in China.

Bibliography

1. Global Market Information Database (2004) Ikea International A/S.


2. Ikea United Kingdom (2005) www.ikea.co.uk Accessed 23rd Nov 2005
3. Johnson, Scholes and Whittington (2005) Exploring Corporate Strategy: Text and Cases, 7th
Edition. Prentice Hall

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