Since the first IKEA store was opened in Småland, Sweden, in 1958, the company has grown from a tiny mail-order setup to the world’s largest furniture retailer. They are an international colossus, with stores opened in Europe, America, Asia and Australia and plans to expand still further into India and Brazil.
Part of what makes IKEA unique is its apparent unwillingness to adapt to the environment. An IKEA store is unlike any other store you might visit – they’re invariably massive, containing a vast array of efficiently-arranged items of furniture, all for staggeringly low prices. Everything is unmistakably and unapologetically, Swedish – most stores even offer customers a chance to enjoy a plateful of meatballs midway through their shop.
On the face of it, IKEA’s approach might not seem a recipe for international success – it might, rather, seem naïve – even arrogant – and doomed to failure. But the results contradict this assumption, and so we’re left with a question: Why? What is it that makes IKEA’s business model so stunningly successful? In this article, we’ll see if we can find out.
One size really does fit all.
The transition across national and cultural boundaries was not a straightforward one. Along the way there have been considerable problems, for which the brains behind the organisation have had to develop new solutions. Indeed, it is those solutions that largely define IKEA in the minds of their adoring customers.
If IKEA’s business model could be surmised in one word, it would be the word volume. They churn out items in vast quantities and sell them for wafer-thin margins. Not a moment goes by where one of their flagship range of bookcases, the Billy, isn’t being bought somewhere in the world.
This presents a problem. IKEA is a global company, with stores everywhere from China to the Dominican Republic. Such a vast marketplace is home to an accordingly vast variety of cultural mores. Accounting for these differences is one of the biggest challenges an expanding multinational faces.
For this reason, IKEA devote a large amount of their resources to keeping track of how their products are being used. In some parts of the Far East, for example, it’s long been customary to sit on the floor during one’s leisure time. IKEA’s researchers were aghast to discover that most of their customers in the region were using their sofas as leaning posts – a purpose for which said sofas were most certainly not designed.
This is a problem faced by many expanding companies, and one which can be solved in a number of ways. One might conclude that a company with such global ambitions might have to do as Bruce Lee famously advised:
“You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.”
By offering slightly different products in different markets, each tailored to meet the expectations of those markets, IKEA might have been better able to sell those products.
This option was not one that IKEA could have realistically explored. Since their business model relied so heavily on volume and trimming costs, they cannot afford to produce different products for different countries while maintaining the economies of scale necessary to keep the business in profit. And so instead, they took a different approach.
They set about designing items which would have truly international appeal – sofas which can be either sat on, leaned on or stood on. And so instead of making different products to suit different regions, designers are tasked with creating products which are truly universal – those which everyone can appreciate.
This is an approach that can be seen echoed throughout an IKEA store. Each item is offered as is; if you buy a Billy bookcase in Sheffield, then you are buying the same product that’s on the shelf in Shanghai.
Design using empty space
Of course, since IKEA products are sold worldwide, this means that a great deal rests on how well each product is designed – each item must be desirable, as well as cheap. For this reason, IKEA devote considerable resources to getting the design phase right. And this is another quality that separates the company from its competitors – through clever design, IKEA have brought their costs down to rock-bottom levels – and their prices, too.
IKEA squeeze every ounce of superfluous costs from ever item. They might, for example, leave MDF exposed in an area of a cabinet which isn’t ever going to be seen – and thereby save a little bit in material costs. Naturally, when you’re selling in the sorts of volumes that IKEA do, these little savings can quickly build to significant sums.
But by far the most useful weapon in IKEA’s cost-cutting arsenal is empty space. To understand IKEA’s approach to product design, one must first understand empty space. Empty space can be a boon, in the sense that it costs nothing and can be used to make large items for next to nothing. By hollowing out a section of an apparently solid piece of furniture, that item can be manufactured using just a fraction of the materials. In this sense, empty space is an ally of the designer.
But empty space can also be an enemy. When it comes to moving things from one area to another, empty space is absolute poison. Consider the average table, consisting of four legs and a top. The space beneath the top and between the four legs is empty, and therefore – from a shipping point of view – wasted. If you’re set to transport a truckload of tables, for example, and 80% of the table is wasted space, then it follows that you’ll be able to fit 80% fewer tables into a given truck, and your shipping costs will increase fivefold as you charter an extra four trucks where one would have done.
The problem becomes even worse when the means of shipping in question isn’t the huge truck used to bring many tables into the store, but the small hatchback used to take the table away. It’s remarkably difficult to fit an assembled dining-room set into the back of even the most generously-proportioned car interior.
Clearly, if there were some way of eliminating wasted space when it comes to transport, while maintaining it in the product as it exists in your living room, then a retailer could make significant savings in transport. This is where IKEA’s most famous innovation comes into play – flat pack furniture. First conceived of in 1956, when an IKEA designer removed the legs from a table in order to get it into his car, flat-pack furniture is another component in the magic formula behind IKEA’s enormous success.
And it’s not just shipping costs that flat-packing helps minimise. It also reduces storage costs – for almost exactly the same reason. When one considers the tremendous size of an IKEA warehouse, it becomes clear that it would be impossible to maintain the same level of stock without the help of flat-packing – or at least not without stores the size of a city. Moreover, flat-packing helps eliminate much of the Labour associated with creating an item of furniture – the company no longer has to employ an army of unskilled workers to help put the furniture together, they can instead ask that the customer do it themselves.
Internet shopping has transformed the face of the retail industry and IKEA is certainly among those to take advantage of the digital age. But their stores have long taken the approach that customers would rather have the best possible items for the lowest possible price. As we’ve seen, they achieve these low prices through a relentless – even obsessive – approach to cost cutting in both their product design and their one-size fits all approach across the world. But they’ve also recognised that savings can also be made in staffing.
One might expect that in a store the size of the average IKEA to contain a large number of staff. But when you walk through, you’ll encounter only a few staff for every customer. They are on hand to advise and explain the company’s initially arcane numbering reference system, where necessary. But one can easily shop at IKEA without interacting with its staff – until one reaches the checkout.
While in other stores a staff member might be on hand to get you your furniture once you’ve made the decision to buy, IKEA instead require that you do it yourself. While for newcomers this might seem a strange experience, it’s one which is quickly accepted. After all, by having the customer fetch their own item from the warehouse, further labour can be saved – and these savings, too, can be passed along to the customers.
The upshot of all of this is that shipping, storage and production costs are reduced to almost nil. This is what has allowed the business to maintain such a famously low level of pricing, and what keeps attracting new customers through its doors year after year. The IKEA model has transformed the world of furniture retail – and indeed that of retail in general – and so each of its innovative quirks look set to be here to stay.