IKEA’s is a furniture design company specializing in selling flat-packed furniture, kitchen appliances, and other home accessories. The IKEA business model provides the framework for how the company runs profitably.
IKEA operates as a franchise and earns the majority of its profit from annual franchise fees. Aside from that, they accrue income through selling products and retail catalogs to franchisees.
Additionally, the company’s sale of ready-to-assemble furniture and the unique structure of its physical stores and customer-friendly online stores serve as a secondary means of income.
Using these systems, IKEA became the world’s largest furniture retailer.
A brief history of IKEA
IKEA was founded in 1943 by Ingvar Kamprad as a mail-order sales company and only introduced furniture to their sales five years later, in 1948. Möbel-IKEA, their first store, opened in 1953 in Almhult, a town in Samland, southern Sweden.
In 1963, the first IKEA store outside Sweden opened in Norway, and its Denmark store closely followed it in 1969. IKEA quickly spread to other parts of Europe throughout the following decade, with showrooms opening in Switzerland (1973) and West Germany (1974).
By the decade’s end, IKEA had already established itself as a top player in the furniture industry, opening stores and showrooms in different parts of the world. In 1973, the company operated in Japan through a joint retailer named “IKEA Corner.”
Unfortunately, due to corporation problems, the Japanese business was shut down in 1983, only to return twenty years later in 2003. In 1975, IKEA opened stores in Australia, Canada, and Hong Kong. And in 1978, Singapore and the Netherlands got their slice of the IKEA pie.
The 1980s brought further expansion for the company following the opening of stores in France, Spain, Belgium, the United States, the United Kingdom, and Italy.
IKEA first appeared in Latin America in February 2010, opening its first branch in the Dominican Republic. The first store in India opened in August 2018 in Hyderabad, the capital of southern India’s Telangana state.
IKEA’s largest store, measuring 65,000 square meters, is in the Philippines and opened in November 2021.
2019 marked the launch of the company’s mobile app, IKEA Place. The application allows users to see how products would look in their own homes. It, combined with other features, has made the app extremely popular among consumers, leading to over 31.3 million downloads and a 4.6-star average rating.
Due to the COVID-19 pandemic, IKEA has had to cease publication of its popular annual catalog after seventy years in print. The company has also been forced to shut down one of its stores in Guiyang and is undergoing stock shortages and shipping problems. The prices of their products have also increased.
In March 2022, IKEA paused all retail operations in its 17 Russian stores and its stores in Belarus as a result of the Russian invasion of Ukraine. The company announced in June 2022 that it would sell all four factories in Russia, close its offices, and reduce its workforce.
IKEA is owned by Inter IKEA Holding B.V., a holding company under the private foundation Interogo Foundation. Intego Foundation is a self-owned entity, and there is no individual beneficiary.
Who Owns IKEA
Inter IKEA Holding used to be under the ownership of IKEA’s founder, Ingvar Kamprad but is now run by the company’s CEO, Jon Abrahamsson Ring.
IKEA’s Mission Statement
“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.”
How does IKEA makes money?
All IKEA stores (except one) operate under franchise agreements, and the company makes most of its money from annual franchise fees and the wholesale of products to franchisees.
IKEA combines this franchise system with a direct producer-to-consumer system to generate income.
Franchise fees
In exchange for access to the IKEA trademarks, authorization to market and sell the IKEA product range, and managing IKEA stores and sales channels, IKEA franchisees pay Inter IKEA Group an annual fee of 3% of their net sales.
Sale of goods
IKEA franchisees must purchase their store’s inventory from the company’s product supplier. The wholesale of IKEA products to franchisees generated $25.46 billion in revenue in 2021.
Sale of catalogs and other materials
The sale of the IKEA catalog and other materials created for IKEA franchisees is marked under what the company refers to as “other income.” It makes up the least percentage of the company’s income.
IKEA’s Business Model
To understand the IKEA Business Model, you have to understand the following business model canvas:
IKEA’s Customer Segments
IKEA’s customer segment is single customer-oriented.
IKEA targets young middle-class individuals who are cost-conscious and in need of stylish, quality furniture. The company provides for them by offering such products at a lower price than competitors.
IKEA’s Value Proposition
IKEA’s value proposition consists of:
- Ready-to-assemble furniture system: IKEA offers this DIY style of furniture to customers, which not only attracts them to its easy nature of transportation and assembly but also to the satisfaction gained from building something from the ground up;
Use of renewable sources: The use of renewable resources attracts customers to the eco-friendly side of the company, as well as creates a healthy balance between business and the environment.
IKEA’s Channels
IKEA’s channels consist of:
- Physical stores
- Website & Mobile app
- Catalog
IKEA’s Customer Relationships
IKEA’s customer relationships consist of:
- Customer support
- Social media
IKEA’s Revenue Streams
IKEA’s revenue streams consist of:
- Franchise fee
- Wholesale of goods
- Sale of catalogs and materials
IKEA’s Key Resources
IKEA’s key resource involves around 1,400 suppliers from over 60 countries. These suppliers provide IKEA with furniture designs, wood, distribution facilities, and other necessities the company requires to function.
- Suppliers Network
- Brand
- Stores
IKEA’s Key Activities
IKEA’s key activities consist of:
- Designing of furniture
- Manufacturing of furniture
- Sale of furniture
IKEA’s Key Partners
IKEA’s key partners consist of:
- Designers
- Carpenters
- Manufacturers
- Transporters
- Delivery companies
IKEA’s Cost Structure
IKEA’s cost structure consists of:
- Manufacturing of designs
- Manufacturing of products
- Distribution
IKEA’s Competitors
- Walmart: Walmart is famous for providing a wide range of quality products. One such product is home furnishings. As a popular retail brand, their furniture is not only of good quality but also easily available and affordable;
- Amazon: Amazon provides its services online and offers a wide range of furniture under the name “Amazon Home.” Their provision of easy installation and free scheduled delivery services makes them a top IKEA competitor;
- Wayfair: It’s an American e-commerce company specializing in selling furniture and home accessories online. Their unique user interface, as well as their provision of free shipping, encourage customers to choose their products over IKEA’s;
- Tesco: A United Kingdom-based company, Tesco Home and Furniture, offers attractive discounts and services to customers;
- Pepperfry: Pepperfry is an online furniture shop in India that provides home decor, furniture, and other homeware at affordable prices. Their products, prices, and the wide reach the company has in their home country make them one of IKEA’s competitors;
American Woodmark: American Woodmark is a kitchen and bath cabinet manufacturer based in Virginia. The company offers unique cabinet designs and is very popular amongst American homebuilders.
IKEA’s SWOT Analysis
Here’s a breakdown of IKEA’s SWOT analysis:
IKEA’s Strengths
- Customer knowledge: IKEA understands its target market and creates products that suit customers. All products are designed in a way that makes them easy to transport and assemble and offers a positive shopping experience for customers;
- Use of innovations to drive down costs: IKEA boasts of its low prices, and the company is constantly finding new ways to reduce the cost of products while simultaneously keeping them of high quality;
- Supply chain integration: IKEA’s supply chain is structured in such a way that costs are reduced during supply;
- Brand reputation and market presence: IKEA has succeeded in establishing itself as a furniture retailer giant, and the company’s worldwide presence and reputation draw customers to it;
- Diversified product portfolio: Besides providing furniture, IKEA runs restaurants, houses, and apartments. The company’s diversified portfolio saves it from the changing furniture market forces that affect competitors.
IKEA’s Weaknesses
- Negative publicity: The company has been widely criticized for a slew of reasons, ranging from price discrimination to illegal wood sourcing practices;
- Decreasing quality: Unable to find a way to maintain quality with the increasing price of materials, IKEA has taken to using cheaper alternatives of less quality, which leaves customers dissatisfied;
- Standard products: IKEA deals with standard products, so customers needing customized goods have no place to shop with the company, leaving competitors to satisfy that need of potential customers.
IKEA’s Opportunities
- New markets in developing economies: Retail markets have the potential for growth and expansion in developing economies that have so far gone without such businesses. IKEA will benefit from spreading its reach to developing economies;
- Expansion into the growing grocery market: IKEA has already taken the initiative of adding restaurants to its stores, and the company could profit greatly from going into the grocery business.
IKEA’s Threats
- Intensifying competition: IKEA’s competitors are quickly catching up with the company as they offer virtually the same products at the same or even cheaper rates;
- Growth of consumer income: IKEA is about offering low-quality products, which are only attractive to people trying to cut costs. The growing average income of consumers means they will go for more expensive, luxurious products, thereby leaving the company behind.
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In Conclusion
IKEA is the world’s largest furniture company known for its high-quality, low-cost DIY furniture, kitchenware, and home accessories.
The company aims to improve everyday life for many people and has since succeeded.
