IKEA’s business idea is to “offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (“Welcome inside Our Company”).
It has grown to be one of the largest global furniture retailers by cooperating with more than 1,500 suppliers around the world, which is around 50 countries in designing their own furniture and by trading internationally, they have 341 stores in 38 countries including: Germany, United States, France, Italy, United Kingdom, Sweden, Spain, Canada, Russia, China and others. IKEA revolutionized the home-furnishings industry.Ĭurrently, IKEA is a private limited company that is owned by an organization controlled by the Kamprad family. This formula allowed families to save money and create a new furniture experience. Practical solutions and a low-cost promise created a new formula for IKEA of “knock-down” furniture, flat-box storage and shipping, and assembly by the consumers armed with IKEA-developed tools and visual instructions. In 1964, the introduction of the first warehouse store allowed IKEA to eliminate an entire step in product distribution by allowing warehouse container pick-up by the customers (Pg. In 1955, an IKEA employee discovered the company’s “flat-box” approach which was to sell their furniture unassembled (Pg. In 1953, IKEA had an opening of the company’s first showroom which demonstrated how Kamprad created a model of vertical integration, uniting a variety of suppliers under the IKEA umbrella, coordinating long-run production schedules, and controlling distribution. Eric’s Fair in Stockholm and won over customers with the high-quality, low-priced furniture items in his line (“Welcome Inside Our Company”). In 1952, the stability of home furnishings in the IKEA product line was strengthened when Kamprad took his items to the St. A year later, an expanded version of the IKEA catalog became available. Then in 1950, Kamprad set the foundation for the future direction of IKEA by adding furniture and home furnishings to the mail-order line. In 1947, IKEA issued its first original mail-order catalog, within which the newly invented ballpoint pen was added to the assortment of products Kamprad was offering.
Kamprad anticipated that there would be a rise in consumerism among the rebuilding boom that followed the war so he moved quickly to provide low-cost furniture for families through the convenience of catalog sales (Pg. At the same time, IKEA pursues the strategy of forming strategic long-term relationships with its suppliers.In 1943, IKEA was created in Sweden by Ingvar Kamprad at the age of 17, the word IKEA was an acronym of his name with his first and last name initials, the name of his family’s farm which was Elmtaryd and the nearby village named Agunnaryd (Pg. IKEA suppliers do not possess substantial bargaining power as there are numerous factories around the globe with the capabilities and resources to form partnership with IKEA. However, the threat of substitute products and services is low as there are no too many products and services available that can substitute the demand for furniture, home appliances and a range of other products offered by IKEA. The bargaining power of IKEA customers is strong, as the competition is intense and the customers have a wide choice of alternative options offered by global furniture retailers, as well as, local furniture producers. The threat of new entrants into the industry is low, and the chances of emergence of new competition for IKEA is insubstantial as the current market is saturated and significant amount of financial investments and expertise are required to become a discounted furniture retailer in a global scale. However, currently IKEA is the undisputed market leader in the industry of discounted furniture in the global scale. Rivalry among existing firms is intense in the global market of discount furniture and the major players in the industry include Euromarket Designs Inc, Galiform plc, Wal-Mart Stores Inc, Argos and others. These five underlying forces are competitive rivalry among existing firms, bargaining power of suppliers, bargaining power of customers, the threat of new entrants into the industry, and the threat of substitute products and services. Porters Five Forces model is a generic framework that deconstructs industry structure into five underlying competitive forces or variables (Nemati and Barko, 2004, p.29).
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