IKEA

Jonathan Reynolds
Oxford Institute of Retail

IKEA
Management

It is rare for a single store opening in

Warrington, north-west England, to
arouse concern amongst UK retailers.
However, when that store is a 182,000
sq ft outlet for the Swedish furniture
and home furnishings retailer IKEA,
representing the Company's first foray
into the UK market, the disquiet
becomes understandable. IKEA have
established an enviable reputation for
combining competitive pricing with
high quality merchandise, within an at-
tractive store setting. IKEA's high level
of customer service is well-known and
contrasts with the current practices of
many flat-pack retailers in the UK. The
Company's apparent ability to
translate similar store formats and pro-
duct ranges internationally, whilst en-
couraging a certain degree of product
sourcing from within the host country,
is effective. These features are deriv-
ed from a corporate culture and spirit
personally driven, until recently, by the
Company's founder, Ingvar Kamprad.
This article reviews the history of
IKEA, its level of international
representation, its marketing and
presentational style.

History
Ingvar Kamprad's company had its
origins in 1940s Sweden, when the then
17-year old Kamprad set up a small
a competitive company
business with deliveries organised from
home using the local milk van. The
company name comprises Kamprad's
with style
initials, together with 'Elmtaryd' (the
family farm) and 'Agunnaryd' (the
name of his village). Products then
sold included seeds and household
items. When this delivery service stop-
ped in 1947, Kamprad took the oppor-
tunity to transfer to mail order, and
gradually extended his range to include
the output from local furniture fac-
tories — products he had identified as
suffering from a poor distribution net-
work and which had hitherto been
overpriced.
By 1949, he produced his own fur-
niture catalogue and, four years later,
moved south of his home village to
Almhult, where he opened his first
32 RETAIL & DISTRIBUTION MANAGEMENT, MAY/JUNE 1988
 IKEA
store selling products advertised in the in-store facilities including baby- A wonderful problem! It forces us to
catalogue. His subsequent move to a changing rooms, supervised children's develop products in a more economical
second store, in what is now nearly play areas — the Ballroom for 3 to 7 way." Ingvar Kamprad.
half a million square feet of retail year-olds and an Activity Room for
space, outside Stockholm, marked the 8-12 year-olds — information centres The Typical Store: the US and
beginning of extensive, but always and cafes and restaurants selling Scan- France
cautious, expansion. dinavian dishes. IKEA Virginia Inc opened in the
For all this to happen, a con- Autumn of 1986 in a new Factory and
International Representation siderable amount of space is required Discount Centre off Inter-State 94 bet-
After opening stores in Norway and to both attractively display and stock ween Washington and Richmond,
Denmark, Kamprad took the IKEA the range, of only some 12,000 lines, Potomac Mills. The Washington
concept outside Scandinavia for the and the ancillary facilities. The typical development was IKEA's second store
first time in only 1973, with the open- IKEA store therefore occupies up to in the US after their initial investment
ing of the first Swiss outlet in Spreiten- 250,000 sq ft — perhaps up to ten in Philadelphia, at the Plymouth
bach, near Zurich. It was a small times the size of a typical B&Q DIY Meeting Mall. The Company's entry
market in which "failure would not be Supercentre — allowing the Company into the US has been exceedingly
too damaging" (4). IKEA now has to display up to 100 room settings cautious, mindful both of the failures
over 72 stores in 19 countries world- simultaneously, but with an impressive experienced by many larger companies
wide, granting franchise operations in attention to detail, and still maintain- in trying to crack the market, but also
countries where direct Company ing a comfortable and spacious at- of the tendency of US companies to
operations were seen to be risky. mosphere. A five weeks back-stock is produce 'me-too' formats in rapid
As a result, with 1986 sales for the carried as standard. order. Neither IKEA store offers mail
company estimated to be in the order For those unable to get to an IKEA order "in order to serve our in-store
of £1.7 billion, some 70% were deriv- store, many country operations offer customers better" (US store
ed from outside Sweden. Profits are a mail order service, incorporating catalogue). Their first Philadelphia
undisclosed. International expansion over 3,000 product lines. Indeed, over store, at 180,000 sq ft, was a runaway
has not gone completely unhindered: 44 million catalogues are produced an- success, which reportedly took $1
when the Canadian franchise ran into nually, in ten languages. The produc- million from 150,000 customers in its
trouble in the late 1970s it was bought tion of the catalogue is much herald- first five days of trading, drawing
out by the parent company — because ed in Scandinavia — where it received customers from as far away as New
of the possible effects upon prospects regular reviews in the press. Prices an- York. Opening day produced an eight-
in the US. But IKEA's most successful nounced in a September catalogue are mile tailback along the Pennysylvania
venture by far has been into Germany, guaranteed for a year. Much as in the Turnpike.
where seventeen stores were opened case of Habitat, the catalogue also has A visit to the Virginia store reveal-
from 1974 onwards. Germany ac- the desirable effect of raising consumer ed considerably quieter trading,
counted in 1985 for one-third of cor- consciousness of the IKEA offer. although the visit was made mid-week,
porate sales. Contrary to rumours circulating in just after the Centre opened. Even at
the UK, only 20% of IKEA's product this slack period, nevertheless, a
Marketing range is sourced from Eastern Europe. sizeable queue had developed outside
"IKEA must develop a very large pro- Of the remainder, by far the largest the store. Customers were initially
duct range for the home which is at the proportion, some 52%, comes from directed to a reception desk where a
same time aesthetic, functional and of Scandinavia, with 21% from West free catalogue, pencil, pad of paper
good value, in order to be accessible Europe and 7% elsewhere. In France, and measuring tape might be collected.
to the greatest possible number of peo- the amount of local sourcing has tend- Offspring could also be deposited in a
ple" — Ingvar Kamprad ed to be roughly equivalent to turnover Ballroom (filled with plastic balls)
Kamprad's objective is to supply ex- — some 95m FF in 1985. In order to under supervision.
clusive and reliable flat-pack Swedish- cut costs further, furniture is design- The quality of shopfitting was most
designed furniture at bargain prices. In ed from the start to be mass-produced. impressive, with ash parquet flooring
addition to mainstream furniture Design and production engineers in and robust and convincing room
items, each store's Marketplace the Company think laterally — mak- displays. Despite the size of the store,
department offers complementary ing use of manufacturers who are best the low ceilings and complex walkways
home furnishing and housewares. able to produce particular com- made for a shopping experience on a
However, the product offer is made up ponents. The classic example of this is considerably more human scale than
into a package with the intention of a shirt manufacturer who produces we had expected. Moreover, the im-
making a typical shopping trip a day seat cushions for the Company. pression was not ostentatious. One of
out for the family. Special in-store "If we charge too much we do not the Company's objectives is to reassure
competitions and events, with bands keep the lowest price profile. If we customers that it is cost-conscious.
and clowns, are in addition to standard charge too little, we get no resources. " Wasteofresources is a mortal sin"

33
IKEA

— Ingvar Kamprad. Nearly a third of these visitors were price-cutting themselves, or an effec-
The customer is encouraged to try coming from the Essonne departement tive marketing exercise to convince the
out the merchandise in the furniture in which Evry is located. A further customer that Habitat merchandise
showroom and, for those still 19% came from Paris itself, 17% from still represents value for money.
suspicious of the effects of wear and the west of the Region Parisienne and Habitat's product exclusivity has
tear, seat testing machines work between 10%-12% from the departe- always allowed it to trade up — con-
demonstration products to destruction. ment of Seine-et-Loire to the east. The sumers are likely to find this less and
At each display, pricing information, role of the catalogue (common to all less attractive in the light of an IKEA
product dimensions and characteristics IKEA stores) was important in attrac- presence in the UK. To counter this,
are itemised on a standard ticket. ting customers from as far away as Habitat is the established name in
Where appropriate, point-of-sale Brittany and the Val de Loire to shop fashionable furniture retailing in the
leaflets offer further guidance on pro- at Evry. UK: IKEA has had few such for-
duct assembly, design or use. The midable competitors in the other
ticket also indicates whether the item markets it has successfully penetrated.
is 'self-serve' or 'full service'. 'Self- MFI, whose reputation for bargain
serve' items may be collected from bin prices has often been seen as at the ex-
areas at the rear of the store, whilst pense of quality, may be equally
'full service' items are handled by a vulnerable within IKEA catchment
central Information Desk, where areas — although their existing na-
otherwise unobtrusive staff are on du- tional coverage and moves towards re-
ty. Extra-wide checkouts are provided, design of the 'bargain basement' im-
with roof-racks available for purchase, age may provide an effective cushion.
or the option of home delivery for an Their move towards smaller stores (of
extra charge. There is a fourteen day 15,000 sq ft) also indicates a will-
"No-Nonsense Return Policy". ingness to trade in smaller geographical
The prospects for expansion of markets than IKEA's threshold.
IKEA USA on this basis appear What is certain, is that IKEA's ex-
relatively promising, although it was Prospects in the UK pansion within the UK will not go
noticeable from the US catalogue that IKEA appear to be relatively sanguine unannounced. The Company's launch
the Company had been having con- about their prospects in the UK. Early into the US was accompanied by an
siderable out-of-stock problems. reports are that the Warrington store advertising blitz, on television, in
("Last year, the reception our products has been received by the local market newspapers and on billboards. Whilst
received from you far surpassed our with as much enthusiasm as met the much of the uncertainly amongst UK
wildest expectations . . . we . . . opening of IKEA's first US store. retailers and manufacturers represents
managed to disappoint many of There is no evidence as yet that fear of the unknown, they are not like-
you . . . " — Bjorn Bayley, President, dedicated shoppers from the Midlands ly to remain in the dark for long!
IKEA Inc.) Despite this, the Company and the South are making the long trek
is believed to be planning for up to up the M6 to Warrington. The Com- Further Reading
sixty stores throughout the US in the pany estimates that it will be two years 1. Agren, K, 1985, 'IKEA satsar pa
long term. before IKEA's image becomes well hemfixaren: Offensiv mot nya
The objectives of IKEA France are established in the British public's marknadsandelar', Butik special 1/85,
more modest. They are to open bet- mind. An important part of this pro- Vasteras.
ween eight and ten large stores in the cess will be the opening of the second 2. Allain, B, 1986, 'Ikea: quatre
country in the coming five years. The IKEA store on a 15-acre site near the magasins en dix ans', Libre-Service
Company experimented with smaller North Circular at Brent, adjacent to Actualites 10th January, p.60
stores — with one at Bobigny, near the Tesco flagship store and within 3. Anon, 1986; 'Ikea: sont-ils vraiment
Paris and one at Vaulx en Velin, near reach of a substantial lifestyle- fous ces Suedois?', Libre-Service Ac-
Lyon — before opening a 'grande sur- conscious clientele. tualites 23rd May, p.24.
face', 110,000 sq ft, at Evry south-west This leaves other players in the 4. Arbos, J, 1985, 'The folksy theories
of the capital. The IKEA at Evry has market, notably Habitat, some time to that inspire lifestyle merchant IKEA',
now been trading for four years. In plan their national response to the International Management,
1983, 20,000 customers were visiting Scandinavia intruder. Already, November, p.51.
the store each week. This increased to Habitat have been seeking larger edge- 5. DIY Superstore, 1987, 'Superstore
24,000 in 1984 and to 32,000 in 1985. of-town sites (such as their Wycombe, Spotlight: IKEA Revealed', DIY
As a result, the car park at the store Oxford and Hatfield stores). However, Superstore 7(5), May, p.16.
had to be extended, four extra IKEA's combination of good quality 6. Stanbridge, R, 1986, 'The Secrets of
checkouts and a supplementary buffet for a low price may be difficult for IKEA', Marketing Week April 4th,
bar had to be provided. Habitat to counter without substantial p.39
34 RETAIL & DISTRIBUTION MANAGEMENT, MAY/JUNE 1988