IKEA: A Rags To Riches Story

By: Nabh Chaudhary & Anudeex Shetty

An IKEA Store Image Source: gazettereview.com

Introduction

What began in 1943 as a mail-order sales business in a tiny Swedish town has become the world’s largest furniture company. IKEA sells a bewildering $28 billion of furniture each year, operating 351 stores in 43 countries. Be it the flat-packed furniture, the crazy affordable prices, the meatballs. The 70-year-old Swedish brand is not just that it is much cheaper, better-looking, and more efficient than most competitors. But the truth is, there is so much more to learn about this international mega-store. Read on below: You’ll be surprised.

The Genius Behind IKEA

Ingwar Kamprad Image Source: businessinsider.com

In the 1920s, a rather entrepreneurial young man from Sweden, named Ingvar Kamprad, not satisfied with being a typical five-year-old, decided to set up his first business, selling matches to his neighbours. By the time he is seven years old, he has enough money to buy a bicycle and start selling his matches in places outside of his own area. He quickly realises that it is cheaper to buy matches in bulk, in Stockholm, where then he can then sell them individually at a profit. This buy in bulk and sell on individually mindset then progresses onto other items, including Christmas tree decorations, pencils, greeting cards, flower seeds, and ballpoint pens.

At 17, in 1943, Kamprad’s father rewarded him with a small sum of money for doing well in school, despite being dyslexic. With it, Ingvar founded a business named IKEA, an abbreviation for Ingvar Kamprad from Elmtaryd, Agunnaryd, his boyhood home. Selling items such as pens, picture frames, and nylon stockings, the business aim was to meet the needs of Swedish customers at greatly reduced prices. By 1948, furniture was introduced to the IKEA range.

Swede Ingvar Kamprad began with two empty hands to become one of the richest people in the world — as the founding owner of furniture chain store, IKEA. Though past 85, Kamprad still travels the world to visit new IKEA stores. He flies economy class, calls his employees ‘co-workers’, encourages everyone to dress informally, stays in cheap hotels, and even replaces bottles from the hotel room mini-bar with cheap bottles bought in local supermarkets. He drives an old Volvo. He gives no interviews.

The Rise Of Flat-pack Furniture

The driving idea behind IKEA was, and is, that anyone should be able to afford stylish, modernist furniture. Kamprad felt he was not just cutting costs and making money, but serving the people as well.

Two years after starting IKEA, Kamprad began using milk trucks to deliver his goods. In 1947, he started selling furniture made by local manufacturers. By 1955, manufacturers began boycotting IKEA, protesting against Kamprad’s low prices. This forced him to design items in-house.

In 1951, Ikea had a rather clever employee named Erie J. Sauder, who came up with a genius idea for a table that he couldn’t fit into his car. He worked out that furniture could be made in parts and sold to customers, and assembled once it was in the home. Ingvar Kamprad was blown away by the invention and quickly changed his business model to suit the flat-pack concept. By 1956, the first piece of flat-pack furniture was launched and IKEA has never looked back.

IKEA has come on in leaps and bounds since 1956, producing dozens of flat-pack furniture ranges that appeal to all types of customers. People loved the idea of buying items for the home at a cheaper rate, even if they then had to assemble it themselves. In 1960, the first IKEA restaurant was opened in the IKEA store in Älmhult, Sweden. By 1989 IKEA had spread to France, Belgium, USA, UK, and Italy.

Ingvar Kamprad is the kind of man that doesn’t like to do things by halves, which is why he saw a golden opportunity and took it. He realised that he could sell his furniture to a wider audience by putting together a catalogue and distributing it around Sweden. The first ever IKEA catalogue was published in 1951. From then the brand continued to grow, with the first ever showroom opening up in 1953. This showroom was a huge step for IKEA and it’s customers, as people could finally see and feel the furniture that they would then go on to buy.

The First IKEA Store… Where it all started…

Amid a high level of success, the company’s West German executives accidentally opened a store in Konstanz, in 1973, instead of Koblenz. Later that decade, stores opened in other parts of the world, such as Japan (1974), Australia, Canada, Hong Kong (1975), and Singapore (1978). IKEA further expanded in the 1980s, opening stores in countries such as France and Spain (1981), Belgium (1984), the United States (1985), the United Kingdom (1987), Italy (1989). The company then expanded into more countries in the 1990s and 2000s. Germany, with 50 stores, is IKEA’s biggest market, followed by the United States, with 44 stores. At the end of the 2009 financial year, the IKEA group operated 267 stores in 25 countries.

But this was not the pinnacle; IKEA saw its unprecedented success in China in last decade where its business improved manifolds. But what’s next? The answer is India. Swedish furniture major has said its India expansion plans have gained momentum as it posted a 7.1 per cent increase in global annual sales to EUR 34.2 billion. IKEA has bought land in Mumbai and is searching for suitable locations in its prioritised places like Delhi NCR, Karnataka, Maharashtra, and Telangana. The company’s focus now is to bring great home furnishings inspiration for the Indian consumers and double the sourcing by 2020, adding on a number of suppliers for different home categories including materials locally found in India like bamboo, jute etc.

How Has IKEA Become So Successful?

It boils down to three things:

Tax dodges, design, and supply chain optimisation.

So, if you’re going to sell physical goods at scale, it’s hard to imagine a tougher nut to crack than housewares. Shipping is a bear, thanks to complicated shapes, fragility, variations on taste, and design preferences. But imagine how lucrative it would be if you could find a way around all that. Everyone in industrialised nations needs furniture. The demand is universal, ongoing, and experiencing growth as prosperity comes to larger numbers of people. So, if you could just find a way to produce this stuff in a way that’s affordable to customers and scale-able into a global business, well, yahtzee, you’ve got an entire herd of cash cows.

This is exactly what IKEA has done.

  1. Solving the worst part of buying furniture.

Before IKEA existed, people saw furniture as an investment for the next 20 years. This resulted in a lot of anxiety and indecision. IKEA created products that were nicely designed, if not particularly durable, that were intended to be used immediately… and disposed off when they wore out or, more likely, when the user had moved on to a different taste level or purchasing strata.

  1. Hitting the right areas

IKEA resonates with young people. The products are clean, with simple aesthetic, and “whimsical” names. IKEA is also known for paying workers a living wage and being transparent about the production process.

  1. Not expensive, but not too cheap.

IKEA’s price point is perfect. While prices are cheaper at deep discounters like Aldi, shoppers feel they are getting a good value at Ikea. Still, IKEA is much cheaper than competitors like West Elm, and Bed, Bath & Beyond.

Conclusion

It’s quite impressive how IKEA have reached the riches and the expansion they have seen despite starting from rags– so many of the rough edges have been sanded down to aerodynamic perfection. They make the customer feel good. They found ways to shelter their money. So, the short answer to their reason of success:

They did everything right and got away with it.