Keys to IKEA’s Global Retail Success

In the 1950s, a small Swedish outfit started selling a flatpack table. It was a leaf-shaped, three-legged collapsible side table and, as The Daily Telegraphs Elizabeth Anderson wrote (Feb. 1), it sparked a home furnishings revolution and propelled IKEA on a path to becoming the world’s largest furniture retailer.”

The Ikea catalog is twice as widely distributed as the Bible and the company claims that one in every five British children is conceived on an Ikea mattress,” she wrote.

Because IKEA customers typically travel to the store to pick up the furniture, IKEA can operate fewer stores that double as warehouses.

But how did the company get to where it is today? Some of the answers are quite obvious: IKEA cuts its costs significantly by requiring customers to assemble the furniture, by using more affordable materials (like veneered particle board instead of solid wood), and by having stores that double as warehouses (similar to other big-box retailers like Costco or The Home Depot).

Because there are fewer store locations (315 worldwide), customers typically travel to the store to pick up the furniture (all neatly packed in compact boxes) and IKEA avoids having to operate (let alone ship to) small, satellite stores nearer to customers’ homes.

IKEA is now setting its sights on Asia, in hopes of tapping into its burgeoning middle class.

IKEA also specializes in inexpensive furnishings for apartment and small living spaces. And as much of the world becomes increasingly more densely populated, IKEA’s profits swell.

The company’s store count has almost doubled over the past decade,” Anderson wrote, and in the past year IKEA has opened 12 new stores, and entered South Korea and Croatia for the first time. The retailer is currently finalizing plans to open its first store in India, with 25 in the pipeline for the country over the next decade.

The move to the region will help IKEA to increase its presence in Asian markets, a key target for many retailers hoping to get access to the region’s rising number of middle-class consumers. Currently, 222 of IKEA’s 315 stores are in Europe.”

IKEA is successful for many reasons, but mainly for reducing operating costs, designing original and inexpensive furniture, and executing the upsell.

IKEA customers are also familiar with the stores’ maze-like construction. The showroom is similar to a casino: there are no (operating) clocks or windows anywhere, so you have no idea how much time you’re spending in there. This, of course, is by design.

Anderson quotes Alan Penn, a professor of architectural computing at University College London, who says the result of IKEA’s maze design is that 60% of the things people buy in the stores were not on their original shopping list.

So how did IKEA become so successful? For a lot of reasons, but mainly for its ability to reduce operating costs, to design original and inexpensive furniture, and to convince shoppers to buy more.