IKEA Case Write-Up

Short summary of the case

In 2016 IKEA was the largest furniture retailer in the world but was facing critical strategic decisions. These decisions included
decisions about new store formats, how to maintain the competitive advantage with emerging competitors and overall how to
follow their ambitious growth plans. This case write-up will examine these challenges and provide answers to three
fundamental questions. Would IKEA maintain its ambitious growth strategy? Should IKEA keep its click-and-collect stores?
How can IKEA maintain its competitive advantage and continue to be the market leader?
Current Situation and Key Strengths
In 2016 IKEA held a dominant position in the furniture retail market. In 2012 IKEA had 5,6% global market share, far more
than any other competitor. Their revenue accumulated to $37.1 billion with a strong profitability at $4 billion net income in
2015. The reason for these impressive numbers is their key strengths which include a unique business model, operational
excellence and brand value. Their unique business model is shaped by their design-to-cost approach and a self-service store
concept. Furthermore they also foster a strong cost consciousness culture. They have achieved operational excellence as they
have implemented continous product improvement with efficient packaging and logistics. As they have a vertically integrated
supply chain and strong supplier relationships they can also follow strong quality control. They also have very distinguished
brand value as they have an established corporate culture and a clear market position leading to strong customer loyalty. At
the heart if their brand value is still their roots of Scandinavian design.
IKEA’s Growth Strategy
IKEA’s current growth strategy is to grow by 50% in 5 years to €50 billion by 2020. This ambitious strategy presents
significant challenges. To achieve the target growth rate, IKEA’s Compound Annual Growth Rate would have to be around
8.5% annually. The growth of 2016 has already fallen behind that target. Even the founder Kamprad previously publicly
criticized management for these overambitious growth targets. These overambitious growth targets could lead to quality risks.
The current product development cycle is 3-5 years with extensive home visits, research and careful cost engineering. Growth
pressure could lead to shortened development cycles, reduced testing tomes and compromised cost optimization. The pressure
could also lead to supplier relationship strain. IKEA has long-term partnerships with direct quality monitoring. The increased
pressure could lead to a need for rapid supplier network extension leading to reduced time for supplier development and more
complex quality control. Overall rapid growth threatens quality consistency and supplier relationship management. Because
of these issues I would a revised growth target. The target should be reduced to 30-35% over 5 years with a new Compound
Annual Growth Rate of 55-6% annually. These goals are more aligned with historical growth rates and allow to maintain
quality. The geographic focus should be on existing strong markets to further strengthen its presence like Germany, the US
and France. IKEA could also expand in growth markets selectively like China and Russia. Overall IKEA should moderate its
growth targets to ensure a sustainable expansion without compromising quality.
Click and Collect Stores
The shift to click-and-collect stores represents a significant change. In 2016 IKEA opened 19 new click-and. collect stores
versus 12 traditional stores. The website was visited 1.9 billion times versus 771 million store visits indicating a 171% increase
in website visits and digital engagement. This shift requires a balance between online and physical presence. The physical
stores have limited product display but have customer service areas and often include restaurants. The click-and-collect stores
have variable collection fees and different rates for different parcel sizes and are generally focused on customer service for
complex purchases. Click-and-collect stores offer strategic benefits like lower real estate costs, urban market penetration,
 IKEA Case Write-Up
faster market entry and reduced holding costs. However the current challenges include an inconsistent pricing model, limited
product experience and complex logistics requirements. Therefore IKEA should standardize their click-and-collect stores.
This includes developing consistent store templates, standardizing the pricing structure, creating uniform service offerings
and establishing clear operational procedures. For its location strategy it should focus on urban centers, areas with high digital
adoption and high-income locations. IKEA should also enhance their service at these stores with design consultations, virtual
planning tools and home delivery and installation options. Further IKEA could enhance its digital capabilities in general by
developing online visualization tools or implementing advanced analytics for inventory management. Overall the
recommendation is to continue the expansion of click-and-collect stores but with standardization and careful market selection
while still maintaining their traditional stores in key markets.
Competitive Advantage and Competitors
Currently IKEA is the market leader in global home furnishings with $37.1 billion in revenue in 2015. IKEA has a unique
integrated business model combining design, manufacturing and retail. One of IKEA’s competitive advantages includes cost
leadership. As IKEA follows a design-to-cost approach and continous cost reduction through redesign they have very low
prices in comparison to their competitors. Further efficient packaging and logistics and scale economies in procurement and
distribution further lower the prices. IKEA also has a distinctive business model with a self-service retail concept, standardized
store experience and strong corporate culture. This all leads to a clear brand identity with consistent customer experience
globally. Furthermore IKEA has strong catalog marketing and a family-friendly store environment leading to good customer
experience and therefore customer loyalty. The last competitive advantage is the integrated value chain as IKEA has control
over design, sourcing, manufacturing and retail. They have long-term supplier relationships and an efficient distribution
network with standardized processes. The key challenges are the potential for new entrants like E-commerce competitors or
traditional furniture retailers and changes in the retail landscape. To strengthen its competitive position IKEA should continue
to focus on cost reduction through design. They should also expand sustainable product offerings to keep up with changing
market demand. IKEA should also maintain its Scandinavian design identity while adapting to local needs. IKEA should also
enhance its service and develop premium delivery and assembly services. They should also strengthen their after-sales support
to enhance customer satisfaction. To strengthen its supply chain IKEA should increase vertical integration in key markets and
invest in automation and efficiency. Overall IKEA can maintain its market leadership and adapt to changing retail landscapes
by focusing on selective expansion, enhanced digital capabilities and a strengthened competitive position. IKEA has to
maintain its core competencies while evolving its business model for the future.