COMPANY PROFILE

Ikea Group

REFERENCE CODE: 6878C795-4BCB-4C85-A319-6F33C508FD80

PUBLICATION DATE: 30 Apr 2012
www.marketline.com
COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

Ikea Group
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

Ikea Group
MarketLine

Page 2

Ikea Group
Company Overview

COMPANY OVERVIEW
Ikea Group (Ikea or the group) is an international home products retailer that sells furniture,
accessories, and bathroom and kitchen items. As of August 31, 2011, the group had a total of 287
stores in 26 countries, most of them located in Europe, North America, Asia and Australia. Ingka
Holding BV, which is wholly owned by Stichting Ingka Foundation, is the parent company for the
Ikea group of companies. The foundation is owned by the Kamprad family. Ikea is headquartered
in Delft, the Netherlands and employs 131,000 people.
The group recorded revenues of E25,173 million (approximately $34,960.3 million) during the financial
year ended August 2011 (FY2011), an increase of 6.9% over FY2010. The operating profit of the
group was E3,592 million (approximately $4,988.6 million) in FY2011, an increase of 12.4% over
FY2010. The net profit was E2,966 million (approximately $4,119.2 million) in FY2011, an increase
of 10.3% over FY2010.

KEY FACTS
Head Office

Ikea Group
Olof Palmestraat 1
NL 2616 LN Delft
NLD

Phone

46 709 936376

Fax

31 15 215 3838

Web Address

http://www.ikea.com

Revenue / turnover 25,173.0

(EUR Mn)
Financial Year End

August

Employees

131,000

Ikea Group
MarketLine

Page 3

Ikea Group
SWOT Analysis

SWOT ANALYSIS
Ikea is an international home products retailer that sells furniture, accessories, and bathroom and
kitchen items. The groups emphasis on providing home furnishing products at low prices has been
the main reason for the wide spread customer acceptance of its products. This, in turn, has facilitated
Ikeas growth in various geographies. However, barriers to entry in lucrative markets such as India
reduce the opportunities for the group to expand its geographic presence and facilitate top line
growth.
Strengths

Weaknesses

Significant market presence

Improved range, price, ambience, layout,
and facilities at Ikea win customer loyalty
Focus on sustainability

Customer perception of Ikea indicates

shortcomings in convenience, quality and
service
Increasing instances of product recalls

Opportunities

Threats

Expansion into the growing Indonesian

market
Increasing online sales

Barriers to enter lucrative growth market

Unfavorable market trends
Anti-dumping duties in the US on furniture
made in China
Increasing labor costs in Europe

Strengths

Significant market presence

Ikea is one of the largest furniture retailers in the world. The group sells approximately 9,500 home
furnishing products in about 287 stores in 26 countries / territories. Apart from this, Ikea has 29
trading service offices in 25 countries, and 26 distribution centers and 11 customer distribution
centers in 16 countries. The groups emphasis on providing home furnishing products at low prices
has been the main reason for the wide spread customer acceptance of its products which, in turn,
has facilitated its growth in various geographies.
The group designs, manufactures, transports, sells and assembles its merchandise to minimize cost
at each level. To help keep prices low, the group ensures that the production equipment and raw
materials are used efficiently. Customer involvement also contributes to low prices. Ikea relies on
customers to choose, collect, transport and assemble Ikea products themselves and offers home
delivery services at an additional cost. Over the past 10 years, Ikea has lowered its prices by 2% to
3% per year, on an average. The groups low cost proposition is central to its product offering and

Ikea Group
MarketLine

Page 4

Ikea Group
SWOT Analysis

also a key driver for customers. In FY2011, Ikea stores had a total of 655 million visitors and the
groups websites attracted 870 million visitors.
Thus, powered by low prices Ikea has come to hold a strong market presence which gives the group
considerable bargaining power and an advantage in terms of higher customer recall.
Improved range, price, ambience, layout, and facilities at Ikea win customer loyalty
The improved range, price, ambience, layout, and facilities at Ikea have been driving loyalty for Ikea
in the UK market. According to a study (report released in March 2011) conducted by Verdict, the
retail arm of Datamonitor, Ikeas loyalty score for the range criterion was 82%, much higher than the
sector average of 54.2% in 2011. In comparison, the groups close competitors such as Argos and
Asda scored 48.4% and 52.2%, respectively, on product range. The groups loyalty score with respect
to the price parameter was 68.6% in comparison with the industry average of 54.2% in 2011. Similarly,
for ambience, layout and facilities too, the group had loyalty scores much above the sectors averages.
Nearly 91.6% of Ikeas main users prefer to shop for homewares only at the groups stores.
In the UK retail market, it is becoming very difficult for specialists to find relevance as grocers and
mass merchandisers expand to capture a share of the homewares. Thus, shopping experience
facilitated through improved range, price, ambience, layout and facilities could be one such
differentiating factor for specialists which can give them a competitive edge. The fact that the
consumers have scored Ikea high on loyalty based on the above mentioned criteria indicates the
importance of these factors while consumers make shopping decisions. Improved price perception
and shopping experience will increase footfall which gives a scope for increasing the customer base.
Ikeas clearly superior shopping experience and price range offered will therefore enable it to
differentiate from other competitors and also drive loyalty in a market where the customer is more
fickle than ever.
Focus on sustainability
In response to pressures on global retailers to co-exist with the environment, Ikea has been working
towards sustainability since 1990 when the group developed its first environmental policy. Ikeas
sustainability initiatives focus on five areas: offering a sustainable range of products, reducing carbon
footprint, turning waste into resources, reducing water footprint, and social responsibility. In order
to focus on manufacturing sustainable range of products, in FY2010, Ikea introduced the Sustainability
Product Score Card (SPS). SPS helps the group to develop more sustainable home furnishing
products. The score card reflects sustainable aspects throughout the lifecycle of a product such as
type and amount of raw material used, manufacturing, distribution, product quality, product use and
recycling potential at the end of its lifetime.
The group has been reducing its carbon footprint by using renewable energy. In FY2011, 51% of
the group's energy requirements were met using renewable sources. The group expects to increase
this to 7080% by 2015. Solar photovoltaic (PV) systems have been installed in 40 IKEA units with
a further 84 approved for installation. Ikea owns 60 wind turbines and six are under construction.
Upon completion of these six turbines, together these will generate equivalent of 15% of the electricity

Ikea Group
MarketLine

Page 5

Ikea Group
SWOT Analysis

consumed by the group. Furthermore, during FY2011, energy efficiency across all Ikea stores
improved by 4% as compared to FY2010, helping the group save E6.2 million (approximately $8.6
million). The group has also taken several initiatives with respect to waste management. Many of
the groups stores offer customers the facility to return and sort waste for recycling. The group has
also started investigating the opportunities to facilitate full recyclability of different materials used in
its products. In order to reduce its water footprint, the group ensures that most of its suppliers,
primarily based in South Asia, make use of biological water treatment plants. For this, the group
provides its suppliers with specialists and external consultants, who, in turn, assist the suppliers to
upgrade their water treatment plants and also provide technical knowhow. The groups social
responsibility initiatives cover three key areas: co-workers, suppliers, and communities. Ikea has
taken up several measures to ensure the well being of these groups.
Ikeas strong focus on sustainability enables it to create goodwill and strengthen its brand value.

Weaknesses

Customer perception of Ikea indicates shortcomings in convenience, quality and service

Ikea has not been able to perform well on criteria such as convenience, quality and service offered
at its stores in the UK. As a specialist, these are the areas in which the group is expected to excel.
According to the UK Customer Insights report on IKEA by Verdict, Datamonitors retail arm, released
in March 2011, Ikeas loyalty score for convenience offered by its stores was 12.8%, much lower
compared with the sector average of 28% in 2011. The groups performance with respect to quality
and service offered also remained low. Ikeas loyalty score on the quality and service criteria totaled
14.1% and 3.9% in comparison with the sector averages of 17.7% and 10.6%, respectively, in 2011.
Poor performance with respect to convenience, quality and service offered can act as disadvantage
for the group as the competition in the UK market is intensifying, and results in reduced customer
spending at its stores.
Increasing instances of product recalls
Ikea has been registering increasing instances of product recalls lately. In January 2011, the group
recalled Rund Hand Made Glass Mug after receiving a report of laceration injury. In the following
month, Ikea recalled Sniglar crib 70x132 for repair. In March 2011, Ikea recalled Forsta coffee/tea
maker as pressure from the metal holder on the glass pot can cause it to break unexpectedly when
hot water is added or the press is operated, posing a burn and laceration hazard. In October 2011,
the group recalled its BUSA childrens folding tent as the steel wire frame of the tent could break in
use. In November 2011, the group recalled its PAX AURLAND glass mirror door as the mirror glass
could detach unexpectedly from the wardrobe door. In January 2012, the group, in cooperation with
the US Consumer Product Safety Commission, voluntarily recalled for repair the ANTILOP high
chair as the high chair restraint buckle posed a fall hazard.
Such product recalls not only affect the brand image of the group but also result in loss of sales.

Ikea Group
MarketLine

Page 6

Ikea Group
SWOT Analysis

Opportunities

Expansion into the growing Indonesian market

The Indonesian economy, Southeast Asias biggest economy, with its strong growth has been
attracting a lot of businesses lately. The countrys gross domestic product grew by 6.5% in 2011,
the highest growth rate in recent times, according to industry estimates. The rising middle class has
been considerably contributing to the consumer spending, accounts for 60% of gross domestic
product. The low interest rates are encouraging spending by consumers. The country also is the
worlds fourth most populous nation. Therefore, such encouraging trends are attracting retailers to
expand into the country. Ikea plans to enter Indonesia in 2014 after signing a franchise agreement
with PT Hero Supermarket.
Therefore, the strong economic growth coupled with positive demographic trends are expected to
help Ikea establish its business in the country and generate incremental sales.
Increasing online sales
The online retailing has been increasing across Europe and the US. According to industry estimates,
the total online retail sales accounted for 17% of the total UK retail market. The UK consumers spent
68 billion ($105.5 billion) in online shopping in 2011, an increase of 16% over the previous year.
In the US too, online retail sites have been emerging as an important channel for customers to shop
for their requirements. Although online retail sales in the US recorded a low growth rate of 1.4% in
2009, they still contributed 4% of the total retail sales. According to the US Department of Commerce,
the US online retail sales reached $193.4 billion in 2011, an increase of 16.2% compared with the
previous year. Further, in 2011, e-commerce accounted for 4.6% of the total retail sales in the US.
To benefit from this trend, Ikea has also started transacting on its website, www.Ikea.com. In 2011,
Ikea websites had 870 million visitors. A focus on online retail will open up another channel to reach
customers who prefer to research for options and shop online. A stronger push to online retail would
also solve part of the problems faced by customers who are forced to go out-of-town for shopping
at Ikea. Ikea can thus reach out to the increasing number of customers who are looking for
convenience in their shopping experience and also enhance its presence over the internet to drive
top line growth.

Threats

Barriers to enter lucrative growth market

The foreign investment policies in India squashed Ikea's plan to set up retail operations in the country.
Although Ikea intends to strengthen its sourcing relationship with India, the group has decided to
discontinue plans to expand its retail operations in the country. Earlier in 2009, Ikea cancelled a $1

Ikea Group
MarketLine

Page 7

Ikea Group
SWOT Analysis

billion investment plan to start retailing in India after the Indian government refused to raise the 51%
foreign ownership cap on single-brand stores to full ownership. As a result, Ikea was denied a share
of the lucrative Indian consumer market. The retail industry in India is large owing to a large population
and is set to grow as several factors contribute. Strong underlying economic growth, population
expansion, increasing wealth of individuals and the rapid construction of organized retail infrastructure
are key factors behind the forecast growth. Thus, Ikeas lack of presence in the Indian retail market
will close one avenue of recording stronger top line growth in the short to medium term.
Unfavorable market trends
Ikea is a retailer of furniture and accessories. Furniture and homeware specialists such as Ikea are
threatened by non-specialists such as grocers who increased their non-food product portfolio to
appeal to the customer willing to trade-down. Non-specialists such as grocers benefit from varied
product mixes at the expense of traditional specialist retailers. The economic downturn and its
adverse impact on discretionary demand accelerated this trend. Tesco through its Extra stores and
Asda through its Super centers have driven this trend through the creation of strong non-food offers.
Grocers' non-food ranges benefit from a high volume of footfall to their core food and grocery
categories, allowing them to be extremely price competitive. The expanding non-food offering of
grocers is in direct competition to Ikea's product portfolio and will force Ikea to work harder at attracting
customers.
Anti-dumping duties in the US on furniture made in China
The regulations regarding anti-dumping duties in the US have become stricter. In 2005, the US
Department of Commerce (DOC) implemented high rate of duties on bedroom shipments from China.
The move was in response to a government antidumping investigation that found that the US furniture
manufacturing industry was being injured by low priced Chinese made bedrooms. Duties ranging
from zero to 216% were imposed on manufacturers, but were actually paid by importers, thereby
increasing the price of their products. A major portion of the groups products are sourced from
China. Thus, various anti-dumping duties in the US market against the furniture made in China can
adversely affect the group's cost and profitability.
Increasing labor costs in Europe
The cost of labor in Europe is rising fast as wage-earners try to keep up with inflation. According to
EuroStat, hourly labor costs in the euro area (EA17) increased by 2.8% in the year up to the fourth
quarter of 2011, compared with 2.6% for the previous quarter. In the EU27, the annual increase was
2.7% up to the fourth quarter of 2011, compared with 2.6% for the previous quarter. For full year
2011, hourly labor costs increased by 2.8% in the euro area and by 2.7% in the EU27, compared
with 1.5% and 1.7%, respectively, in 2010. Increase in the labor cost in the group's key markets in
Europe could impact its financials. The group's business is labor intensive in nature. Any increase
in minimum wage rate increases its operating cost and could pressurize the operating profit of the
group.

Ikea Group
MarketLine

Page 8

Copyright of IKEA Group SWOT Analysis is the property of Datamonitor Plc and its content may not be
copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written
permission. However, users may print, download, or email articles for individual use.