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    « New Report: US Taxpayers Are Wasting Millions On Contractors To Train Explosive Sniffing Dogs | Main | Beijing Fails To Bully The Nobel Peace Committee »
    Tuesday
    Oct122010

    Inside The World Of IKEA

    Swedish furniture giant IKEA, which specializes in über modern, stylish, and ultra low cost furniture is not just a cult favorite, but inarguably one of the most profitable home furnishing businesses in the world. What IKEA stores have, over and beyond the individual pieces of furniture, countless items for the home, not to mention the Swedish meatballs with the lingonberry preserve, is the COOL factor. Even those who love to hate IKEA (and they still shop there, albeit grudgingly), will admit that over the decades IKEA has successfully married 'modern' with 'cheap' and managed to procreate an iconic brand. 

    IKEA Store In Älmhult, Sweden. Image Source: WikiCommons

    William Langley, captures the shopping experience of a typical customer, meandering through an IKEA store, astutely in an article published in UK's Telegraph. He says, "What you find on entering Ikea is, perhaps, the most fiendishly clever, ruthlessly targeted concept in the whole history of selling. The stores don’t have a bed department over here, and a kitchen shop over there. That sort of simplicity would be far too easy for the customers to suss out, and use to their advantage.

    Instead, Ikea takes you on a journey along a winding blue path past lots of things that you didn’t know you needed until you saw them – towels, saucepans, measuring spoons – all enticingly displayed in baskets and racks, at prices so low it seems insane not to buy them. And if, in the process, you miss what you are actually looking for, you have to follow the path again, collecting even more stuff. And so it goes on, until you stagger out with a trolley stacked high, and you understand why Ikea is the biggest retailer of its kind in the world."

    The IKEA story began in late 1920s in Småland in southern Sweden, when it's founder Ingvar Kamprad, at age seven discovered that he could buy matches in bulk in Stockholm for cheap and re-sell them individually for profit in the rural areas on his bicycle. And thus an amateur but successful salesman was born, who then went on to sell flower seeds, Christmas decorations, pencils and other such items. He is now estimated to be worth $23 billion.

    Ingvar Kamprad, Image Source: Wiki

    At age 17, with money gifted to him by his father for good studies, Ingvar started the company IKEA. He named it after his own initials (the first two letters), and the first letters of Elmtaryd and Agunnaryd, the farm and village where he grew up. Initially he sold household items other than furniture at a discount. As the business grew, the company started selling furniture in 1948.

    In 1951 IKEA published it's first catalog and two years later in 1953, it opened it's first furniture showroom in Älmhult, Sweden. Buoyed by it's success in Sweden, IKEA then ventured outside, first to Oslo, Norway in 1963. It took more than two decades of steady growth and success in Europe, for IKEA to cross the pond and land in Philadelphia in 1985. The company forayed into the highly profitable Asian markets, by opening it's first store in Shanghai in 1998. 

    Today the IKEA Group sells close to 9,500 items in 301 stores in 37 countries/territories. The foot traffic at the stores last year was 650 million and the IKEA website saw even more traffic, 712 million visitors. IKEA Group employs more than 123,000 employees in 25 countries/territories, and has more than 1,220 suppliers in 55 countries. Last year alone, a staggering 198 million copies of the IKEA catalog were printed in 56 editions and 27 languages. 

    As of 1982, the Group is actually owned by a foundation (Stichting INGKA Foundation), based in Netherlands, which is a rarity in the business world. The Foundation, headed by IKEA's founder, Ingvar Kamprad, is reportedly world's largest charity. IKEA, like most other corporations it's size, proudly proclaims that it is actively engaged in social projects and philanthropy (via the Foundation). Through the IKEA Social Initiative, the company partners with UNICEF to provide aid to millions of children in the developing world.

    It's long been speculated that IKEA is a very profitable business, but just how profitable we didn't know, up until now. Since the IKEA Group is not a publicly listed company, it is not required to release financial information. Historically the company has been highly guarded about it's fiscal affairs. But in December 2009, under the leadership of Mikael Ohlsson, the new Chairman and CEO of the IKEA Group, the board voted to make public it's annual financial reports under growing pressure from suppliers, and stakeholders to be more transparent.

    The board's decision followed a scathing review of the company by a former manager in a book ('The Truth about Ikea' by Johan Stenebo), in which the company was accused of many things, but especially of a pervasive culture of secrecy. And so for the first time ever, the company recently released it's 2009 annual financial statement and gave the public a rare peek inside it's operations. 

    IKEA calls 2009 a 'tough year' despite the fact that it opened 15 new stores, and the total revenue grew by 1.4% to €21.8 billion (apparently equivalent to a growth of 3.1%, when adjusted for 'currency effects'). Operating income grew by 4.4% to a total of €2.8 billion and net income rose by 11.3% to €2.5 billion. In terms of the Group's assets, combined stack of cash and securities, reportedly amounted to a solid €14.3 billion. 

    All of this money is thanks to all the furniture people are buying, and the Swedish meatballs that they're eating. And yes, people must indeed be eating a lot of those famous meatballs. The company reports revenue of €1.1 billion in just food items this year. For year 2010, company expects total revenues to increase to €23.1 billion. Majority (almost 80%) of IKEA's sales come from Europe, where it is predominantly based. The top five countries for sales are Germany 16%, USA 11%, France 10%, UK 7%, and Italy 7%.

    Langley writes in his article (linked above) in the Telegraph that, "It (IKEA) has cornered the (European) market in low-price furniture to such an extent that it is now estimated that one in 10 babies (in Europe) is conceived in an Ikea bed." The world of IKEA is thus a highly profitable, ever expanding global retail empire fueled by equally expanding global consumerism. 

    ~ Gauri

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