Ikea’s Success Story
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Why do millions of costumers endure the frustration and hassle of assembling their own flat pack furniture?
Because Ikea’s products are stylish – and they’re affordable to everyone.
Mikael Ohlsson, who took over as chief executive of IKEA Group in September 2009 says “We hate waste”.
Last year his designers found a way to pack the popular three-seater “Ektorp” sofa compactly, doubling the amount of sofa they could cram into a given space. Shaving $135 from the price tag.
Why do millions of costumers endure the frustration and hassle of assembling their own flat pack furniture?
Because Ikea’s products are stylish – and they’re affordable to everyone.
Mikael Ohlsson, who took over as chief executive of IKEA Group in September 2009 says “We hate waste”.
Last year his designers found a way to pack the popular three-seater “Ektorp” sofa compactly, doubling the amount of sofa they could cram into a given space. Shaving $135 from the price tag.
Thrift is the core of IKEA’s corporate culture.
Ohlsson traces it back to the company’s origins in Smaland, a poor region in southern Sweden whose inhabitants, he says, are “stubborn, cost-conscious and ingenious at making a living with very little”.
Since Ingvar Kamprad founded IKEA in 1943, the company has allowed “people with limited means to furnish their houses like rich people”.
IKEA presents itself as a green company with a social mission.
Mr Ohlsson boasts of IKEA’s charitable work and aim to use only renewable energy. He wants his “co-workers” to be happy, honest and inclined to think for themselves.
40 percent of the company’s 200 top managers are women – he states proudly.
In 2010, IKEA’s sales grew by 7.7 percent to €23.1 billion and net profit increased by 6.1 percent to €2.7 billion.
Even during the downturn, Ikea’s strong brand and low prices helped the company weather the storm when their competitors failed to cope.
Behind IKEA’s clean image is a firm that is very Swedish, secretive by instinct and, some say, rigidly hierarchical.
The company has been accused of using child labour in Asia and of buying feathers plucked from live geese.
More recently, IKEA has had problems in Russia, where they had to sack two senior executives in Russia for allegedly turning a blind eye to bribes paid by a subcontractor to secure electricity supplies for its St Petersburg outlets.
But IKEA has an admirable habit of coming clean, even though the firm’s ownership structure is opaque.
Critics suspect that its set-up minimises tax and disclosure, and handsomely reward the Kamprad family – making IKEA immune to a takeover.
Ingka Holding (parent for IKEA Group), a private Dutch-registered company belongs entirely to Stichting Ingka Foundation, a Dutch-registered, tax-exempt, non-profit-making entity, was given Mr Kamprad’s IKEA shares in 1982.
A five-person executive committee, chaired by Mr Kamprad, runs the foundation.
The IKEA trademark and concept is owned by Inter IKEA Systems, another private Dutch company. Its parent company is Inter IKEA Holding, registered in Luxembourg. For years the owners of Inter IKEA Holding remained hidden from view and IKEA refused to identify them.
In January a Swedish documentary revealed that Interogo, a Liechtenstein foundation controlled by the Kamprad family, owns Inter IKEA Holding, which earns its money from the franchise agreements Inter IKEA Systems has with each IKEA store.
IKEA says that all franchisees pay 3 percent of sales as a royalty.
The IKEA Group is the biggest franchisee; other franchisees run the remaining 35 stores, mainly in the Middle East and Asia.
Mr Kamprad retorted that “tax efficiency” was a natural part of the company’s low-cost culture. Yet such diligent efforts to reduce the firm’s tax burden sit uncomfortably with IKEA’s socially conscious image.
Ohlsson is also trying to defuse criticism of IKEA’s opacity by providing more information on its finances by publishing the firm’s detailed figures on sales, profits, assets and liabilities for the first time ever.
Ohlsson argues that IKEA is more competitive as a privately owned company.
Instead of sweating to meet the quarterly targets the stockmarket demands, it can concentrate on long-term growth.
Ohlsson plans to double the pace of store openings in China, where IKEA already has 11 outlets – and hopes to move into India when the retail market opens up there.
Read the full article from The Economist.
