IKEA's Success: From a Tiny Mail-Order Store to the World's Largest Furniture Retailer
With 433 IKEA stores in 53 countries and 2019 global retail sales of staggeringly $45.5 billion, IKEA has – undoubtedly - ridden on the crest of a wave, notching up its exponential success within the retail landscape. Founded in 1943, the Swedish-based company has been the largest furniture retailer in the world since 2008 - and has also been ranking among the most valuable brands for years.
"There is perhaps no other retailer on the planet that has moved its basic model into so many places with so much success," business analyst Warren Shoulberg wrote on industry website The Robin Report.
So, how in the world could IKEA make such a killing? What are the real reasons behind the unstoppable success of this Swedish furniture giant? Let’s read on to uncover!
Found from a Tiny Unknown Office Supply Store
Before diving into IKEA’s icon success story, it’s more than essential to first cast a glimpse over its inspirational journey as well as the enviable business performance.
"Why are beautiful products only made for a few buyers? It must be possible to offer good design and function at low prices." Starting with this simple idea, IKEA started out in 1943 as a mixed-mail-order company, being founded by the 17-year-old Ingvar Kamprad at Elmtaryd farm in Agunnaryd village in Sweden. Its compound name was already an omen for their later product philosophy: Ingvar Kamprad (name of founder) Elmtaryd (parental farm) Agunnaryd (hometown).
It started small, selling things like pencils and postcards – yet, just five years later, the young Swedish man moved on to selling furniture. Since then, his vision has got clearer: to deliver modern and trendy design for the least possible money. This soon brought him into constant conflict with his suppliers, which forced him to start off looking to produce furniture directly while being as economical as possible. And this was when the DIY (Do It Yourself) kit was born.
In 1958, the first IKEA furniture store opened in Smaland, followed five years later by the first branch in Norway, and finally in Denmark in 1968. Actually, several were skeptical of the idea of opening the first large furniture store in a small village in the deep forests of Smaland. Nevertheless, as it turned out, people were prepared to travel long distances to visit the store and buy attractive furniture at low prices. Even, a visit to the IKEA store has become a day out for the family, creating a need and opportunity for unique services like a self-service restaurant and a supervised children’s playroom.
Such a slow yet steady growth suited Kamprad’s independent, thought-out philosophy. Even the founder, who died in 2018, is quoted as saying that he wished long-term growth for his company and that IKEA would therefore not look to go public - principles that the company still follows today, under the supervision of Kamprad’s two sons. This also explains why the huge US market is only being conquered step by step: 50 IKEA stores are currently facing 53 in the much smaller main market Germany.
By 2018, it finally opened its first store in the South Indian tech metropolis Hyderabad, which was overrun by ecstatic shoppers, causing traffic chaos and hours of waiting to get into the store.
On top of all that, IKEA was also able to grow financially – sales grew averagely by 5% year on year (in 2009, 6.5%) with the global retail revenue of whoppingly $45.5 billion in 2019.
For the time being, the massive blue and yellow brand has 433 stores in 53 countries, three hundred sixty-seven of which are owned and operated by Ingka Group. Despite some serious product recalls and food court scandals, IKEA is going strong. “There is something about the uniqueness with the yellow and blue and the meatballs and the long way through the stores and maybe the twinkle in the eye as well. That makes us just a little bit more human than others,” stated Jesper Brodin, CEO of Ingka Group.
Undoubtedly, IKEA’s combined global and online presence is massive: There are staggeringly 1 billion store visits and 2.8 billion online visits in 2019. Additionally, IKEA franchisees also opened several small test locations. Nine markets introduced e-commerce, and customers in most IKEA markets can now shop online. Around 2.8 billion people visited the IKEA website, and e-commerce sales grew 43%. Its closest competitor in the home furnishing space, Bed, Bath & Beyond, brought in $12 billion in 2018 in in-store sales while IKEA’s sale was $45.5 billion during the same time.
The Psychology-Driven Designers Behind IKEA’s Iconic Success
In reality, IKEA is a powerhouse of innovative home furnishing ideas and experiential retailing that places it second to none in furnishing American's homes, from the kitchen cabinets, including all the stuff in the drawers and cabinets, to the bedroom, bathroom, living room, and dining room.
There is absolutely no doubt as to IKEA’s global growth. But, again, why has this “world's largest furniture retailer” become so large and successful? Which specific “ingredients” have been contributing to such a phenomenal and unstoppable success?
#1. IKEA’s Furniture: Remaining Affordable Yet of High Quality
At the heart of IKEA’s success is value: You know what you are going to get when you shop at Ikea, and it’s going to be affordable. This is also the major reason why a whole number of shoppers flock to IKEA,
“When I hear IKEA, I think of cheap, simple furniture that looks really nice.”
"The IKEA brand is sleek, minimal, and affordable. IKEA from its very beginning has focused a lot on its customers building its own furniture and therefore they could offer them cheaper prices," said Lauren Hirsch, the Retail Reporter at CNBC.
Moreover, as Ashlie Broderic, Interior Designer at Broderic Design shared, “IKEA falls in the affordable area of the spectrum, but it depends on what you buy. They have beds that start at $99. They also have really well-designed beds that go up to $500… If you're starting out, you're moving into your first apartment, you don't have a lot of money to spend. Just keep it simple, look at the Nordic design, buy some simple IKEA pieces, and invest in some really nice bedding, a great rug, cool side tables.”
Actually, IKEA sells couches, armchairs, and tables for around half of what competitors do. At IKEA, a couch can be on sale for under $500, whereas, at other stores specializing in home furnishings such as Pottery Barn or Crate & Barrel, couches typically cost at least $900, if not more. Yet, considering how low most of IKEA's prices are, the quality is surprisingly high – how is it able to keep prices so low?
Ikea has a “democratic design approach,” according to Antonella Pucarelli, the chief commercial officer of IKEA retail U.S., which means that it “deliver[s] form, function and quality products at a low price. Even though our products are affordable, we don’t compromise on quality,”
Many of IKEA's cost-cutting efforts lie in the way it designs each item. IKEA first picks the price they wish to sell a product for before designing and manufacturing it; then, the designers and suppliers will work together to make sure the final product can be that price. Besides, IKEA makes everything in bulk, hence, this home furnishing manufacturer is able to get discounts on production and keep the prices lower.
Several pieces of IKEA's furniture are made from wood, some are made from particleboard (recycled wood chips fused together), keeping production more affordable. Furthermore, the trademark simple style of the furniture IKEA produces is not just because it's a Scandinavian aesthetic – actually, it's easier and cheaper to make affordable versions of such furniture look good.
“Ikea’s aesthetic is pared down and minimal, which is not an accident. Uncomplicated forms with very little applied decoration are easier to manufacture. More can be produced in a shorter amount of time, increasing efficiency and decreasing production costs,” Ashlie Broderic shared. “The Malm bed is an excellent example of simple rectangular shapes combined to create a very chic bed.”
Also, “most of Ikea’s furniture is available in black, white, or unfinished wood. By producing more items in fewer finishes, Ikea takes advantage of economy of scale,” she added.
More critically, IKEA maintains its low-price strategy owning to the way that it sells its products. To trace backward, in 1956, IKEA founder Ingvar Kamprad introduced "flat packing," which means IKEA lets consumers purchase their furniture in pieces and assemble it themselves. Whereas it may not be the most convenient option, it allows IKEA to charge less for everything.
#2. Store Layout: Serving as Powerful “Retail Therapy”
It's the IKEA stores’ design that sets it apart.
“So, what a great store will do?”
The neuro marketer and author of "The Buying Brain" Dr. A. K. Pradeep answered, "[It] will allow you the pleasure of discovery… a great store will give you a sense of comfort and familiarity and will also give you the pleasure of discovery. And that is when retail becomes retail therapy.”
Actually, IKEA’s layout nudges shoppers to increase their furniture spending. The winding maze is designed to make shoppers stop, shop, and spend more than they planned. Mirror placement is also another critical intention-driven design factor.
“You walk through an IKEA store and you'll find a number of mirrors. Mirrors placed tastefully here, tastefully there, on a table, on a closet, etc. The brain is entranced with mirrors. Why? When you look in a mirror, you see the most gorgeous human being looking back at you.”
It’s fair to state that IKEA plays to the narcissist in each of us. “IKEA employs mirrors everywhere through their stores. As you walk by, you have love because you have a love for yourself in the mirror,” Pradeep continued.
Along with the smart use of mirrors, “IKEA uses white everywhere through the store. White cupboards, white closets, white tables.” From the psychological perspectives, IKEA’s vast amounts of “white” presented in stores do appeal to the subconscious, a neuromarketing technique tech behemoth Apple also uses liberally. ″[If] Apple was to design a closet it would probably look like an IKEA closet,” Pradeep said. “The brain perceives everything through context. The notion of that white there symbolizes clutter-free, pure, simple, transparent, without saying all those words - through the judicious use of white, that is spotless, IKEA communicates what you aspire for your home.”
Furthermore, the guided pathway over there also gets shoppers into a passive mentality in which they are more prone to suggestion. “You follow the yellow brick road. You hand over control of where you are and where you go next. That’s quite psychologically disruptive, and I think that’s the first step toward actually buying,” said Alan Penn, a University College London professor.
And them, no matter whether you’re aware or not, when you are paying for your IKEA stuffs, there is the smell of sweets baking near the checkout. "There's a part of the brain that fires every time you pay, right? And so, by having the scent of baking, of warmth, of sugar — in particular, that takes the stress out — they get down the stress of payment. And therefore, the experience is memorable without it overwhelming you with how much money you spent out there.” Pradeep explained.
#3. Relaxing Space: Taking A Break with Kid Areas & Yummy Food
For families shopping at IKEA, some locations do have complimentary daycare – this seems hilarious but actually, there's a strong reason behind. After all, with or without kids, shopping can be exhausting.
“Do you know that the most tiring environment for the entire human brain? The most tiring environment is a retail environment.” Pradeep went on to clarify, “It is the worst environment for the human brain simply because you're processing so much information.”
Understanding such a psychological aspect, IKEA has mapped out a plan to keep its shoppers energized. “When I hear IKEA, I think of meatballs.” Since IKEA recognizes that its precious customers need sustenance to keep shopping energetically, the company establishes a cafeteria serving up Swedish fare right in the center of most stores.
When discussing the IKEA's "signature" of meatballs, Gerd Diewald, the former head of IKEA’s food operations in the U.S. shared, “We’ve always called the meatballs ‘the best sofa-seller” … It’s hard to do business with hungry customers. When you feed them, they stay longer, they can talk about their [potential] purchases, and they make a decision without leaving the store. That was the thinking right at the beginning.”
#4. Do-It-Yourself Assembly: Approach That Gets Customers Committed
When referring to IKEA, many will remember about its style of do-it-yourself assembly and flat packaging - a torturous experience putting together a piece of furniture. Whether you purchase IKEA furniture in the store or online, once you open the boxes, it's time to get to work! So, is there another psychology behind it or simply a way to cut costs?
The answer is yes – there is! According to a 2011 study by Harvard Business School, individuals tend to be more inclined to value an item that they built on their own. Daniel Mochon, a researcher and associate professor of marketing at Tulane University’s business school, calls this the “IKEA effect.” “We come to overvalue the things that we have created ourselves,” Mochon told Shankar Vedantam, the host of NPR’s podcast “Hidden Brain.”
“Imagine that you built a table. Maybe it came out a little bit crooked. Probably your wife or your neighbor would see it for what it is, you know, probably a shoddy piece of workmanship. But to you, that table might seem really great because you’re the one who created it. It is the fruit of your labor, and that is really the idea behind the ‘Ikea effect.’”
Nevertheless, “the problem with IKEA was you realized that the closet was so minimalist and beautifully designed. But, oh my God. There are 10 million parts I got to put together to get the minimalistic design,” shared Pradeep.
Since assembling IKEA furniture can be daunting and many customers don’t prefer this experience, the Swedish company did acquire TaskRabbit in 2017, giving shoppers the option of hiring someone to assemble their furniture. With its acquisition of TaskRabbit as the on-demand service and errand platform, IKEA hopes to make it easier for shoppers to outsource the sometimes-onerous work of moving and assembling their new purchases.
The Bottom Line
From a tiny Swedish business, selling through a mail-order catalog, IKEA has become one of the most well-known home furnishing brands in the world – notching up enviable sales as well as remarkably shaping the retail landscape. Every success has a story and such a spectacular rise of this "blue and yellow" brand also gets a compelling story behind it. Should you be a player within the business game and wish to become a game-changer someday just like IKEA, IKEA's success story, together with the psychological "ingredients" contributing to it, will be a great lesson to guide your progress pathway.
This article is also credited to Catherine Clifford.
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