IKEA Group: Company Report [PDF]

Zitiervorschau

IKEA Group Company Report

2019

Contents 1. Executive Summary.....................................................................................................................1 2. Business Strategy......................................................................................................................... 2 3. Leadership ................................................................................................................................... 3 4. Organisational Structure ..............................................................................................................4 5. Organizational Culture ................................................................................................................ 6 6. IKEA and Ansoff Matrix .............................................................................................................8 7. SWOT Analysis ...........................................................................................................................9 7.1 Strengths .............................................................................................................................. 10 7.2 Weaknesses .......................................................................................................................... 12 7.3 Opportunities ....................................................................................................................... 13 7.4 Threats ................................................................................................................................. 14 8. PESTEL Analysis ...................................................................................................................... 15 8.1 Political Factors ................................................................................................................... 16 8.2 Economic Factors ................................................................................................................ 17 8.3 Social Factors .......................................................................................................................19 8.4 Technological Factors .......................................................................................................... 20 8.5 Environmental Factors ......................................................................................................... 21 8.6 Legal Factors ........................................................................................................................ 21 9. Marketing Strategy .................................................................................................................... 22 9.1 7Ps of Marketing .................................................................................................................. 23 9.2 Segmentation, Targeting & Positioning............................................................................... 26 9.3 Marketing Communication Mix .......................................................................................... 27 9.3.1 Print and Media Advertising ............................................................................................. 27 9.3.2 Sales Promotions...............................................................................................................28 9.3.3 Events & Experiences ....................................................................................................... 29 9.3.4 Public Relations ................................................................................................................ 30 9.3.5 Direct Marketing ...............................................................................................................30 9.3.6 Personal Selling ................................................................................................................31 10. Porter’s Five Forces Analysis .................................................................................................. 32 10.1 Threat of new entrants ....................................................................................................... 32 10.2 Bargaining power of buyers ...............................................................................................33 10.3 Bargaining power of suppliers ........................................................................................... 33 10.4 Threat of substitute products or services ...........................................................................34 10.5 Rivalry among existing firms ............................................................................................ 34

11. Value-Chain Analysis .............................................................................................................. 34 11.1 IKEA Primary Activities ...................................................................................................35 11.1.1 IKEA Inbound logistics ............................................................................................... 35 11.1.2 IKEA Operations ......................................................................................................... 36 11.1.3 IKEA Outbound Logistics ........................................................................................... 36 11.1.4 IKEA Marketing and Sales ......................................................................................... 37 11.1.5 IKEA Service .............................................................................................................. 37 11.2 IKEA Support Activities .................................................................................................... 38 11.2.1 IKEA Infrastructure..................................................................................................... 38 11.2.2 IKEA Human Resource Management .........................................................................38 11.2.3 IKEA Technology Development ................................................................................. 39 11.2.4 IKEA Procurement ...................................................................................................... 40 12. McKinsey 7S Model ................................................................................................................ 41 12.1 Hard Elements .................................................................................................................... 42 12.2 Soft Elements ..................................................................................................................... 43 13. IKEA Ecosystem ..................................................................................................................... 45 14. Corporate Social Responsibility .............................................................................................. 46 14.1 CSR Programs and Initiatives ............................................................................................ 46 14.2 CSR Criticism .................................................................................................................... 49

List of Figures Figure 1 IKEA organizational structure .......................................................................................... 5 Figure 2 Overview of the IKEA franchise system .......................................................................... 6 Figure 3 IKEA Ansoff Growth Matrix ............................................................................................ 8 Figure 4 IKEA sales per region ..................................................................................................... 12 Figure 5 Annual Lobbying by IKEA ............................................................................................. 17 Figure 6 Changes in wood fibre prices in Western Hemisphere ................................................... 19 Figure 7 Number of IKEA catalogues (in millions) ...................................................................... 31 Figure 8 Porter's Five Forces ......................................................................................................... 32 Figure 9 Value chain analysis ........................................................................................................ 35 Figure 10 IKEA procurement strategy .......................................................................................... 41 Figure 11 McKinsey 7S model ...................................................................................................... 42

List of Tables Table 1 IKEA SWOT analysis ...................................................................................................... 10 Table 2 IKEA segmentation, targeting and positioning ................................................................ 27

1. Executive Summary

IKEA Group owned by Stichting INGKA Foundation is the largest furniture and home appliances manufacturer and retailer in the world. Founded seven decades ago in Småland, southern Sweden by Ingvar Kamprad, today IKEA Group has 422 IKEA stores in more than 50 markets. 1 IKEA employs about 208000 people globally 2 and its portfolio comprises more than 9500 products. IKEA generated retail sales of EUR 38,8 billion during financial year 2018 and it has a healthy profit margin, as well as, strong cash reserves. 3 Interbrand and Forbes estimate IKEA brand value as USD 17,46 billion and USD 15,30 billion respectively. The world’s largest furniture retailer had 957 million store visits in 2018 and there were 2,5 billion visits to the website of the company during the same period. 4 IKEA’s vision is “to create a better everyday life for the many people” 5 and the company follows an extreme cost leadership business strategy along with new product development strategy to realize this vision. International market expansion strategy also represents an important element of IKEA business strategy. Leadership style exercised to manage the home improvement and furnishing chain can be branded as leading by example, as set by the late founder of the business Ingvar Kamprad.

IKEA possesses a number of noteworthy strengths such as market leadership, ownership and efficient application of democratic design concept and solid financial position of the business. At the same time, the global furniture retailer has serious weaknesses as well. These include weak presence in Russia, difficulty to sustain the competitive advantage and the lack of flexibility of the business due to its large size.

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IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 2 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 3 Sustainability Report FY 2018 (2019) IKEA 4 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 5 Yearly Summary 2014, IKEA Group

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2. Business Strategy

IKEA business strategy is built upon the IKEA concept. The IKEA Concept starts with the idea of providing a range of home furnishing products that are affordable to the many people, not just the few. It is achieved by combining function, quality, design and value - always with sustainability in mind. The IKEA Concept exists in every part of the company, from design, sourcing, packing and distributing through to business model. 6

The following points constitute integral elements of IKEA business strategy.

1. Offering the lowest prices. Cost effectiveness is one of the solid bases of IKEA competitive advantage. The global furniture retailer is able to offer low prices thanks to a combination of economies of scale and technological integration into various business processes.

2. Increasing variety of products. Great range of products also belongs to the list of IKEA competitive advantages. There are 9500 products across in IKEA portfolio and the company renews its product range launching approximately 2,500 new products every year. 7 The company is also increasing its presence in food and catering industries.

3. International market expansion strategy. The home improvement and furnishing chain has traditionally engaged in new market development in an aggressive manner. IKEA Group operates 422 stores in 50 markets around the world. 8 19 new IKEA stores opened in 2018 alone. 9 Additionally, IKEA has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries. 10

4. Benefiting from strategic alliances. The global furniture retailer benefits from strategic alliances to a maximum extent and the formation of strategic alliances is placed at the core of IKEA business strategy. The list of the most successful collaborations include partnership with Apple to explore the possibilities of Augmented Reality as a tool for home-furnishing,

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The IKEA Concept (2019) IKEA, Available at: http://www.ikea.com/ms/en_US/this-is-ikea/the-ikea-concept/ Sustainability Report FY 2018 (2019) IKEA 8 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 9 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 10 Group Yearly Summary (2016) IKEA Group 7

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partnership with LEGO for new product development and partnership with Adidas in knowledge sharing about customer behaviour. Experience and competency in the formation of strategic alliances can be specified as one of the most important IKEA competitive advantages.

Currently, IKEA is in the middle of transformation of its business model that made it successful in the global scale. Specifically, for many decades IKEA business strategy was largely based on having giant out-of-town warehouses, where shoppers pick their own furniture and then build it at home. But now it is looking increasingly at city-centre stores, online shopping, home delivery and assembly, and more radical ideas such as leasing furniture and selling on websites such as Alibaba 11

3. Leadership

The current IKEA leadership practices and patterns are based on leadership principles and life philosophy of its founder Ingvar Kamprad. Known to practice transformational and charismatic leadership styles, Ingvar Kamprad has been a driving force for many decades behind the phenomenal success of the home improvement and furnishing chain. Ingvar Kamprad founded the furniture retailer in 1943 and after leading the business for 70 years, he handed over control to his three sons. It is difficult to contain IKEA leadership style into a single classification due to a unique nature of the business in more than one ways. Perhaps, leading by example, may the most closely characterise leadership practices at IKEA. The famous quote by IKEA founder Ingvar Kamprad “if there is such a thing as good leadership, it is to give a good example” is a clear illustration of his leadership values, which relates to the global furniture retailer to this day. During his time at the helm, Kamprad was known to be very frugal person driving an old Volvo, flying economy class even for long-haul distances and using Stockholm's subway and public buses. It has been noted that Kamprad's frugality was not born of a desire simply to build up his billions, but also to offer a guiding example to thousands of IKEA staff. 12

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Milne, R. (2019) “Inter Ikea’s Torbjorn Loof: making the vision clear” Financial Times, Available at: https://www.ft.com/content/6b250c0a-2486-11e9-b329-c7e6ceb5ffdf 12 Sylt, C. (2005) “Ingvar Kamprad: Leader of the flatpack” Independent, Available at: http://www.independent.co.uk/news/people/profiles/ingvar-kamprad-leader-of-the-flatpack-483063.html

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Another important characteristic of IKEA leadership relates to the effective application of intangible employee motivation tools to achieve enhanced employee performance. Kamprad had a habit of personally handing out Christmas presents every year to thousands of employees, earning their admiration and loyalty. All these leadership principles exercised by the late founder have their reflection on the furniture retailer to this day. In 2017 Jesper Brodin became a new President and CEO of IKEA Group, INGKA Holding B.V. and its controlled entities. He is only the 6th CEO in The Swedish furniture chain’s history of more than 75 years. Mr. Brodin has worked as an assistant to founder Ingvar Kamprad and it is widely believed that IKEA CEO will not change the strategic direction set by the founder of the business. At the same time it is expected that under the new man at the helm, IKEA leadership practices are going to change to a certain extent. Changes appear to be inevitable talking into account increasingly dynamic nature of the global marketplace fuelled by increasing forces of globalization, increasing relevance and role of internet of things and other factors. The Swedish furniture chain has to respond to these changes in the external environment and the response may require certain changes in leadership practices as well.

4. Organisational Structure

IKEA has a unique organizational structure. Specifically, “around the globe, a large number of companies operate under the IKEA trademarks. All IKEA franchisees are independent of Inter IKEA Group. A large group of franchisees are owned and operated by INGKA Group. Inter IKEA Group and INGKA Group have the same founder, and a common history and heritage, but have operated under different owners and management since the 1980s” 13 Figure 1 below illustrates the essence of IKEA organizational structure

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Our Business in Brief (2017) Inter IKEA Group, Available at: http://www.inter.ikea.com/en/about-us/business-inbrief/

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Figure 1 IKEA organizational structure Inter IKEA Group integrates of a group of companies. The group sets strategic direction for the whole business and connects all IKEA franchisee. The group is formed of three core businesses as illustrated in Figure 1 above: 1. Inter IKEA Systems B.V. is the furniture retailer’s franchisor worldwide. This unit also deals with franchise agreements with 12 franchisees in more than 50 markets. 14 2. IKEA Range & Supply develops and supplies products for the home improvement and furnishing chain. 3. IKEA Industry produces home furnishing products and it manufactures about 10-12% of the total range. The present organizational structure of IKEA illustrated in Figure 1 above is the outcome of a major restructuring initiative that was introduced in 2016. To improve the franchise system and clarify roles, IKEA range, supply and production activities were transferred to the new Inter IKEA Group headed by Inter IKEA Holding B.V. The Figure 2 below illustrates the overview of the franchise system.

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Ringstorm, A. & Clarke, D. (2019) “IKEA's online sales surged after the global furniture giant doubled down on e-commerce, bumping total sales to USD45.4 billion” Business Insider, Available at: https://www.businessinsider.com/ikeas-online-sales-surge-43-2019-9

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Figure 2 Overview of the IKEA franchise system 15 Specifically, IKEA Group sold key subsidiaries for EUR 5.2 billion to increase the flexibility of the business to be able to adapt to changes in the external global marketplace. IKEA management considers this change to be much needed as “new low-margin market entrants and online players like Amazon.com are making life harder for everyone in retail”. 16 Generally, IKEA organizational structure can be classified as hierarchical, reflecting massive size of the business that integrates 422 IKEA stores in more than 50 markets. 17 Hierarchical organizational structure can be associated with a range of serious shortcomings such as lack of flexibility of the business, poor quality of communication between the senior management and employees and slow speed of decision making. The latest organizational restructuring at IKEA discussed above, is intended to minimize the negative implications of these to a certain extent.

5. Organizational Culture

IKEA organizational culture plays an important role in maintaining cost-effective business operations to sustain cost leadership business strategy of the furniture giant. In other words, due to its cost leadership business strategy, IKEA does not offer the most competitive financial compensation to its workforce. Instead, the home improvement and furnishing chain attracts employees with intangible benefits that are deeply integrated within IKEA corporate culture.

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Sustainability Report FY 2018 (2019) IKEA Bergin, T. (2016) “IKEA finalizing its biggest overhaul in decades” Reuters, Available at: http://www.reuters.com/article/us-ikea-restructuring-idUSKCN0XC0IA 17 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 16

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IKEA organizational culture is based on the following principles: 1. Simplicity and high level of informality. It has been noted that “humbleness in approaching tasks and simplicity in the way of doing things are cornerstones of the IKEA culture”. 18 For example, in IKEA US only a few executives have business cards and “everyone is on a firstname basis and sits side by side at IKEA desks and if you have an ego that needs stroking, IKEA is not the workplace for you.” 19 2. The value for teamwork. Executives who prefer to manage as one-man show do not fit into IKEA organizational culture. The Swedish furniture chain wants to ensure that it employs only individuals who share its values and appreciate its culture. For this reason, individuals wishing to join IKEA are offered to take an online test which poses a series of 10 work-based scenarios with a choice of actions. The outcome of the test advises applicants if they are likely to ‘fit’ into IKEA organizational culture. 3. Embracing diversity among employees and different ways of doing things. In Inter IKEA Group as much as 70% of all employees and 40% of management were woman as of 2018 20. The furniture retailer supports the rights of its LGBT+ employees to be themselves. The company also aims to increase the representation of various minority groups among the workforce. The world’s

largest

furniture

retailer

believes

that

recognizing

differences

among

its

employees contributes to creativity and supports the growth of the business. 4. Frugality. Late IKEA founder and long-term leader Ingvar Kamprad was famous for his frugal money habits such as driving a 1993 Volvo 240 GL for two decades, purchasing clothes from the flea markets and getting haircuts when travelling in developing countries to save money. 21 High level of frugality of founder has reflected on IKEA corporate culture to a certain extent in a way that managers at all levels are encouraged to cut costs in all areas of the business.

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Heritage (2017) Inter Ikea Group, Available at: http://www.inter.ikea.com/en/about-us/heritage/ Kowitt, B. (2016) “At Ikea, Everybody Is Equal” Fortune, Available at: http://fortune.com/2016/03/10/ikeacorporate-culture-best-companies/ 20 Sustainability Report FY 2018 (2019) IKEA 21 Martin M. (2018) “4 unusual ways self-made billionaire IKEA founder Ingvar Kamprad insisted on saving money” CNBC, Available at: https://www.cnbc.com/2018/01/29/money-habits-of-self-made-billionaire-ikeafounder-ingvar-kamprad.html 19

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6. IKEA and Ansoff Matrix

IKEA Ansoff Matrix is a marketing planning model that helps Swedish furniture chain to determine its product and market strategy. According to Ansoff Matrix, there are four different strategy options available for businesses. These consist of market penetration, product development, market development and diversification.

Figure 3 IKEA Ansoff Growth Matrix

Within the scope of Ansoff Matrix, IKEA uses all four growth strategies in an integrated manner: 1. Market penetration.

Market penetration implies selling existing products to existing

markets. IKEA uses market penetration strategy aggressively. Effective marketing strategy in general and IKEA catalogues in particular play an instrumental role in increasing the efficiency of market penetration for the furniture retailer. 2. Product development. This involves developing new products to sell to existing markets. Product development is one of the main growth strategies for IKEA. The home improvement and furnishing chain has more than 9500 types of products in its range and it launches about 2500

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new products every year. 22 The company makes some of its products in-house, as well as, purchases from suppliers. 3. Market development. Market development strategy is associated with finding new markets for existing products.

The world’s largest furniture retailer engages in market development

extensively. IKEA Group operates 422 stores in 50 markets around the world. 23 19 new IKEA stores opened in 2018 alone. 24 The company is forecasted to enter into more developing markets in short and medium term perspective. 4. Diversification. Diversification involves developing new products to sell to new markets and this is considered to be the riskiest strategy. IKEA experiments with diversification business strategy occasionally. IKEA restaurants within furniture retail shops can be mentioned as a stark example of diversification by the company. It has to be mentioned that although the furniture retailer has expanded its business strategies of cost advantage and no-frills products to foods offered at IKEA restaurants.

7. SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. SWOT analysis is a strategic tool that helps businesses to analyse internal and external factors affecting the bottom line. Strengths and weaknesses are internal factors that can be influenced by the company. Opportunities and threats, on the other hand, are external factors that have to be taken into account in strategic decision-making by the senior management. The following table illustrates IKEA SWOT analysis:

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IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 23 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 24 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html

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Strengths 1. 2. 3. 4. 5.

Market leadership in the global scale Democratic design concept Competency in cost-cutting through product and process innovation Brand value and solid financial position Vast, yet focused product range

Weaknesses 1. 2. 3. 4. 5.

Weak presence in Asia Damaged reputation due to a series of incidents Competitive advantage difficult to sustain Lack of differentiation of IKEA products and services Lack of flexibility due to large size

Opportunities 1. Increasing emphasis on CSR 2. Increasing presence in developing countries 3. Adding premium range of products into portfolio 4. Strengthening cost leadership competitive advantage through technological innovation Threats 1. 2. 3. 4. 5.

Decline in demand due to increase in consumer income Unsustainability of ‘democratic design’ concept Emergence of competition from Asia Increasing costs of raw materials Global economic and financial crisis Table 1 IKEA SWOT analysis

7.1 Strengths

1. IKEA is an undisputed market leader in the global market of home improvement and furnishing. The Swedish furniture chain has 422 stores in more than 50 markets and 19 new IKEA stores opened in 2018. 25 Additionally, the furniture retailer has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries. 26 The current leadership position of the company provides substantial advantages in terms of the economies of scale and at the same time creating a substantial entry barrier for new competitors. 25

IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 26 Group Yearly Summary (2016) IKEA Group

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2. IKEA has developed the notion of democratic design which implies achieving an attractive form, quality, function and sustainability at a low price. The company attempts to integrate this notion to all of its products. Consistently increasing revenues of the business is an indication of successful outcome of such attempts. IKEA employs more than 1,000 designers globally who operate under democratic design culture and implement the concept in practice on a daily basis. The home improvement and furnishing chain also organizes annual democratic design days to build upon its success with positive implications on the bottom line. 3. IKEA has been able to deliver attractively designed products at low costs thanks to its product innovation capabilities. Innovations by IKEA play an instrumental role in terms of achieving democratic design as discussed above. The company has an innovation lab dubbed Space 10 in Copenhagen which conducts a wide range of futuristic projects such as 3D-printed meatballs, urban farming, energy-harvesting furniture and air-improving windows. 27 The list of innovative products introduced by IKEA include, but not limited to Vava lamps made of leaves, adhesivefree furnishings, severed seat storage, building block kitchens, flat-pack funerals etc. However, the most important innovation introduced by IKEA is a process innovation of selling furniture in the flat pack form. Specifically, the world’s largest furniture retailer pioneered the practice of selling furniture in flat pack forms, where assembly is done by customers following clear instructions and illustrations provided by the company. This process innovation can be specified as the biggest factor that enabled IKEA to offer its products at the lowest prices. 4. IKEA generated retail sales of EUR 38,8 billion during financial year 2018, has a healthy profit margin and strong cash reserves. 28 Thanks to its solid financial position, the company is able to commit to considerable R&D expenses to further strengthen its presence in the global marketplace. Moreover, IKEA’s financial strengths can play an important role of cushion in times of recessions and decline in demand. Furthermore, Interbrand and Forbes estimate IKEA brand value as USD 17,46 billion and USD 15,30 billion respectively. Strong brand value is a convincing indicator of a high level of customer loyalty and an overall strength of the business.

5. IKEA offers about 9500 products, yet apart from shopping centre business in Russia and food products, IKEA product portfolio is efficiently focused. Specifically, the company offers a wide range of furniture and home appliances products that share the common set of features such as 27

Le Pluart (2016) “IKEA Secret Innovation Lab” IKEA, Available at: http://www.ikea.com/ms/en_US/this-isikea/ikea-highlights/IKEA-secret-innovation-lab/index.html 28 Sustainability Report FY 2018 (2019) IKEA

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innovative design, low price and a high level of practicality. Moreover, IKEA stays up-to-date with changes in customer needs and preferences. Highly focused pattern of IKEA product portfolio increases the effectiveness of brand identity with positive implications on consumer loyalty. 7.2 Weaknesses

1. During FY2018 only 5% of global sales were generated in Asia and Australia region, at the same time when 80 per cent of sales were generated in Europe’s saturating market 29 (see Figure 4 below). Taking into account rapidly expanding economies of Asian region and prolonging economic stagnation in Europe, it can be argued that IKEA’s current weak presence in Asian market might weaken the share of the business in the global marketplace in medium-term perspective.

Asia & Australia 5% North America 15%

Europe 80%

Figure 4 IKEA sales per region 2. IKEA brand image is yet to fully recover from a series of ethics-related incidents the company had to deal with in 2012 and 2013. The most controversial incidents include using Photoshop to alter the images of women in its Saudi Arabia catalogue in September 2012. Revelations by Ernst & Young in the same year that IKEA did have businesses with suppliers based in communist East Germany 30 years ago that used forced labour to produce IKEA products also considerably weakened the brand image. 29

Facts & Figures (2019) IKEA, Available at: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/

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Furthermore, in February 2013 IKEA had to recall its meatballs after it was found that some of them contained traces of horse meat. 30 More recently, the global furniture retailer has been accused of avoiding EUR 1 billion taxes according to a report the European parliament. 31 These and other similar incidents have weakened IKEA’s brand image to a considerable extent. 3. IKEA pursues the business strategy of aggressive cost leadership and accordingly, its competitive advantage is associated with offering products for low prices. This strategy may prove to be difficult to sustain because new competitors may emerge with lower price offerings. Particularly, new competitors from emerging economies such as China and India may be able to reduce their offering prices due to their access to cheaper resources in general and human resources in particular. 4. The choice of cost leadership business strategy limits differentiation opportunities of IKEA products. In other words, in order to retain its cost leadership, IKEA cannot differentiate its products on the basis of quality and functionality because such a differentiation comes for an extra cost. Therefore, IKEA alienates a customer segment who is willing to pay extra for higher quality and more advanced functionality of home improvement and furniture products. 5. IKEA is a global conglomerate and there are 422 IKEA stores in more than 50 markets employing 208000 people worldwide. 32 Due to the massive size of the business, IKEA may find it difficult to adapt to the frequent changes in the external environment in the global scale. This can prove to be a substantial weakness taking into account a highly dynamic nature of the global marketplace in furniture and home appliances industry.

7.3 Opportunities

1. IKEA has an opportunity to improve its brand image via increasing focus on CSR aspect of the business. The consequences of a series of ethics-related incidents mentioned above need to be addressed by increasing the funding of CSR programs and initiatives by IKEA strategic level management. Moreover, ethical behaviour and values based on ethics need to be deeply integrated into IKEA corporate culture so that ethics-related issues can be avoided in the future.

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Business Insider (2013) Available at: http://www.businessinsider.com/ikeas-reputation-has-taken-a-beating-2013 Shen, L. (2016) “Ikea Has Been Accused of Avoiding 1 Billion Euros in Taxes” Fortune, Available at: http://fortune.com/2016/02/12/ikea-tax-avoidance/ 32 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 31

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IKEA Group President and CEO Jesper Brodin needs to assume the role of change agent and role model in terms of increasing the role of ethical values and CSR within the corporate culture 2. There is an attractive opportunity for IKEA to increase its presence in developing countries located in Asia Moreover, Russia and former USSR blog countries represent highly attractive markets for the company to increase its presence. European market, where IKEA is currently focused is highly saturated, along with demographic and economic issues persistent in this region. At the same time, the numbers of IKEA target customer segment is increasing in developing countries mentioned above. Therefore, it is strategically important for IKEA to establish its firm presence in these developing markets. 4. An addition of premium range of products into IKEA’s current product portfolio represents a noteworthy opportunity for IKEA that should not be neglected. As it has been discussed above, competitive advantage of IKEA brand is associated with delivering democratic design for low prices. While this business strategy has proved to be highly efficient for the bottom line, the demand by customer segment that is willing to pay extra for furniture and home appliances which comes with democratic design, as well as, high quality and advanced functionality, remains neglected. Accordingly, IKEA needs to develop premium range of products that integrate democratic design and higher quality for extra price. 5. There is an opportunity for IKEA to further strengthen its competitive advantage through technological innovation. The home improvement and furnishing chain can increase its research and development budget to attract competent and experienced researchers and designers so that innovative products can be developed. Moreover, IKEA can develop the corporate culture fostering creativity and innovation, where employees at all levels are welcome to communicate their ideas related to innovative products or adding innovative features to existing products.

7.4 Threats

1. IKEA has been successful mainly due to an aggressive pursuit of cost leadership strategy. This strategy may impose a threat to the business in a way that due to their increasing income, consumers may prefer to purchase more quality products for higher costs. Consequently, there is a threat of decline of demand for IKEA products. As discussed above, the global furniture

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retailer can address this threat via developing premium range of products in addition to its current economy range. 2. There is a risk that IKEA may not be able to sustain its winning concept of democratic design in the long-term perspective. This may be caused by a decline of creativity of IKEA designers due to the deterioration of organizational culture and employee morale and a wide range of other reasons. In order to reduce the relevance of this threat, the senior level management need achieve deep integration of democratic design concept into the organizational culture. Moreover, it is critically important to ensure that strategic importance of democratic design for IKEA’s longterm growth prospects are duly understood by employees at all levels. 3. New competitors may emerge from developing countries such as China and India to threaten IKEA’s global market share. IKEA may find it difficult to address this threat, partially due to the access of new competitors to more cost-effective resources. Moreover, the lack of differentiation of IKEA products increases the relevance of this threat. Nevertheless, IKEA has a chance to address this threat by establishing its firm presence in developing countries via entering into strategic partnerships with local businesses as it has been recommended above. 4. Increasing costs of raw materials is another noteworthy threat to be dealt with by IKEA. The home improvement and furnishing chain mainly uses wood and various metals to manufacture its products. These resources are becoming increasingly scarce, fuelling their costs and increasing the costs of products for IKEA. The company can address this issue to a certain extent via enhancing the use of recycling in manufacturing practices. 5. The global economic and financial crisis of 2007–2009 had proved to have a highly detrimental and lasting impact on the volume of sales for furniture and home appliances products. Taking into account the fact that the root causes of this crisis still persist, it can be argued that there is a threat of another crisis in medium-term perspective with negative implications on IKEA’s performance.

8. PESTEL Analysis

PESTEL is a strategic analytical tool used to assess the impact of external factors on businesses. The acronym stands for political, economic, social, technological, environmental and legal factors affecting businesses. It is important to clarify that businesses have little and no influence over factors within PESTEL framework; however they can develop strategies to eliminate or at 15

least to minimize negative effects of these factors. IKEA PESTEL analysis can shed a light into opportunities to strengthen competitive advantage of the business in various fronts. 8.1 Political Factors

IKEA revenue is subject to political situation in the market and a wide range of political factors such as government attitude towards the brand and political stability. Other political factors that can affect IKEA’s business include the level of bureaucracy, degree of corruption, home market lobbying and import restrictions in markets where the global furniture retailer operates.

Use of Prison Labour in East Germany The company has been involved in a series of issues on political grounds. In 2012, IKEA had to admit that the company used prison labour in East Germany in 1970s and 1980s to produce its products. It has to be specified that the use of prison labour took place at manufacturing sites of IKEA suppliers, not the sites managed by the retail giant itself. An independent report by Ernst and Young concluded that while IKEA had had a policy of visiting production facilities to control working processes, access to East German suppliers had been restricted. Although IKEA offered formal public apology to those affected, the incident caused a significant political controversy around the globe. 33 Moreover, allegations that IKEA founder Ingvar Kamprad was an active recruiter for Swedish Nazi group has sparked controversy with negative effects on the brand image. 34

Symbolic Role of Doll Lufsig Another noteworthy instance of the impact of political factors on IKEA relates to its doll called Lufsig, which is a Swedish word for ‘clumsy’. While translation of Lufsig into Chinese does not cause any issues, in Cantonese dialect Lufsig sounds similar to insulting term ‘mother’s c***’.

33

Connelly, K. (2012) The Guardian, Available at: http://www.theguardian.com/business/2012/nov/16/ikea-regretsforced-labour-germany 34 Bradford, H. (2013) Huffington Post, Available at: http://www.huffingtonpost.com/2013/03/18/ikea-secrets-horsemeat_n_2411475.html

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In 2013 a photo of an incident where a protester threw a Lufsig toy at Hong Kong’s chief executive, Leung Chun-Ying gained media attention causing Lugsig toy gaining a symbolic role among Cantonese people dissatisfied with the government in Hong Kong. Lufsig had sold out in Hong Kong within a single day and Facebook page dedicated to the spoof pictures of the toy in various locations was created, marking the political turn of the incident. 35

Lack of Lobbying by IKEA Although the furniture retailer engages in lobbying activities, the level of such an engagement is minimal. As it is illustrated in Figure 5 below, the world’s largest furniture retailer spend only USD 40k in total to lobbying activities, which is significantly lower compared to lobbying spending of other multinational companies of similar sizes.

Figure 5 Annual Lobbying by IKEA 36 8.2 Economic Factors

Economic Crisis

Macroeconomic situation and consumer spending power is one of the most significant economic factors that affect IKEA performance, as well as, the performance of any business entity. The global economic and financial crisis of 2007 – 2009 is a stark example for the impact of external economic factor on businesses. However, it is important to note that the negative impact of the 35

One Sky Blog (2013) Available at: http://www.oneskyapp.com/blog/lost-translation-ikea-toy-became-politicalsymbol/ 36 Open Secrets (2019) Available at: https://www.opensecrets.org/lobby/clientsum.php?id=D000042682&year=2018

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crisis was at a lesser extent for IKEA compared to many other businesses due to the cost leadership strategy of the business. Specifically, although IKEA had to eliminate 5,000 jobs, the volume of sales dropped only by 1per cent by the second quarter of 2009. Changes in Currency Exchange Rates IKEA revenues are directly affected by exchange rate fluctuations between EUR and USD and other major currencies due to the global scale of business operations. The world’s largest furniture retailer attempts to address the impact of changes in currency exchange rates through engaging in hedging initiatives. Particularly, the company has accepted sourcing and producing products locally as one of the main tools to deal with changes in currency exchange rates. For example, amid weakening pound against euro and dollar, the Swedish furniture chain planned to double the numbers of products made locally in the UK, so that it can decrease the negative impact of currency exchange rate for the business.

Fluctuations of Costs of Raw Materials Fluctuations of costs of raw materials such as wood and metals IKEA uses is a major economic factor that also impacts the business significantly. For example, as it is illustrated in Figure 6 below, the wood fibre prices in the western hemisphere, biggest region for IKEA, was highly unstable for the past four years with direct implications on the costs of IKEA products. Similarly, the price of another important raw material for the furniture retailer, metal has been highly inconsistent. This can be highlighted as another economic factor that can affect the bottom line for the world’s largest furniture retailer.

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Figure 6 Changes in wood fibre prices in Western Hemisphere

8.3 Social Factors

There is a range of social factors that have direct and indirect effects on IKEA revenues. Increasing concern towards environmental issues in the society fuelled by the media is a noteworthy social tendency that threatens IKEA’s long-term growth prospects. Additionally, The Swedish furniture chain is affected by intensifying technological integration and increasing role of internet, demographic changes and other social factors.

Increasing environmental concern among consumers People are becoming increasingly concerned about the issues of deforestation, water depletion, global warming and others. IKEA is the world’s third largest consumer of wood 37 and this fact may damage the brand image due to the social change associated with concern towards environmental problems.

37

Apartment Therapy (2011) Available at: http://www.apartmenttherapy.com/random-facts-about-ikea-the-ne158212

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Intensifying technological integration and increasing role of internet Another social tendency among consumers is associated with the shift to online programs and applications to complete a wide range of personal and professional tasks. For example, substitution of physical books to their electronic versions for increasing numbers of consumers decreases demand for bookshelves offered by IKEA.

Demographic changes Demographic changes in IKEA’s main market i.e. Europe in general and increasing numbers of single people and childless families in particular belong to social factors that have negative implications on IKEA revenues. Specifically, due to these social changes, demand for IKEA furniture is expected to decline in Europe in medium-term perspective. The company is impacted by additional range of social factors such as demographic changes, changes in consumer attitudes and opinions towards furniture and home appliances, media perception of the brand and health and welfare of target customer segment.

8.4 Technological Factors

Generally, prominent technological factors that affect IKEA include industry-specific technological innovations and breakthroughs, decreasing life cycle of technology, changes in energy consumption practices, shifts in manufacturing maturity and capacity and others. Particularly, technological innovations related to manufacturing processes may affect IKEA significantly, taking into account the scope of its operations. Moreover, technological factors effects IKEA’s new product development practices in a way that the company has to take into account changes in the forms and design of technological devices when developing furniture items to be used for these devices. IKEA attempts to address the impact of technological factors through staying up-to-date with the latest industry-specific technological developments and increasing the level of technological integration into various business processes. For example, the company has developed IKEA Place, an augmented reality app that lets users preview shelving and chairs right in their living room.

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8.5 Environmental Factors

Performance of IKEA can be indirectly impacted by a set of ecological factors such as global warming, air pollution, thickening of ozone layer and others.

Moreover, the impact of

environmental factors on IKEA performance can be direct as well in cases of environmental disasters such as earthquakes, flooding, tornados etc. For example, in UK a “natural capital” stress test found that flooding in 2050 on a similar scale to the winter of 2013/14 would affect more than twice as many homes. 38 Such a natural disasters can have negative implications for IKEA via damaging company’s properties in UK and reducing customer purchasing power in this important market. Similarly, air pollution is a serious environmental factor that can effect IKEA via decreased employee performance. It has been estimated that air pollution is responsible for 656,900 sick days a year in Central London. Employee productivity across 190 Chinese cities would rise by about 4 per cent per year if the amount of fine-particle pollution in the air was cut to fall within World Health Organization standards. 39

Customer attitude towards ‘green’ products and effects of activities of various environmental groups can be mentioned as additional environmental factors with potential implications on IKEA. Any corporation of a size of IKEA is expected by stakeholders in general, general public and non-governmental organization in particular to behave in a socially responsible manner and to illustrate commitment in dealing with a wide range of environmental issues. Neglecting this expectation may result in damage to the brand image via negative online and offline press coverage. IKEA addresses this issue according to its CSR policy that is discussed further below in more details. 8.6 Legal Factors

There is a wide range of rules and regulations related to employee health and safety, consumer protection laws, employment laws, and competitive rules and regulations that need to be fully adhered by IKEA. Taking into account international market expansion strategy pursued by 38

Johnston, I. (2017) “Extreme weather to cost UK billions and leave 2.5m homes at risk of flooding unless ministers take action, warns WWF” Independent, Available at: http://www.independent.co.uk/environment/climatechange-global-warming-extreme-weather-flooding-homes-drought-uk-economy-a7964851.html 39 Phillips, R. (2017) “Air pollution: The business concern” Eco-Business, Available at: http://www.ecobusiness.com/opinion/air-pollution-the-business-concern/

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IKEA, it can be stated that trade regulations or de-regulations in new markets targeted by the global furniture retailer plays an important role for the future success of the business. Changes in these rules and regulations are most likely to impact IKEA performance in direct and indirect manner and in ways that are difficult to predict. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws or policies, in ways that make IKEA products and services less useful to its users, require the company to incur substantial costs, expose it to unanticipated civil or criminal liability, or cause it to change its business practices.

9. Marketing Strategy

IKEA marketing strategy is based on sophisticated customer research and market research. “IKEA actually sends design experts into people’s homes to listen to their concerns and provide feedback. This allows IKEA evangelists to make marketing decisions based on people’s real-life experiences rather than just surveys or data.” 40 Accordingly, it can be argued that marketing strategy of IKEA is proactive, rather than reactive. In 2018, the world’s largest furniture retailer shifted its marketing focus from rooms to product innovation. The ‘magic’ blue bag has been placed at the core of marketing strategy of IKEA and the latest ads have been designed to illustrate how the addition of just a few innovative items can transform the home for the better. Generally, IKEA marketing strategy integrates the following: •

Focusing on product and price elements of the marketing mix. Specifically, IKEA attempts to offer the greatest range of products for the lowest cost. Along with product and price, additional elements of marketing mix, also known as 7Ps of marketing include place, promotion, process, people and physical evidence.

•

Using mono-segment and adaptive types of product positioning. The furniture retailer targets cost-conscious customer segment that prefers to get value for money they pay. Accordingly, IKEA has adapted the lowest costs of its products along with the widest range as the unique selling proposition of the brand.

40

Walgrove, A. (2014) “How IKEA Became Kings of Content Marketing” Contently, Available at: https://contently.com/strategist/2014/11/07/how-ikea-became-kings-of-content-marketing/

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•

Integrating several channels of marketing communication such as print and media advertising, sales promotions, events and experiences, public relations and direct marketing. Specifically, the furniture giant derives the maximum benefits from print and media advertising and direct marketing.

•

Effectively applying product placement marketing technique. Movies such as Fight Club, Cash Back, 500 Days of Summer and TV programs such as 30 Rock: Blind Date, Being Human (UK): Ghost Town and Little Britain can be mentioned as the most notable cases of product placement by IKEA.

9.1 7Ps of Marketing

IKEA 7Ps of marketing comprises elements of the marketing mix that consists of product, place, price, promotion, process, people and physical evidence. The furniture retailer places greater emphasis on the price element of the marketing mix over other elements due to cost advantage business strategy it pursues.

Product There are more than 9500 products across IKEA range and the company renews its product range annually launching approximately 2,500 new products 41. IKEA products are designed by its in-house, as well as, contracted designers. IKEA promotes the idea of democratic design. The furniture maker adheres to the following five dimensions of democratic design: form, quality, function, sustainability and low price. IKEA products are associated with no-frills simplicity to sustain its cost leadership business strategy. Furthermore, some of IKEA products such as furniture are not assembled and ready to use by customer. Instead, the retail giant prefers to sell large furniture items as flat pack and customers have to assemble furniture themselves according to clear guidelines and illustrative instructions supplied by the company. Selling products in flat pack form immensely contributes to cost leadership business strategy because it is much cheaper to transport and store flat packs than ready assembled items.

41

IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html

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Place IKEA promotes itself as a multi-channel retailer effectively integrating online and offline sales channels. IKEA Group operates 422 stores in 50 markets around the world. 42 19 new IKEA stores opened in 2018 alone. 43 Additionally, IKEA has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries. 44 The global furniture retailer also uses online sales channel extensively to sell its products to the target customer segment. In 2018, customers made 957 million visits to IKEA stores, 2.5 billion visits to IKEA websites. 45 Currently IKEA is concentrating on smaller city-centre stores and planning studios for kitchens, as the world’s largest furniture retailer tries to decrease its dependence on selling only through giant out-of-town warehouses

Price IKEA uses cost leadership pricing strategy. The company aims to offer its products “at prices so low that as many people as possible will be able to afford them” 46. The home improvement and furnishing chain is able to maintain its low prices due to the economies of scale the company benefits from in the global level. Selling large furniture items as flat pack, instead of ready assembled products is one of the main enabling factors for price reduction for the world’s largest furniture retailer. Psychological pricing also represents an important aspect of IKEA pricing strategy in a way that the retailer appeals to emotional, rather than rational side of customer decision-making. Accordingly, IKEA applies Price Point Perspective (PPP) 0.99 Cents instead of 1 US Dollar for the majority of its products.

Promotion IKEA uses a range of elements of the marketing communication mix such as print and media advertising, sales promotions, events and experiences, public relations and direct marketing in an 42

IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 43 IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 44 Group Yearly Summary (2016) IKEA Group 45 Sustainability Report FY 2018 (2019) IKEA 46 Group Yearly Summary (2017) IKEA Group

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integrated manner in order to communicate the marketing message to the representatives of the target customer segment. The promotional strategy used the Swedish furniture chain corresponds to its cost leadership business strategy in a way that IKEA engages in promotions in cost-effective manner. IKEA catalogues can be specified as one of the main promotional tools successfully used by the furniture retailer. The marketing message attempts to associate the usage of IKEA products with the perceptions of comfort, value and sustainability.

Process The range of processes critical to IKEA’s success include employee recruitment and selection, marketing research, new product research and development, sales, product return, customer service processes and others. The company attempts to gain efficiency in relation to each of these processes. For example, manufacturing process of large furniture items is different at IKEA. Specifically, the company does not assemble large furniture items until they are ready-touse products, but instead sells them in flat pack forms, thus gaining considerable financial savings on transportation and storage of those items.

People IKEA employs about 208000 people globally. 47 The retail giant supports its employees through a wide range of programs and initiatives such as ‘Tack!’ employee loyalty recognition program, Happyforce app, The One IKEA Bonus programme and others. Physical evidence Physical evidence refers to items related to the recognition of IKEA brand. IKEA logo is one of the main aspects of the company’s physical evidence. The logo has changed little throughout the years. The design of the 1967 logo remains a consistent symbol of the IKEA business. The blue and yellow logo was first used in 1977 and since 1983 focus has been on this version of the IKEA logo. Today, it is one of the world’s strongest brands.

47

IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html

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9.2 Segmentation, Targeting & Positioning IKEA segmentation, targeting and positioning involves a set of consequent marketing decisions that constitute the core of company’s marketing strategy.

Segmentation refers to dividing

population into groups on the basis of their common traits and characteristics. Targeting involves choosing specific groups identified as a result of segmentation as consumers for the brand. Positioning implies the selection of the marketing mix the most attractive to the target customer segment. There are various types of positioning such as mono-segment, multi-segment, standby, anticipatory, imitative, adaptive, defensive and stop-gap types of positioning. IKEA uses the following types of product positioning: •

Mono-segment positioning. This type of positioning is associated with making an appeal to the needs and want of a single customer segment. IKEA uses mono-segment positioning via focusing on a single customer segment that are cost-conscious and prefers to get value for money.

•

Adaptive positioning. This positioning method is based on periodically repositioning products and services to reflect changes in customer preferences. The Swedish furniture chain takes into account dynamic nature of customer preferences in designing its products. For example, increasing popularity of minimalism in the global scale has been reflected in the latest ranges of IKEA products.

The following table 2 illustrates IKEA segmentation, targeting and positioning: Type of segmentation Geographic Demographic

Behavioral

Segmentation criteria Region Density Age Gender Life-cycle stage

IKEA target customer segment

Europe, Americas, Asia & Australia, Russia Urban 22 and older Males & Females Bachelor Stage young, single people not living at home Newly Married Couples young, no children Full Nest I youngest child under six Full Nest II youngest child six or over Full Nest III older married couples with dependent children Empty Nest I older married couples, no children living with them Empty Nest II older married couples, retired, no children living at home Solitary Survivor I in labour force Solitary Survivor II retired Occupation Students, employees, professionals Degree of 'Hard core loyals' 26

loyalty Benefits sought Personality User status Psychographic Social class Lifestyle 48

'Soft core loyals' 'Switchers' Cost effectiveness

Easygoing and determined non-users, potential users, first-time users and regular users Lower class, working class and middle class Resigned Struggler Mainstreamer Explorer Table 2 IKEA segmentation, targeting and positioning

9.3 Marketing Communication Mix

IKEA marketing communication mix integrates the application of individual marketing communication channels such as print and media advertising, sales promotions, events and experiences, public relations and direct marketing. The extent and patterns of usage of these marketing communication channels by the furniture retailer is discussed below.

9.3.1 Print and Media Advertising

IKEA relies on print and media advertising as one of its main marketing strategies to deliver its marketing message to the target customer segment. The company collaborates with a range of popular journals and magazines and TV channels globally for this purpose. The home improvement and furnishing chain has effectively integrated the elements of creativity in its print and media advertising a number of times. For example, billboard-fitted wardrobes were placed by IKEA in selected outdoor locations in Vienna. People passing by were encouraged to slide its door open to assess IKEA’s solutions to fit many items into the wardrobe. 49 In another instance, the Swedish furniture chain developed a print ad that is designed to put customers to sleep. Specifically, ‘Somnig’ is printed with lavender ink and emits white noise 48

According to Cross Cultural Consumer Characterization by Young & Rubican The Economic Times (2014) Available at: http://articles.economictimes.indiatimes.com/2014-0303/news/47859301_1_largest-home-furnishing-retailer-catalogue-own-friends-day 49

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through a speaker. Customers are encouraged to tear it out of IKEA magazine and place next to their bed to have a good night’s sleep. 50 Another noteworthy instance of application of creativity in print advertising by IKEA relates to the publication of its more than 200 million catalogues in 2013. While more than two third of IKEA’s marketing budget was previously spent on furnishing living quarters for its catalogues, from 2013 onwards the company started to create images in its catalogue with the help of graphic artists. In other words, starting from 2013 images in IKEA catalogues are not photos but “a collection of pixels and polygons arranged on a computer” 51 and this shift has proved to be highly effective in terms of cost saving and increasing the quality of catalogues. Social media advertising in general and viral marketing in particular is also used by IKEA with immense impactions on the level of brand awareness. Particularly, video clips titled ‘Experience the power of bookbook” which is a parody on Apple’s product announcements and “Improve your private life” parodying self-help programs proved to be immensely popular in social media platforms.

9.3.2 Sales Promotions

IKEA uses the following types of sales promotion techniques: •

Customer loyalty program. Established in 1984, IKEA FAMILY has 100 million members. Over 10 million new members join every year and that’s around 30,000 new members every day. IKEA family membership provides a range of benefits such as monthly product discounts, 90-days price protection guarantee, discounts on selected items on IKEA restaurants etc.

•

Seasonal price reductions. The home improvement and furnishing chain regularly announces special sales promotions on notable dates and events such as Black Friday, Cyber Monday and Back to School seasonal promotions.

50

Jardine, A. (2018) “This IKEA Print Ad is Designed to Put You to Sleep” AdAge, Available at: https://adage.com/creativity/work/sleepiest-print-ad-ever-made/54625? 51 The Wall Street Journal (2012) Available at: http://www.wsj.com/news/articles/SB10000872396390444508504577595414031195148?mg=reno64wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10000872396390444508504577595414031195148.ht ml

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•

Point of sale materials. IKEA is experienced in presenting the product in its best way or show the customer that the product is there via attractive posters, display stands etc.

•

Free gifts. The global furniture retailer offers free gifts occasionally to customers who have IKEA Family card. Free gifts can range between a free hot dog to £500 cash and a family holiday to Sweden.

•

Discount vouchers. The world’s largest furniture retailer does not issue discount vouchers. Nevertheless, it offers seasonal discounts and price reductions without vouchers as mentioned above.

9.3.3 Events & Experiences

IKEA uses special events and experiences frequently in order to attract new customers and increase the loyalty of its existing customers. Events and experiences are promoted in official websites of respective markets. IKEA events and experiences are aimed at increasing the level of brand awareness among the public in general and the target customer segment in particular. Moreover, IKEA attempts to communicate the brand value offer to the target customer segment in indirect manner via such events. There are regular events such as New Art Time Tuesday and Read-Along with Troop 10863, as well as, one-time special events. “In November 2015, the IKEA Tempe store in Australia invited families to attend the first-of-its-kind Festival of PLAY event. The event engaged customers around the importance of play, both for children and adults. This free event made visiting the IKEA store a playful experience for everyone. By transforming the store into a big playground, visitors were able to enjoy activities like a children’s disco, art classes, hula hoop competitions and much more. Taking place just before the Australian summer, the two-day indoor event provided a perfect playdate opportunity. “Play is an integrated part of people’s life and when IKEA arranges a play date, we help the world play more”, says Ludvig Liljekvist, IKEA FAMILY & Customer Relations Manager, IKEA Retail Australia East.” 52

52

Group Yearly Summary (2016) IKEA Group

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9.3.4 Public Relations

Public relations can be defined as a “discipline which looks after reputation, with the aim of earning understanding and support and influencing opinion and behaviour. It is the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics” 53 IKEA runs its public relations (PR) via online press releases, annual reports, speeches and seminars. The company has also adapted its annual CSR report as an effective PR tool. During the last few years IKEA PR had to deal with a set of substantial challenges on various matters. For example, Photoshop was used to remove images of women in IKEA catalogues in Saudi Arabia catalogue causing much controversy in debates in the global media. Other controversies include revelations about IKEA suppliers using forced labour in communist East Germany 30 years ago, incident related to the traces of horse meat found on IKEA meatballs and others. IKEA has worked with a number of PR agencies during the past years and the company changed PR agency One Green Bean to Mango in March 2013. As of early 2019. The Swedish furniture chain was looking for a new PR agency for their global account.

9.3.5 Direct Marketing

Direct marketing can be defined as “a marketing strategy to build stronger, more personal relationships between the buyer and selected customers directly” 54. In other words, in direct marketing there are no intermediaries between the buyer and the seller in terms of promotion and distribution. IKEA uses direct marketing extensively via its official website and catalogues. Launched in 1951, just a few years after Ingvar Kamprad founded the furniture company, IKEA now prints over 200 million copies of their catalogues per year, and it can be found in 27 different languages distributed across 28 countries. As it is illustrated in Figure 7 below, the world’s largest furniture retailer printed about 203 million catalogues in 2017.

53 54

Chartered Institute of Public Relations (n.d.) Available at: http://www.cipr.co.uk/content/careers-advice/what-pr Moore, K. & Pareek, N. (2010) “Marketing: The Basics” 2nd edition, Taylor & Francis, p.168

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Figure 7 Number of IKEA catalogues (in millions) 55

9.3.6 Personal Selling

Personal selling is “person-to-person communication with a prospective customer in order to develop a relationship, identify customer needs, match goods/services with those needs, communicate benefits to customers, and gain commitment to purchase goods/services that satisfy customer needs” 56. As of November 2019, IKEA does not employ personal selling component of the marketing mix.

55

Statista (2019) Available at: https://www.statista.com/statistics/268131/number-of-printed-ikea-catalogs-per-yearworldwide/ 56 Siguaw, J.A. & Bojanic, D.C. (2004) “Hospitality Sales: Selling Smarter” Cengage Learning, p.2

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10. Porter’s Five Forces Analysis

Porter’s Five Forces model is “a generic framework that deconstructs industry structure into five underlying competitive forces or variables” 57. IKEA Porter’s Five Forces are represented in Figure 8 below:

Bargaining power of buyers

Threat of new entrants

Bargaining power of suppliers

Rivalry among existing firms

Threat of substitute products or services

Figure 8 Porter's Five Forces

10.1 Threat of new entrants Threat of new entrants to furniture and home appliances manufacturing industry in general is significant. There are no or minimum legal or regulatory barriers to enter the industry and knowledge barriers are not substantial as well. However, the threat of new entrants at the global scale to rival IKEA can be assessed as not significant due to a number of entry barriers. Firstly, the new market entrants would not be able to benefit from the economies of scale to the same extent as IKEA, at least during the initial stages of operations. Secondly, it will be difficult

57

Nemati, H.R. & Barko, C.D. (2004) Organisational Data Mining: Leveraging Enterprise Data Resources for Optimal Performance, IGI, p.29

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for new entrants into the global furniture and home appliances industry to gain access to distribution channels similar to IKEA. This is because it took the Swedish furniture chain several decades to establish 422 stores in 50 markets around the world. 58 Last, but not least, the time of entry can be specified as another entry barrier for new businesses taking into account the fact that the global market of furniture and home appliances is already highly saturated one.

10.2 Bargaining power of buyers

Bargaining power of buyers in furniture and home appliances manufacturing industry is huge. IKEA customers are generally price sensitive and this situation increases their bargaining power. Furniture buyers possess information about the list of furniture sellers and advantages and disadvantages associated with each brand, with positive implications on their bargaining power. The competition is intense and as such, there is a long list of furniture retailers people can buy from. Moreover, the absence of switching costs for buyers fuels their bargaining power to a significant extent. In other words, there are no additional costs for buyers to start buying from the competition and this contributes to the amount of their bargaining power.

10.3 Bargaining power of suppliers

Bargaining power of suppliers in furniture and home appliances manufacturing industry is insubstantial. IKEA has about 1000 suppliers in more than 50 markets. 59 The lack of differentiation between products delivered by suppliers increases IKEA’s bargaining power. Moreover, there are many suppliers for whom IKEA is the main or the only customer. Along with purchasing products and supplies for low prices, IKEA exercises its great bargaining power to impose its CSR programs on its suppliers.

58

IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html 59 Sustainability Report FY 2018 (2019) IKEA

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10.4 Threat of substitute products or services

Threat of direct substitute products or services for products offered by IKEA is low. This is because there are no too many products and services available that can satisfy the demand for furniture and home appliances. At the same time, it can be argued that increasing numbers of online applications and internet-based products and services represent an indirect substitution for certain type of products offered by IKEA. For example, increasing popularity of e-books decreases the demand for IKEA book shelves to a certain extent. The absence of switching costs for customers to such indirect substitutions increases their theat. 10.5 Rivalry among existing firms

Rivalry among existing firms is intense. IKEA faces both, direct, as well as, indirect competition. The majority of large supermarkets such as Wall Mart, Target, Tesco and Sainsbury’s sell some types of furniture. In addition, there are direct competitors for IKEA that includes but not limited to Argos, Ashley Furniture and Rooms to Go. Moreover, there is a great number of local smallsized furniture manufacturers that pose serious competition to IKEA along with giant online retailers such as Amazon, EBay and Alibaba. The global furniture industry is forecasted grow at the rate of 5.2% until 2023. 60 Such a growth level can be considered as insubstantial compared to other industries such as IT, entertainment and tourism. Accordingly, slow growth in the industry is expected to further intensify the level of competition of existing market players, each trying to increase their sales.

11. Value-Chain Analysis

IKEA value-chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the global furniture retailer. “Each step in the manufacture of a product or the delivery of a service can be thought of as a link in a chain that adds value to the product or service. This concept of how business fulfils its mission

60

Global Furniture Market - Growth, Trends, and Forecast (2018 - 2023). Available at: https://www.researchandmarkets.com/reports/4622419/global-furniture-market-growth-trends-and

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and objectives is known as the value chain” 61. Figure 9 below illustrates the essence of IKEA value chain analysis.

Figure 9 Value chain analysis

11.1 IKEA Primary Activities 11.1.1 IKEA Inbound logistics

Inbound logistics for IKEA is associated with purchasing raw materials and ready items from about 1220 suppliers located in more than 55 countries worldwide. 62 The world’s largest furniture retailer conducts purchasing via its 31 trading service offices in 26 countries. The top five purchasing countries for The Swedish furniture chain include China 20%, Poland 18%, Italy 8%, Germany 6% and Sweden 5%. 63 IKEA inbound logistics is a major source of value creation for the business. Specifically, the proximity of company’s 31 trading service offices to supplier locations helps to ensure that company can monitor production, test new ideas, negotiate prices and check quality of products and raw materials they are buying. Economies of scale is another factor that decreases the prices 61

Needles, B.E., Powers, M. & Crosson, S.V. (2007) Principles of Accounting, Cengage Learning, p.836 Facts & Figures (2019) IKEA, Available at: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/ 63 China 20%, Poland 18%, Italy 8%, Germany 6% and Sweden 5%. 62

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of inbound logistics for the furniture retailer. Moreover, flat pack Do-It-Yourself assembly principle for many IKEA products lowers the cost of packaging and makes inbound logistics easier to facilitate.

11.1.2 IKEA Operations

IKEA operations are divided into three divisions – Franchise, Property and Finance divisions, with Franchise Division being the core of the business. IKEA follows de-centralization business strategy in running its global operations. According to this strategy, regional managers are granted decision-making autonomy taking into account unique aspects of their markets, local culture, patterns of local consumer behaviour and other region-specific factors. IKEA operates its stores under franchise agreements in 30 countries worldwide. There are 11 franchisees operating IKEA stores in more than 50 markets. Ingka Group, formerly IKEA Group, is the largest IKEA franchisee and it operates 367 IKEA stores in 30 markets employing 158,500 people. 64 The majority of IKEA products are developed by IKEA Industry, the largest producer of wooden furniture in the world. IKEA Industry consists of 40 production units in 10 countries: China, France, Hungary, Lithuania, Poland, Portugal, Russia, Slovakia, Sweden, and the USA. 65 The major source of value in IKEA operations relates to cost benefits. Specifically, by locating the massive chunk of its manufacturing units in Eastern Europe and China, the company saves on the cost of human resources to a significant extent. Moreover, the home improvement and furnishing chain uses the latest and sophisticated technologies in manufacturing processes with the positive implications on operational efficiency.

11.1.3 IKEA Outbound Logistics

IKEA inbound logistics involve warehousing and distribution of ready products from 422 stores in 50 markets to end-users. The world’s largest furniture retailer operates 28 distribution centres 64 65

Sustainability Report FY 2018 (2019) IKEA Sustainability Report FY 2018 (2019) IKEA

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and 11 customer distribution centres in 16 countries worldwide. Customers are responsible for costs associated with the transportation of goods purchased from IKEA stores. The company offers two types of delivery services. Parcel delivery is a service to deliver small items weighting up to 25kg and the company charges around USD 12 depending on the location of the specific store. Truck delivery, on the other hand, is made for purchases exceeding 25kg and IKEA charges starting from approximately USD 50 for truck delivery. The delivery for goods purchased online is done free of charge. Delivery of goods to customers directly without any intermediaries can be specified as one of the main sources of value in IKEA outbound logistics. Moreover, sources of value creation in outbound logistics for the furniture retailer include using flat packs to save on space, transporting goods by rail and sea instead of vehicles whenever possible and applying fuel-saving techniques in transportation.

11.1.4 IKEA Marketing and Sales

The home improvement and furnishing chain uses print and media advertising, sales promotion, events and experiences, public relations and direct marketing techniques in an integrated manner. IKEA is a multichannel retailer and integrates selling through stores, cataloguess, website and app. The furniture giant relies in its catalogues extensively for marketing and sales and more than 200 million catalogues are printed each year globally. Starting from 2018, the company has changed its focus from rooms to product innovation from marketing point of view. Online sales channel is also extensively utilized by the company and ikea.com website attracted 2.5 billion visits in FY2018. An effective utilization of traditional, paper-based IKEA catalogue is the most noteworthy source of value creation in IKEA’s marketing and sales.

11.1.5 IKEA Service

Customer service as one of the primary activities in the value chain is addressed by IKEA via a standard set of techniques and practices such as the provision of online and telephone customer services, offering refunds and exchanges of goods whenever relevant and encouraging customers to provide feedback. If customers find out that some parts of assembly furniture are missing, 37

they don’t have to go back to IKEA store. Customers can find out the missing part number (listed in the assembly instructions), call their local store to ask for replacements and the replacement will be mailed to them. At the same time, IKEA is not famous for the provision of a superior customer services. Such a situation may have resulted from the aggressive pursuit of cost-cutting initiatives according to cost leadership business strategy. An open letter addressed to IKEA CEO Peter Agnefjäll titled ‘Dear IKEA: Your Customer Service Is Terrible’ has been written by best-selling author and keynote speaker Bernard Marr on March 2014. The letter sheds a light into a range of customer services issues the author had to deal with when purchasing white BIRKELAND bed for his eight-year old daughter. These issues include late delivery, the delivery of wrong parts, failure to collect parts that do not belong to the purchase and communication issues. The open letter has debates and discussions in the social media, thus causing a substantial damage to the brand image.

11.2 IKEA Support Activities

11.2.1 IKEA Infrastructure

IKEA’s infrastructure comprises its wide range of support systems and functions such as finance, planning, quality control and general senior management. Moreover, IKEA’s infrastructure relates to physical and organizational structures and facilities that company uses to achieve its primary objective of profit maximization. The home improvement and furnishing chain has been massively restructured in 2016. Specifically, supply and production activities were transferred to the new Inter IKEA Group headed by Inter IKEA Holding B.V. The restructuring had direct and massive implications on IKEA infrastructure. 11.2.2 IKEA Human Resource Management

The IKEA Group has 123,000 co-workers spread across functions such as purchasing, distribution, whole-sale, range, retail, support functions and the Swedwood Group 66. According 66

About IKEA (2019) IKEA, Available at: https://www.ikea.com/ms/ar_QA/about_ikea/facts_and_figures/index.html

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to their functions, the Swedish furniture chain’s employees are distributed in the following manner: •

Retail – 94,200

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Swedwood Group (US plant) - 15,000

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Production, distribution, wholesale, range and other – 13,800

The regional distribution of employees of the home improvement and furnishing chain has the following pattern: •

Europe – 99,700

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North America – 15,500

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Asia and Australia – 7,800

The ‘Tack!’ program, which is a Swedish word for ‘thank you’ is an employee loyalty recognition program that offers contribution to the pension plan of employees who have worked for IKEA for at least five years. The furniture retailer has announced that For fiscal Year 2019, every full-time co-worker in Canada who has worked at IKEA for a full fiscal year, will receive USD1,498.00, regardless of their position or salary level. Eligible part-time co-workers will also receive a proportional amount in relation to hours worked. 67 Happyforce app, developed for IKEA Jerez store in Spain has changed the way co-workers and managers communicate. The app allows real-time feedback on management questions, receiving feedback from co-workers and the ability to share urgent information quickly. A dedicated team in the HR department analyse and evaluate the response, and feedback the information to the management team at the IKEA Jerez store. Moreover, the company has developed The One IKEA Bonus programme as a bonus system for all IKEA Group co-workers, based on performance. It is based on IKEA values of simplicity and togetherness, with everyone in the same unit working towards the same objectives.

11.2.3 IKEA Technology Development

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Ingka Group says "Tack!" by investing €96 million in co-worker retirement funds (2018) Cision, Available at: https://www.newswire.ca/news-releases/ingka-group-says-tack-by-investing-96-million-in-co-worker-retirementfunds-701974201.html

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Technology Development plays an important role in IKEA’s revenues in multiple levels. The company attempts to integrate the latest technological developments in its wide range of business operations in general and manufacturing processes in particular. It has been noted that “by utilizing modern technology, retailers are now offering value-added services to transform shopping into a comprehensive, enjoyable experience. IKEA catalogue utilizes its mobile app to provide added services with an augmented reality feature to give consumers a virtual preview of furniture in a room, allowing for a digital test-run of brand-name products. 68 For example, the company has developed IKEA Place, an augmented reality app that lets users to preview shelving and chairs right in their living room. Furthermore, IKEA has an innovation lab dubbed Space 10 in Copenhagen which conducts a wide range of futuristic projects such as 3D-printed meatballs, urban farming, energy-harvesting furniture and air-improving windows. 69

11.2.4 IKEA Procurement

Procurement activity within IKEA’s chain of support operations relates to the ways resources are acquired for the business. Due to the size and scope of IKEA’s business operations, the company runs complex procurement activities in the global scale, aiming to adhere to fair business practices. IKEA finds suppliers around the globe to satisfy its needs for raw material and products and the procurement is dealt with by IKEA’s 42 trading offices located around the world. As illustrated in Figure 10 below, achieving lower costs of supplies, viewing suppliers as strategic partners and adhering to ONE IKEA purchasing strategy constitute the main sources of value for procurement activities of the global furniture retailer.

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Olenski, S. (2013) “The Technology That Makes People Love IKEA, Zappos, And Lowe's” Business Insider, Available at: http://www.businessinsider.com/how-lowes-zappos-and-ikea-use-technology-to-provide-added-valueto-consumers-2013-12 69 Le Pluart (2016) “IKEA Secret Innovation Lab” IKEA, Available at: http://www.ikea.com/ms/en_US/this-isikea/ikea-highlights/IKEA-secret-innovation-lab/index.html

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Figure 10 IKEA procurement strategy

12. McKinsey 7S Model

IKEA McKinsey 7S framework explains how individual elements of businesses can be aligned to increase the overall effectiveness. McKinsey 7S framework considers strategy, structure and systems as hard elements, whereas shared values, skills, style and staff are accepted as soft elements. The framework stresses the presence of strong links between elements in a way that a change in one element causes changes in others. As it is illustrated in Figure 11 below, shared values represent the core of IKEA McKinsey 7S framework. This is because shared values guide employee behaviour with effects on their performance and ultimately on the bottom line for the business.

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Figure 11 McKinsey 7S model 12.1 Hard Elements Strategy IKEA business strategy is based on the IKEA Concept, which is built upon the combination of function, quality, design and value - always with sustainability in mind. Moreover, The Swedish furniture chain offers cost advantage value for customers. Accordingly, IKEA business strategy involves offering increasing variety of products for the lowest prices. Regular engagement in new market development and benefiting from strategic alliances constitute additional pillars of IKEA business strategy.

Structure IKEA organizational structure is unique and highly complex. The home improvement and furnishing chain maintains uniqueness and complexity its corporate structure in order to pay less taxes. The company can be divided into three large groups: franchise, range and supply and industry. Large scale of the business that integrates 422 IKEA stores in more than 50 markets 70

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IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html

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necessitates hierarchical organizational structure. Nevertheless, the Swedish furniture chain has proved to be successful in overcoming common weaknesses of hierarchical organizational structure such as high level of bureaucracy and lack of flexibility of the business.

Systems IKEA business relies on a set of systems. These include employee recruitment and selection system, team development and orientation system, transaction processing systems, customer relationship management system, business intelligence system, knowledge management system and others. The global furniture retailer subjects each of its systems to critical analysis periodically to identify and utilise potentials for further improvements. Furthermore, the furniture retailer generates the biggest value from manufacturing and product delivery systems in a way that flatpack furniture delivery system pioneered by IKEA is one of the main factors that enable low costs of the products.

12.2 Soft Elements

Skills Set of skills considered to be the most critical to be successful at IKEA include communication skills, interpersonal skills, ability to work under pressure and team working skills. The home improvement and furnishing chain imposes the following requirements to potential candidates wishing to join its workforce 71: - You have the ambition to do a good job and a desire to take on responsibility and to take the consequences that this entails - You do your best on the basis of your abilities and experience - You are service-oriented and have the customers’ best interests at heart - You are open to improvements, with a will to develop continually - You challenge established patterns when you have a better suggestion of your own - You are not status minded, but rather open and straightforward in your approach to others 71

Join US (2019) IKEA, Available at: http://www.ikea.com/ms/en_US/jobs/join_us/if_you_then_we/

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- You are cost conscious and know that everything has a price tag - You are open and willing to move for a new challenging job. Staff The IKEA Group has 123,000 co-workers spread across functions such as purchasing, distribution, whole-sale, range, retail, support functions and the Swedwood Group 72. A high level of employee motivation is one of the solid sources of IKEA competitive advantage. The home improvement and furnishing chain maintains high level of employee motivation through a range of programs and initiatives that include ‘Tack!’ employee loyalty recognition program, Happyforce app for vertical communication with management and One IKEA Bonus programme based on employee performance.

Style Leading by example can be specified as the main leadership style extensively exercised by IKEA senior level management. Such a leadership style has been established by IKEA founder and former long-term leader Ingvar Kamprad, who was known for his high level of frugality in personal and professional levels. Moreover, the value for teamwork, diminished role of formal titles and status of senior level managers and appreciation of diversity represent additional important features of leadership style at IKEA.

Shared values IKEA vision is “to create a better everyday life for the many people” and the company’s values revolve around this vision. IKEA values encourage a constant desire for renewal and a willingness to make changes – always with a cost-conscious mindset, in all areas of operations. The values also imply a willingness to try solutions outside of normal conventions. This means daring to be different, while maintaining practical connections with day-to-day activities. Humbleness in approaching tasks and simplicity in the way of doing things are also cornerstones of the IKEA culture. 73

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About IKEA (2019) IKEA, Available at: https://www.ikea.com/ms/ar_QA/about_ikea/facts_and_figures/index.html 73 Heritage (2017) Inter Ikea Group, Available at: http://www.inter.ikea.com/en/about-us/heritage/

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13. IKEA Ecosystem

Increasing popularity of ecosystem thinking in business has not gone unnoticed by the Swedish furniture chain as well. James F. Moore, economist who coined the term business ecosystem defines the following four evolutionary stages of business ecosystem: birth, expansion, leadership and self-renewal. The evolution of IKEA ecosystem according to this concept is taking place in the following manner: 1. Birth. The world’s largest furniture retailer has already identified smart homes as the basis of its ecosystem. 2. Expansion. The company has developed a wide range of innovative products such as Symfonisk WiFi bookshelf speakers and lamps, Riggard LED lamp with wireless charging, Tradfi remote control and others that are considered as smart home products 3. Leadership. The furniture retailer is communicating its vision to internal and external stakeholders to strengthen its leadership position in home improvement industry with the focus on innovative products. 4. Self-renewal. The world’s largest furniture retailer is forming strategic collaborations with suppliers and other businesses in order to bring new ideas to its ecosystem. In 2015, the world’s largest furniture retailer purchased its own forest as a notable step to create IKEA ecosystem. Specifically, the company purchased more than 100,000 acres of forest in Romania and the Baltic region and started to manage its own commercial forest operations for the first time. 74 Currently, IKEA ecosystem is cantered around the notion of smart home. The Swedish furniture chain is investing in the new unit and expanding the range of products “which currently includes smart light bulbs, smart plugs, and other connected devices to automate home control.” 75 Named as Home Smart, the new full-fledged business unit is dedicated to smart home products. In other words, increasing numbers of smart home devices are being added into IKEA ecosystem. It can be forecasted that IKEA ecosystem is going to be aggressively expanded with hardware products

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Hutchinson, S. (2015) “Ikea Buys Its Own Forest, Becomes an Ecosystem” Inverse, Available at: https://www.inverse.com/article/5070-ikea-buys-its-own-forest-becomes-an-ecosystem 75 Newman, P. (2019) “IKEA is looking to broaden its smart-home ecosystem with a new business unit” Business Insider, Available at: https://www.businessinsider.com/ikea-is-creating-smart-home-unit-2019-8

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that can be effectively paired with smart home technologies such as Google’s Nest and Amazon’s Alexa.

14. Corporate Social Responsibility IKEA Corporate Social Responsibility (CSR) efforts are led by Chief Sustainability Officer, Pia Heidenmark Cook. The home improvement and furnishing chain started to research CSR reports under the title People & Planet Positive starting from 2012. IKEA CSR efforts and activities comprise supporting local communities, educating and empowering workers and addressing the issues of gender equality and minorities within the company. Moreover, the global furniture retailer works to reduce it energy consumption and derive energy from alternative sources. Sustainable sourcing represents an additional CSR issue that IKEA aims to address within the scope of its operations.

14.1 CSR Programs and Initiatives

IKEA Supporting Local Communities •

IKEA Group operates 422 stores in 50 markets around the world. 76 The home improvement and furnishing chain aims to cause positive impact on local communities, where its stores are located.

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Packing event organized by all IKEA stores in Sweden involved customers and representatives from Save the Children to prepare more than 37,000 welcome backpacks filled with toys and other products for children

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In UK, IKEA has planted one million trees in communities across the country

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In Australia, IKEA Perth and IKEA Adelaide employees contribute to the improvement of the environment in which children live and develop.

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IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-andfigures/index.html

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IKEA Educating and Empowering Workers •

Starting from January 2015, IKEA has introduced a new hourly wage structure that concentrates on the needs of its employees, rather than market standards.

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The furniture retailer has launched My Learning online system that provides employees at all levels access to face-t-face and digital learning solutions.

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The company organized a global Talent Focus Week in April 2016 to provide employees worldwide with an opportunity to have a dialogue around the many ways to grow and develop within IKEA.

IKEA and Gender Equality and Minorities •

At Inter IKEA Group function 70% of all employees and 40% of all managers are women

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Annually on May 17th the company celebrates IDAHOT, the International Day Against Homophobia, Biphobia and Transphobia, to stand up for the rights of lesbian, gay, bisexual, transgender, and people of all sexual orientations and gender identities.

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The Swedish furniture chain is the member of Workplace Pride Foundation and Stonewall, two organisations focused on LGBT+ inclusion in the workplace.

Energy Consumption by IKEA •

IKEA is expected to become energy-positive by 2020.

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Energy consuming products offered by IKEA are on average 50 per cent more efficient compared to 2008.

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Energy efficiency of IKEA-owned buildings increased by 15 per cent in FY2015 compared to FY2010

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There are about 700,000 solar panels installed in buildings owned by IKEA.

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IKEA owns and operates 327 wind turbines around the world and have invested in 730,000 solar panels on its buildings worldwide. 77

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Group Yearly Summary (2016) IKEA Group

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Waste Reduction and Recycling by IKEA •

About 60% of all products offered by the furniture retailer are based on renewable materials and 10% of products contain recycled materials. 78

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The retail giant has an ambition to use 100% renewable and recycled materials by 2030

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Food is Precious initiative started in 2016 saved 1,400 tonnes of food, equivalent to 3 million meals

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Skapro Chair sold by IKEA is made of 100 per cent recycled plastic.

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The IKEA catalogue is the largest print production ever to be printed on 100 per cent Forest Stewardship Council certified paper

IKEA and Sustainable Sourcing •

All cotton used by IKEA and 85% of wood comes from more sustainable sources

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94% of fish and seafood sold by the company is certified to MSC or ASC standards

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The company has committed to source the fish and seafood it sells and serves in restaurants and Swedish Food Markets from fisheries and farms certified by the Marine Stewardship Council (MSC) and the Aquaculture Stewardship Council (ASC).

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IKEA serves more than 100 million cups of coffee every year. The company’s PÅTÅR coffee range is certified by UTZ, as well as, EU Organic

IKEA other CSR Initiatives and Charitable Donations •

EUR 7.7 million has been denoted by IKEA foundation to Brighter Lives for Refugees campaign.

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76 per cent of cotton used by IKEA is gained from sustainable sources

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IKEA enforces Supplier Code of Conduct that prohibits the use of child labour, the use of forced or bonded labour and discrimination at work. The Code of Conduct also requires the freedom of association for employees and the provision of a safe and healthy environment.

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Sustainability Report FY 2018 (2019) IKEA

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IKEA Foundation as an independent charitable body has donated EUR 1 to Save the Children for every soft toy sold in IKEA stores in November and December since 2003.

14.2 CSR Criticism

Along with CSR initiatives and programs as illustrated above, IKEA has faced criticism on various ethical grounds in the past years. In September 2012 it was revealed that the company had Photoshoped the images of women out of its Saudi Arabia catalogue in order to suit to the unique aspects of the local culture to a greater extent. The controversial act caused discontent and fury among public in general and feminism groups in particular. In November of the same year, auditing firm Ernst & Young revealed that about 30 years ago IKEA worked with suppliers in communist East Germany that used forced labour in prison camps to construct IKEA products. Although IKEA has offered a formal apology to descendants of those affected, there have been calls from various parties for monetary compensation to be provided by the company. Horsemeat scandal is another incident related to IKEA that damaged the brand image. Specifically, in February 2013 the company had to recall its meatballs from Swedish market because of the traces of horsemeat found within products. Other retailers such as Burger King, Nestle, and Tesco were also found to be involved in horsemeat scandal around this time. It has to be clarified that instances mentioned above are not the full range of CSR-related issues IKEA had to deal with and there are many other smaller-scale instances.

Apart from incidents

mentioned above, IKEA had to deal with a number of other CSR-related issue during the past years.

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