Swot Analysis Case Study Ikea The Global Retailer

This is IKEA International Group SWOT analysis in 2013. For more information on how to do a SWOT analysis please refer to our article.

Company Background

NameIKEA International Group
Founded1943
Logo
Industries servedRetail
Geographic areas servedWorldwide
HeadquartersNetherlands
Current CEOMikael Ohlsson
Revenue€ 27.628 billion (2012)
Profit€ 3.202 billion (2012)
Employees139,000 (2012)
Main CompetitorsArgos, Ashley Furniture Home Stores, B&Q, Bob’s Discount, John Lewis, Pier 1 Import, Rooms To Go and many others.

You can find more information about the business in its official website or Wikipedia’s article.

SWOT

StrengthsWeaknesses
  1. Customer knowledge
  2. Constantly using innovations to drive costs down
  3. Supply chain integration
  4. Brand reputation and market presence
  5. Diversified product portfolio
Weaknesses
  1. Negative publicity
  2. Decreasing quality
  3. Standard products
OpportunitiesThreats
  1. Further expansion into developing economies
  2. Growing online sales
  3. Expansion to growing grocery market
Threats
  1. Intensifying competition
  2. Growth of average consumer income

Strengths

  1. Customer knowledge. One of the key competitive advantages IKEA has is its extensive knowledge about the customers. The company understands the purchasing factors that influence customers to buy and implements the best practices to induce that decision. IKEA offers low prices and a huge range of products. Designers constantly introduce new design products that look stylish in the eyes of customers. All the products are designed so it would be easy to transport and assemble. Moreover, the company offers the widest product range and positive shopping experience. All of these factors are aligned with what customers want and need and which results in higher sales. Without such extensive customer knowledge and best practices to benefit from that knowledge, IKEA would be unable to outcompete its current competitors.
  2. Constantly using innovations to drive costs down. Low prices are the cornerstone of IKEA business idea and the the company always try to do things as efficient and cost-effective as possible. To drive costs down all the time, the company must find new and innovative ways to do that and to incorporate them in its businesses model. The business’ innovations include new materials that contribute more to sustainable environment and are less costly or using newest ways of packaging, handling and transporting materials.
  3. Supply chain integration. IKEA is committed to long lasting relationships with its suppliers. In this way, the company can order large volumes and benefit from lower prices and greater quality while suppliers are assured of guaranteed orders. IKEA sources its materials close to suppliers to reduce transporting costs. The company also uses IWAY approach to closely integrate suppliers with its supply chain. All the efforts of closely integrating supply chain results in lower costs and a competitive advantage.
  4. Brand reputation and market presence. According to Interbrand, IKEA is the most valuable furniture retailer brand in the world, valued at nearly $US 12.8 billion in 2012. The business operates 332 stores in 38 countries and is present in the major world markets. More than 600 million customers visit IKEA stores every year. Worldwide market presence and strong brand reputation ensures that customers will often choose IKEA over its competitors.
  5. Diversified product portfolio. Unlike IKEA’s largest competitors, the company has fairly diversified businesses. In addition to its furniture products, the company operates restaurants, houses and flats. Although, firm’s main business is designing, manufacturing and selling furniture it is not so affected by the changing forces in this market as other furniture retailers.

Weaknesses

  1. Negative publicity. The company has been criticized many times for issues like poor treatment of employees, questionable advertising practices or lobbying government authorities. Negative publicity decreases brand reputation and customer loyalty.
  2. Low quality of products and services. IKEA is unable to find compromise between continuous cost reductions while maintaining the same quality of products. According to UK Customer Insights report on IKEA by Verdict, IKEA’s customers are less satisfied with its product and services quality than the average customer in UK buying at other stores. Firm’s cost reductions lead to decreasing product quality, which was followed by higher number of products returned and damaged brand.
  3. Standard products. IKEA’s main competitive advantage derives from low costs, which in part are achieved due to standardized products. Standardized products attract fewer customer segments. Therefore, the business inability to offer better quality more customized products allows its competitors to fill that niche and fortify their position in it.

Opportunities

  1. Further expansion into developing economies. Retail markets grew by at least 5% on average in emerging markets in the last year, opening huge opportunities for IKEA’s revenue growth. The company currently operates in most of the developed economies but hasn’t firmly stepped into developing economies, except China. There are great opportunities for IKEA to expand into Brazil, Mexico, Indonesia and Malaysia to increase its presence in these markets to sustain future growth.
  2. Growing online sales. Online retail sales account for 17% and 4% of total retail sales in UK and US respectively. Online sales grow constantly and with 870 million visitors to its website IKEA could exploit this opportunity and benefit from increased sales and lower costs.
  3. Expansion to growing grocery market. The current trend of eating healthier food has resulted in higher demand for grocery products in many developed economies. IKEA has an opportunity to expand its grocery business by introducing more grocery stores in its current retail places. The company is already successfully managing its food outlets, so this expansion opportunity would be well aligned with the current operations.

Threats

  1. Intensifying competition. Many low cost retailers such as Walmart, ASDA or Tesco are entering homeware specialists market where IKEA operates. These large retailers have similar specifics as IKEA, including low costs, well managed supply chain and huge market presence and can easily gain some market share from IKEA.
  2. Growth of average consumer income. Growth of average consumer income means that people buy less low price and low quality products, which is exactly what IKEA offers in its stores. With the rising income people will be less attracted to IKEA and will turn to retailers that offer higher quality homeware products.

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SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. The following table illustrates IKEA SWOT analysis:

Strengths

1.      Market leadership

2.      Democratic design concept

3.      Competency in cost-cutting through innovation

4.      Solid financial position

5.      Vast, yet focused product range

Weaknesses

1.      Weak presence in Asia

2.      Damaged reputation due to a series of incidents

3.      Competitive advantage difficult to sustain

4.      Lack of differentiation of IKEA products and services

5.      Lack of flexibility due to large size

Opportunities

1.      Increasing emphasis on CSR

2.      Increasing presence in developing countries

3.      Formation of strategic collaborations

4.      Adding premium range of products into portfolio

5.      Strengthening cost leadership competitive advantage through technological innovation

Threats

1.      Decline in demand due to increase in consumer income

2.      Unsustainability of ‘democratic design’ concept

3.      Emergence of competition from Asia

4.      Increasing costs of raw materials

5.      Global economic and financial crisis

IKEA SWOT analysis

Strengths

1. IKEA is a world’s largest furniture retailer and it is well positioned to achieve its target of EUR 50 billion annual sales by 2020.[1] IKEA has 340 stores in 28 markets, 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries globally. In FY2016, IKEA attracted 783 million store visits and 425 million shopping centre visitors.[2]

Moreover, according to “Brandz Top 100 Most Valuable Global Brands 2016”, IKEA is the fifth most valuable retailer in the world and it is also the most valuable furniture retailer brand in the world, with the value of more than USD 18 billion. 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.

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.[3] The list of innovative products introduced by IKEA include, but not limited to Vava lamps made of leaves, adhesive-free furnishings, severed seat storage, building block kitchens, flat-pack funerals etc.

4. In financial year of 2016, IKEA Group generated sales of EUR 34.2 billion. Together with the rental income from the shopping centre business (IKEA Centres), total revenue increased by 7.4 per cent to EUR 35.1 billion. The company’s net profit for the same period amounted to EUR 4.2 billion.[4] 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.

5. IKEA offers about 9500 products, yet apart from shopping center 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 innovative design, low price and a high level of practicality. Moreover, IKEA stays up-to-date with changes in customer needs and preferences. Starting from recently, the company started to manufacture home solar batteries to compete with Tesla.[5] Highly focused pattern of IKEA product portfolio increases the effectiveness of brand identity with positive implications on consumer loyalty.

Weaknesses

1. During FY2016 only 9 per cent of global sales were generated in Asia and Australia region, at the same time when 69 per cent of sales were generated in Europe’s saturating market[6] (see figure 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.

IKEA Group sales per region[7]

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.

Furthermore, in February 2013 IKEA had to recall its meatballs after it was found that some of them contained traces of horse meat.[8] More recently, the global furniture retailer has been accused of avoiding EUR 1 billion taxes according to a report the European parliament.[9] These and other similar incidents have weakened IKEA’s brand image to a considerable extent.

IKEA Group Report contains a full version of IKEA SWOT Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as PESTEL, Porter’s Five Forces, Value Chain analysis and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, organizational structure, business strategy and organizational culture. The report also comprises discussions of IKEA marketing strategy and addresses issues of corporate social responsibility.

[1] Gustafsson, K. (2015) “IKEA Gains Global Furniture Market Share on Price Cuts” Bloomberg Business, Available at: http://www.bloomberg.com/news/articles/2015-01-28/ikea-gains-global-furniture-market-share-on-price-reductions

[2] Group Yearly Summary (2016) IKEA Group

[3] Le Pluart (2016) “IKEA Secret Innovation Lab” IKEA, Available at: http://www.ikea.com/ms/en_US/this-is-ikea/ikea-highlights/IKEA-secret-innovation-lab/index.html

[4] Group Yearly Summary (2016) IKEA Group

[5] Lynch, P. (2017) “IKEA Launches Home Solar Battery to Take on Tesla” Arch Daily, Available at: http://www.archdaily.com/877115/ikea-launches-home-solar-battery-to-take-on-tesla

[6] Yearly Summary 2014, IKEA Group

[7] Group Yearly Summary (2016) IKEA Group

[8]Business Insider (2013) Available at: http://www.businessinsider.com/ikeas-reputation-has-taken-a-beating-2013-3

[9] 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/

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