IKEA marketing is a prime example of how you can win the hearts of millions of customers around the world. When you go to this store for a towel, you almost always leave with a full cart and wonder how it happened :).

Coincidence or well-thought-out marketing strategy?

In this article I will talk about how IKEA marketing is built and how they manage to work so effectively with the buyer.

Ingvar Kamprad

Founder of IKEA

The main thing in management is love. If you don't win people over, you won't be able to sell them anything.

Let's start with a little history digression.

As you know, Ingvar Kamprad had an innate ability to trade and entrepreneurial flair. After selling matches, lingonberries, pens and other accessories, the legendary Swede turned his attention to furniture.

At first glance, the decision seemed very strange.

A feature of Swedish families was that for most of them furniture was considered a luxury item due to very high prices. It was then that Kamprad decided to take a free niche and produce inexpensive furniture available to families with low incomes.

What came out of it, you yourself know well.

Let's see what elements IKEA marketing consists of.

Mission

Numerous studies prove that companies driven by a great idea are more effective, even if their ultimate goal is to make money.

IKEA was initially guided by the high idea contained in the slogan " Better life for many".

Ingvar Kamprad wanted people all over the world to be able to buy beautiful furniture and interior items, and this desire turned into a mission.

British magazine Icon wrote: “If it weren’t for IKEA, modern home design would be out of reach for most people”.

And Kamprad himself called Icon "the person who had the strongest influence on the tastes of consumers."

Thus, the founder of IKEA proves that when the company's mission is to solve the problems of the client and improve his life, its success is guaranteed.

Search for new niches and solutions

Ingvar Kamprad

About entering new markets

IKEA's business philosophy is defined by one golden rule: Treat every challenge as an opportunity.

Problems give amazing chances. When we were forbidden to buy the same furniture that was made for others, we began to come up with our own design, and we had our own style.

When we lost suppliers in our country, the rest of the world opened up before us.

This rule helped the company to get out of a seemingly hopeless situation and became the basis of the company's strategy for the coming years.

IKEA is always looking for new niches, anticipating the needs of the consumer, which he himself is not yet aware of. The main thing is to promote a new accessory, and it will bring money.

Example

IKEA has released a medium-sized metal clothespin with a rubber ring to hang a magazine on a towel hook.

In fact, no one knows how many customers struggled trying to read a magazine in the bathroom, and the inconspicuous clothespin quickly became a bestseller.

Two factors came into play.

• visibility(neatly hung clothespins with magazines in the exposition bathroom act magically, convincing you of the need to buy)
• Price(clothespins are so cheap that you can buy them just "just in case").

Naturally, one cannot fail to mention how the company decided to sell disassembled furniture. After all, at the time it seemed nonsense. But this ingenious solution was preceded by serious problems - IKEA had difficulties with delivery.

Traditionally, furniture was assembled directly in factories, but while it was being transported to the buyer, it often broke: legs fell off, glass doors broke, the surface was scratched. Naturally, the buyer refused to pay money for damaged furniture, and this was fraught with losses for the company.

And here Ingvar Kamprad once again demonstrated the originality of his thinking. In order not to lose money on marriages, he decided to sell furniture in disassembled form. This, in turn, led to savings and allowed prices to drop even further.

Thus, all the furniture was placed in a compact flat package, and the buyers themselves had to assemble it.

Kamprad has long noticed that people actually like to assemble their own cabinets and sofas. Especially if you make the assembly procedure simple thanks to detailed instructions.

Total cost reduction

Thrift is the life credo of Kamprad himself, whose stinginess is legendary.

Top managers of the company fly to business meetings in economy class and stay in inexpensive hotels. Kamprad himself drinks expensive drinks from the hotel minibar, if only later he can replace them with cheaper ones bought at a nearby supermarket.

The billionaire does not shy away from magazine coupons for free parking and often uses public transport. Not surprisingly, employees of the company act as free models during the filming of the annual IKEA catalog.

Pricing

Ingvar Kamprad himself in an interview revealed the pricing policy at IKEA.

A family with an average and below average income is taken. It is calculated how much she is able to spend on home improvement and on each pillow or floor lamp separately.

Thus, the optimal cost of each item is recognized.

Sometimes company managers help a manufacturer master a new technology.

Maybe today this technique no longer surprises anyone, but when IKEA started, it seemed like a revolution. According to Ingvar Kamprad, IKEA prices should take your breath away.

The company does not hesitate to state that its prices are the prices of competitors divided by two. There is also a “second tier tactic”: if a competitor launches a cheaper similar product, IKEA immediately develops the next version of this product at a price “below nowhere”.

The whole approach to IKEA's pricing policy is articulated in Kamprad's famous statement:

Ingvar Kamprad

About pricing

Rather than sell 60 chairs at a high price, it's better to lower the price and sell 600 chairs

Design

According to Kamprad, many of the features of modern designers make furniture more expensive and, therefore, inaccessible to the general consumer.

In particular, IKEA fundamentally refuses to divide things into beautiful and ugly.

Very different, sometimes the most elementary, unpretentious and unexpected objects and materials can be included in the style design of the home - from great-grandmother's caskets to ultra-modern lamps.

Moreover, the degree of their aesthetics depends on a whole range of conditions that form a specific human environment.

Therefore, the company's products are usually shown in specific interiors: the reception is almost a win-win, since an item that is completely plain at first glance and absolutely seemingly unnecessary to the buyer often attracts his attention precisely due to the environment and forces himself to purchase.

Josephine Rydberg-Dumont

About company philosophy

Creating beautiful and expensive things is easy, but try to create a beautiful functional thing that will be cheap.

Developing the next product, IKEA first sets a limit above which the price should not rise, and only then the designers (there are more than 90 of them) puzzle over how to fit into these limits.

No product will be put into production unless there is a way to make it affordable. The creation of products sometimes drags on for several years.

For example, the creation of the PS Ellan dining table with flexible yet stable legs took more than a year and a half, during which it was possible to invent an inexpensive material (a mixture of rubber and sawdust) that achieves the desired properties.

Navigation in stores and lounges

One Harvard Business School study claims that IKEA subtly and subtly gets the customer to spend more time in stores (naturally, so that the customer leaves more money there).

This is facilitated by the layout of the trading floors - it is easy to enter the complex - it takes a long time to exit.

IKEA turns ordinary shopping into a pleasant pastime.

Children can be left on the playground, elegant displays inspire and stimulate the buyer, wide aisles eliminate crowding.

You can rest and refresh yourself in cozy cafes offering various bonuses and unique Swedish meatballs. Moreover, the pricing policy of the IKEA cafe corresponds to the basic principle of the corporation - cheap and tasty.

After a well-fed customer enters the store, having paid a penny for a delicious lunch, he simply cannot resist leaving with an empty cart.

Another nuance is important: sales assistants never pounce on buyers, and this allows the latter to relax and look around calmly. If necessary, finding a consultant in a bright yellow and blue uniform is easy.

Assortment and merchandising

In large IKEA country stores, everything that is needed to create a full-fledged interior is sold along with furniture:

• Flowers in pots
• Photo frame
• Dishes
• Candles
• Chandeliers
• Curtains
• Bed sheets
• Kids toys

When the UK authorities recommended that IKEA open small "themed" stores in the city, instead of ​ in order to build giant suburban hangars, an indignant response sounded: "This will never happen! All under one roof" is our sacred concept."

That is why every IKEA furniture store is a kind of exhibition center.

Leaders of sells

Kamprad has long realized one of the secrets of marketing: the buyer must have a strong motivating factor to come to you.

This is how IKEA came up with the idea to sell popular and high-turnover products at the lowest prices.

Here is one of the stories from Ingvar himself:

Before opening a store in a new country, a company always does a little research. They ask if customers like their furniture. And they always get the same result - absolutely no one likes IKEA furniture.

So it was in Italy, and in Germany, and in Russia, and in other countries.

The company gets acquainted with these results and opens a store. As soon as it opens, the boom begins. And this proves once again that it is not always worth trusting research.

Instructions and price tags

Near each product is the so-called "cardboard seller" - a card that describes in detail all the properties of the product and what it is made of. Everything is described so clearly that the need for a sales assistant is practically eliminated.

The instructions are exactly the same: each step is described in such detail that even a first grader can assemble the furniture. But if suddenly you still need a consultant, you can find him everywhere.

Standardization and commitment to tradition

According to Ingvar Kamprad, any business should keep in touch with its roots. Therefore, every employee of the IKEA “family” scattered around the world knows by heart the saga of the birth of the company.

Its headquarters are not located in fashionable Stockholm, but in the village of Elmhult, where the first furniture pavilion was opened in 1953. There is also a museum where you can learn about the milestones of her business path.

For IKEA, historical heritage is an integral component of the success of the corporate culture and business philosophy, on which more than one generation of managers and ordinary workers has been brought up.

All IKEA stores outside of Sweden are painted yellow and blue to emphasize the company's Swedish origins.

The style of goods also speaks of nationality - the assortment is the same everywhere. Near the cash registers in all the company's stores there are departments of a non-core direction for IKEA: they sell Swedish national food there.

IKEA marketing and financial results

The use of these tools has helped IKEA to achieve worldwide success, as well as reaching a turnover of 27 billion euros in 2012 and a net profit of 3.2 billion euros.

The most important thing is that we can safely take and use the principles of IKEA in absolutely any business, and this article can act as a kind of checklist for this.

After all, as they say, if you take an example, then only with the best.

Mikhail Kuchment, vice president and co-owner of the Hoff network (Photo: hoff.ru)

The Moscow chain of hypermarkets of furniture and home goods Hoff intends to occupy at least 10% of the St. Petersburg market within 2-3 years by opening several outlets in the city, Mikhail Kuchment, vice president and co-owner of the company, told RBC Petersburg. In the future, the company expects to seriously undermine the position of competitors, the main of which is the Swedish concern IKEA. However, according to the INFOLine expert, the new player will have to fight not so much with competitors as with the established culture of consumption.

Planned delay

The first Hoff hypermarket will open in St. Petersburg in March 2017 on Pulkovskoye Highway. A Moscow retailer has leased a 14,000-square-meter building of the former Karusel hypermarket for 10 years. The St. Petersburg store will become the 16th Hoff hypermarket in Russia.

Answering RBC Petersburg's question why they are entering the St. Petersburg market only now, M. Kuchment said that the company had difficulty finding a quality launch pad. “It is important for us to open a store that can potentially cover a significant part of the city, then it will be easier for us to open a second and third store,” a top manager said in an interview with RBC Petersburg.

Now Hoff is actively looking for new sites in St. Petersburg for both hypermarkets and mini-format stores, says the chain's co-owner. “The market capacity of St. Petersburg allows us to open two or three hypermarkets and at least five small format stores in the next two years,” said M. Kuchment. Investments in the opening of one store will amount to about 120 million rubles. The cost of network promotion in the first year of operation in a new market is estimated by the company at 5% of turnover.

Hoff makes a special bet on online sales. According to M. Kuchment, in St. Petersburg the share of online trading in the network's revenue structure can reach up to 20%.

Nevsky Piglet

Hoff considers the Swedish concern IKEA and furniture shopping centers where products of Russian manufacturers are presented as its main competitors. “We will compete head-on with them,” M. Kuchment said. “I don’t think that we will take a significant market share in a city with one hypermarket, but when we build 3-4 hypermarkets, I think that we can talk about a market share of at least 10% in the next 2-3 years.” He estimates the total capacity of the market for household goods and furniture in St. Petersburg at 40 billion rubles.

Some competition for the capital player in St. Petersburg can be made by DIY hypermarkets (two of them - OBI and Castorama - will be direct neighbors of Hoff), where a range of furniture is also presented, says INFOLine CEO Ivan Fedyakov. Taking into account the DIY segment, the volume of the market where Hoff will operate can be estimated at 60-90 billion rubles, the expert believes.

Maria Evnevich, a member of the board of directors of Maksidom, also speaks of fierce competition in the market. “Petersburg is called “Nevsky Piglet” because the city has the highest concentration of networks in the country. Therefore, any retailer in St. Petersburg faces the same problem - competition.

Delayed Repair Syndrome

However, according to I. Fedyakov, competition is not the main problem of furniture sellers. “The main challenge for retailers of furniture and related products for the home is an underdeveloped culture of furniture renewal,” says the expert. “In our country, the average Russian changes furniture extremely rarely – most often this is due to repairs.”

The head of INFOLine refers to the data of the VTsIOM poll, during which it turned out that although the spending of Russians on the repair and renovation of furniture ranks first among the planned savings, in the end, not all of those who decide to repair do it.

Reference

The Hoff network was founded in 2008 by Alexander Zayonts and Mikhail Kuchment. The first hypermarket was opened in 2009 in Moscow. To date, the network includes 24 stores - 16 hypermarkets (eight in Moscow, two in Krasnodar and one each in Samara, Rostov-on-Don, Voronezh, Yekaterinburg, Kazan) and eight mini-format stores.

The turnover of Domashny Interior LLC, which manages the network, according to the company's own data, in 2016 reached 18.3 billion rubles. (including VAT), of which 2.4 billion rubles. made online sales. This year the company plans to reach more than 24 billion rubles. (including VAT), while online sales should amount to more than 3 billion rubles.

IKEA is well recognized all over the world, including Russia and other CIS countries. Most buyers rate her products positively. However, for various reasons, many are also interested in alternative brands - IKEA competitors.

Despite the fact that it is the Swedish company that is a stable market leader and despite the difficult economic situation, it is actively developing, many companies of a similar orientation are striving to win back their “piece of the pie”. This is no coincidence, since the market for home and interior decoration products, including furniture and accessories, is very capacious and brings significant profits.

IKEA supermarkets in Russia

The first attempts to “enter” the Russian, and then still Soviet market were made in the 1980s, when the management planned to build a large furniture factory in the Soviet Union. For a number of well-known reasons, the then plans were not destined to come true. However, shops like IKEA failed to take advantage of this delay, and by the end of the 1990s, this famous brand made a second attempt, this time successfully. The first was a hypermarket in the suburbs. Today, there are 14 IKEA stores in Russia, and one more in (Lithuania).

In addition, the company has its own production in the CIS countries at several factories located in Russia and Belarus. All this speaks of the serious plans of the Dutch concern for the future. Yes, it is Dutch, because, although most buyers associate this trademark with Sweden, the concern itself has recently moved its place of registration to the Netherlands. According to market experts, this was done in connection with a more favorable tax regime in this country.

Alternative brands

As in other countries of the world, and in the CIS there are no direct analogues of IKEA. However, there are very similar brands and stores. The following are represented on the markets of post-Soviet countries:

• JYSK.
• Leroy Merlin.
• hoff.

The most similar in assortment and even in design is JYSK (read as Yusk). However, the stores of this Danish company have their own differences. Unlike the huge IKEA hypermarkets, JYSK prefers to open relatively small supermarkets. They are located mainly in the sleeping areas of large cities. To date (2017-2018), this retail chain is not represented in Russia, although there have long been plans to open it. But it successfully works in such countries as Ukraine, Belarus, Armenia, Kazakhstan, Lithuania, Latvia, Moldova.

There are also no direct competitors to IKEA in Russia. You can name the companies Hoff, Leroy Merlin, Tvoy Dom, but each of them only partially “intersects” with the blue-yellow trademark in terms of assortment. Their catalogs include similar furniture, tableware, home and garden products, and so on, and they all also run regular price cuts, promotions, and discount sales. However, none of these networks is a direct alternative to IKEA, although they are all somewhat similar.

Anders Dalvig Chapter from the book "Dream Team. How to build a dream team
Publishing house "Mann, Ivanov and Ferber"

In this chapter, I will give some examples of IKEA's global expansion over the last ten years, focusing on a few important markets. So, in my opinion, it is possible to visually show some of the strategic issues and challenges that global companies face. In the following, I will try to draw some conclusions about the difficulties and success criteria in the retail sector (and perhaps in other sectors too) that must be taken into account in order to succeed in today's conditions.

The 25-year period of expansion, from 1973 to 1998, was like a roller coaster of many ups and downs. But by 1998, sales had risen from 40 million to 6.3 billion euros, and the number of stores had risen from 7 to 120. IKEA was ready for the next phase.

As always, IKEA faced many challenges and many opportunities. It was not clear how to adapt the systems and methods of work to the size and growth of the company. Leading organizations continued to grow. The company became more and more bureaucratic. What was needed was a plan to achieve success in the US and Eastern Europe. We were about to enter two new markets, very different from each other: Russian and Chinese. The availability of goods and service in stores continued to be a major concern. There were scandals over environmental and social issues (formaldehyde content in products, child labor from suppliers in Pakistan), but there were no alternative plans.

The company needed a new comprehensive program, and my first task as CEO in 1999 was to create one. In my opinion, this was absolutely necessary. We were a fragmented organization. A lot of short-term actions and local plans led to a lack of stability, uncertainty in the overall course, insufficient optimization of the organization's components and, in general, a lack of overall leadership.

This plan was not developed at all in the way that they write in textbooks, in the sense that it happened largely on a top-down principle: it would take several months to create a new leadership team, and there is simply no time to wait until new leaders join the work. was. This approach was met with some skepticism. Not only was the IKEA group supposed to have a common program as a result, but the plan was also developed without the wide involvement of the organization's employees and, in addition, was calculated for ten years!

What plan can last ten years and still be relevant? A little unusual, of course, but there were several reasons for this. IKEA was in a position where the stability and security of the company's main course was considered extremely important. In addition, it was necessary to fire up the imagination in order to see the huge possibilities in the future. A three-five-year plan was not enough to get the job done. It would take some time to bind the plan and wait for the results of its execution in an organization like IKEA. It often seems to me that planning periods are so short that as soon as work on one plan is completed, the organization begins to think about another. This kind of work cannot be done in a hurry. In addition, short-term plans, as a rule, are working plans, their goal is a consistent solution of pressing issues, and not big changes. The program was called "Ten Challenges in Ten Years" (10/10), it was supposed to combine the long-term mission of the company - "to make a difference in the daily lives of many people" - with the short-term work plans of its various divisions.

What was the program of this ten-year plan? Let me start by quoting from it.

IKEA must grow. Our mission is to improve the daily lives of most people, but we have only been able to do so for a few so far. We must grow in order to achieve our goal, to find new opportunities and in a changing competitive environment to be out of competition. Until now, we have grown according to the principle of "wider but thinner". We have stores in 29 countries, but our market share is mostly limited. Now we are entering a new phase, we will need to focus on moving "in depth", concentrating on existing markets. We will strengthen relationships with our clients and prove to them that we are their preferred choice. In the markets where we operate, we will become the leading home goods company. Our goal is to capture in 2010 a significant share of all current European and North American markets, to take a step forward and truly become accessible and at home for the majority of people, that is, to fulfill our mission. We must focus on continuous strong growth in sales volume, 10% per year for 10 years (group average in current units). In the Asia-Pacific region, our most important task is to establish a stable position in the countries where we have already decided to enter the markets (China, Australia, Japan) and achieve profitability. The same goals will stand before us in a new important market for us - in Russia. To reach the goal, we will have to open more than 100 new stores and triple our total sales to over 200 BSEK by 2010.

This announcement meant a very abrupt change of course. Unlike the cost-cutting strategy of the early 1990s, this involved a growth strategy. A strategy based not on capturing new markets, but on the development of existing ones. New store opening strategy - more than ever before. Strategy for development and profitability in non-European markets. At the same time, the desire to grow by 10% per year in comparative terms for ten years was very bold: the average growth of IKEA in the 90s was 6%.

Let me continue with one more quote from the program:

Our business idea is to offer a wide range of well-designed, functional home products at prices so low that as many people as possible can afford them. That is, we must maintain the same level of selling prices over the next ten years. Sounds impressive! But we live in a volatile world where inflation is close to zero in most markets and competitors are developing the same strengths that we are. So just keeping prices down is not enough. In order to fulfill our mission, achieve our business idea, reach our sales targets and compete successfully, we must bring prices down at least 20% below today's levels by 2010 at the group level.

Again, this was a serious departure from the usual strategy, according to which for many years rising prices were the norm.

So why is this particular strategy chosen? There are several reasons. First of all, it was a point of view on competition; for many years the competition was fragmented and local. However, everything could change. Many large retail companies have changed their strategy. They too were moving from local tasks to global expansion, and not only in such emerging markets as China, Russia and the countries of the former Eastern Europe. They also expanded their range from food or general home improvement products to household products. These were large companies, much stronger than the usual IKEA competitors. They had both financial resources and retail experience on par with IKEA. The only way to convince them not to enter the home goods market would be to cut prices vigorously and increase their presence in all local markets where IKEA operated by opening new stores. We were striving to take the lead everywhere.

Another consideration is economic efficiency. From the point of view of economic efficiency, the growth of sales in existing stores is the preferred path of development. The second after it is the construction of new stores in existing markets, and the most expensive option is to enter new markets. The rapid opening of a large number of new markets in the 70s, 80s and 90s had some of the negative effects mentioned earlier, but these could now be turned into benefits and IKEA could reap the benefits of these earlier investments. Locking in a significant portion of the underlying cost also meant that strong growth in existing divisions would immediately translate into massive increases in operating profits.

The third reason was motivation. IKEA thrives on growth. The whole history of the company is growth. And I believe that the opening of new stores is the main engine of retail. Nothing motivates employees more than getting involved in the construction of a new store. The 10/10 Plan made it clear to the organization that growth in existing markets was a priority, and it was a great incentive for most employees and leaders.

There was another reason, more of a philosophical nature. IKEA's mission is to improve everyday life for most people. If we really mean that IKEA products should be accessible to the majority, then prices must be reduced so that everyone, even people from developing countries, can afford these products. The company must also be represented by a significantly larger number of stores in a sufficient number of regions to serve the majority of people.

Here is another quote from the program:

Profit is important to us because it allows us to move towards the goal: to change for the better the daily life of most people. Profit is not an end for us, but a means. Achieve profits at the expense of low costs. A low cost company should be a low cost company. Costs should be taken into account when placing any emphasis. On the other hand, the mission of our company is long-term in nature, and its goals can only be achieved with high profitability in the long term. In other words, we should be prepared to accept a lower level of profit now if it puts us in a stronger position in the long run. Therefore, during the economic downturn, we will continue to invest in our concept by adhering to investment programs in our stores, our training programs and our pricing goals. This will give us long-term profitability and our operations will be more stable and consistent, which will benefit our employees, customers, suppliers and owners.

What was the point in this statement? As a foundation, IKEA has chosen to finance its own growth. The desire to grow over a ten-year period implies a fairly substantial level of profit required to finance an increasing number of stores, warehouses and factories. We were going to never fall below the level of 10% of current profit (% of sales) during these ten years.

Learned from the bitter experience of the economic downturn of the 1990s, we decided to look at the new downturn differently. I feel that many companies, not only IKEA, are very short-sighted when it comes to responding to changes in the economy. The 10/10 Plan was drawn up in the late 90s, when the information technology boom was in full swing. Some forecasts were made to see what the consequences would be if IKEA lost 5, 10 or more percent of sales during the next recession. The Council was presented with several options for decisions based on these calculations, and we asked them to support the strategy, according to which, in the event of an economic downturn, IKEA would not cut costs, but, on the contrary, would boost investment. By doing so, we concluded, the company could emerge from the next downturn on full sail and significantly outperform the competition. The Board of Directors approved this proposal in December 1999, and so when the crisis began in 2001, IKEA cut prices and increased investment in existing and new stores. And this time the company did not act like everyone else. I think it's easier to achieve a similar strategy in a private company, because you have to accept low profits in the short term in order to get growth potential in the medium term. In a publicly traded company, it seems to me that such a risk is more difficult to obtain.

So how did IKEA achieve the financial goals of the 10 year plan? Sales tripled from 7.6 billion euros in 1999 to 21.5 billion in 2009. Selling and purchase prices were reduced by 20%, and the profit level was well over 10% of sales over the entire ten years. Everything went according to plan. The only disappointment was that the level of costs could not be reduced as planned. To do this, we needed a productivity increase of 10% per year, while we managed to increase productivity by only an average of 4-6%. However, this was compensated by margins higher than expected, so that the level of profit was comparable to the planned one. But still, a company with low prices should be a company with low costs.

Market strategy

Which markets to operate in is certainly an important issue for any international retailer. It is necessary to create a well-balanced market portfolio with prospects for short, medium and long-term growth, as well as profitability. Assess the supply potential in different markets - the potential to become one of the largest companies in its field. Find a balance between risk and potential. Assess the importance of trade barriers. Recognize the limitations of the company's resources and the need to act within its values. Choose what is more important - speed or more measured, gradual growth. Consider the possible need to adapt the existing business model. And last but not least, to understand how to play an important role in a society that is constantly developing new markets. Here are some of the questions facing international retailers. How did IKEA approach their solution?

In 1999, IKEA sales in Europe accounted for about 80% of all company sales, in the US - 17%, in the Asia-Pacific region - 3%. Europe acted as the main base, bringing a stable profit, the company experienced difficulties in the USA, and the development of promising Russian and Asian markets was just beginning.

The strategy of aggressive expansion in existing markets has become one of the important parts of the 10/10 plan. The company's management wanted to strengthen its position in Europe and ensure that IKEA became the market leader in each of the European markets. In addition, it was necessary to solve problems in the US and build a successful business in the new Asia-Pacific markets and in Russia - the markets of the future. At the beginning of the planning period (1999), the company opened only five new stores per year, which was 3% of the total number of stores. By the end of the period, rates had grown to about 20 stores per year - 9% of all stores. In total, in ten years, from 2000 to 2009, IKEA opened 150 stores, which is more than 130 stores opened by the company in the previous 55 years. One hundred and ten stores were opened in Europe (including Russia), 25 - in North America, 15 - in Asia.

Stores also got bigger. In 2009, the average new store was about 35,000 square meters, while fifteen years earlier it was only 15,000 square meters. Oddly enough, the range of products has not expanded. From 6.5 to 9 thousand trade names were still presented in stores, which corresponded to the indicators of 15 years ago. The expansion of the sales area was used in order to adapt to the increase in sales volume and the number of visitors. As noted earlier, IKEA has always strived to focus on improving logistics in its stores. This principle has three components. The first is to minimize the movement of goods around the store. The sales area and packaging are thought out in such a way that the goods are brought and laid out where they can be directly taken by buyers - without the need to move the goods from the warehouse to the shelves. Second, contrary to popular belief, having inventory is seen as an advantage, and availability to the customer is always more important than inventory optimization. Thirdly, it is believed that it is economically feasible to focus on direct deliveries from manufacturers, loading the available vehicles as much as possible. This logic requires an increase in the cost of creating stocks and expanding retail space; gains are achieved through additional sales and satisfaction of customers due to the availability of goods they need, as well as through increased productivity (the ratio of goods sold to hours worked), which is made possible by rational storage of goods and lower costs for their implementation - a this is the result of the expansion of retail space.

In general, I believe that too short-term investment planning is risky. There are, it seems to me, a number of factors that are often not given sufficient attention. In particular, it is sometimes difficult to assess the additional benefits of the logistical efficiency mentioned earlier when calculating the return on investment in a project. In addition, when deciding to invest in a new store, you can be sure that the price of land will not decrease, and the process of obtaining a retail license will not be simplified. I think it's wise to buy as much land as you can afford and build on more land (within the license) than originally intended to give yourself some freedom of action in the future. Finally, calculating the return on investment for a project based on sales forecasts three to five years ahead is often the norm. Given that the company is growing, this can lead to large-scale reinvestment after a few years. The costs of this and business interruption are often underestimated or not even taken into account in an investment proposal.

The risks associated with buying too much land or building stores that are too big are extremely limited - at least in the case of IKEA. I have never regretted that a store was built too large, but I have often encountered the fact that the store later turned out to be too small. If there was an unclaimed place, IKEA always made money by selling land or renting out extra space.

European expansion

The goal of the 10/10 plan was to gain a significant share of the European and North American markets. It was deciphered as follows: IKEA should become the market leader 140 IKEA: collect your dream in all European markets, having approximately 10% of total sales in them by 2009. At that time (in 1999) in most European countries, with the exception of Sweden, the company's market share ranged from 3 to 5%. This commercial strategy in Europe fully justified itself. In 1999, 80% of IKEA's turnover came from the European market, and ten years later, in 2009, the ratio has not changed, despite large-scale investments in the US and Asia. According to the 10/10 strategy, by the end of the planning period, the share of Europe should have decreased to about 75%.

In 2009, IKEA had a much stronger portfolio of market shares in different countries, and dependence on a couple of markets no longer seemed like a potential threat. Let me remind you that in 1983 Germany accounted for 45% of IKEA sales, and Sweden - 22%. By 1995, the share of Germany decreased to 30%, Sweden - to 11%, by 2009 these figures were respectively 16 and 6%. Today, in the UK, USA, France, Italy and the Netherlands, IKEA sells as much as in Sweden, and sometimes even more. Based on market share, by 2009 IKEA was the leader in all European markets, with the exception of the British and Austrian. In the UK, the company faced legal restrictions preventing it from opening enough new stores. In Austria, the market is very tight with several competitors, each with a large market share, and therefore IKEA has not yet managed to come out on top in sales.

During these ten years, positive dynamics for IKEA was observed in the countries of Eastern Europe - Poland, the Czech Republic and Hungary, where significant initial investments paid off well. Today, these countries are a major contributor to sales growth and the Group's bottom line. When I study the competition, I get the impression that IKEA has not had any serious problems in this regard in European markets - at least until now. There were attempts at conceptual competition - in my opinion, these are the least dangerous competitors. They do not create innovative products, but only copy what IKEA has already done before them. So far, these companies have had limited success. Large traditional companies, which in the past had a significant share of sales in the home goods market, struggled to cope with the task of updating and today are almost invisible in the general background or simply closed. Part of the chain construction hypermarkets tried to expand the assortment by including household goods. It seems that so far they have not been particularly successful.

This is not their main activity, which, of course, plays into the hands of IKEA. IKEA got the market in the middle. Exclusive goods at high prices - a free niche, but it involves small volumes. Low price and low quality are also available, but it seems to me that this market is losing ground over time, as purchasing power increases, and compared to IKEA, such companies do not have a price advantage. The traditional segment in the middle price range is a possible option, not yet occupied by IKEA. This is a large segment of the market, where the success of any European competitor of IKEA is most likely. In terms of local competition, the two most competitive markets for IKEA are Germany and France. In Eastern Europe and the countries of southern Europe (Spain and Italy), competition is the least. I think IKEA needs a serious challenge from an international competitor in order to become better itself. As we all know, the lack of competition is drowsy.

Market regulation in European markets is a concern. While it is driven by the European Commission's intention to make Europe more competitive, I don't see much progress in the retail sector. In general, I believe that retail is one of the most competitive sectors, and if you rewind the supply chain, you will see that in many areas the competition is much worse. The EU-approved service directive started out with good intentions, but ended up with endless compromises preventing it from making any meaningful changes.

Retail licensing legislation is getting worse. By preventing large retailers from expanding, such laws make Europe less competitive and reduce the number of jobs. This trend is taking many markets in the wrong direction, such as the French and British markets. Restrictions on hours of work are another example of legislative measures that have affected competition without much progress.

Among the interesting observations made over the past ten years during the European expansion is the fact that for IKEA, opening stores in small towns usually becomes more successful than in large ones. In the past, when entering new markets, the focus was primarily on metropolitan areas. It was believed that the people inhabiting them were better adapted to the modern style of IKEA and its business model. In Europe, this is no longer the case. I think there are several reasons for this. The most important thing is the low level of competition. In small towns, the opening of a new IKEA store is practically the event of the year. This contributes to mass free promotion, and the company's reputation favorably affects the recruitment of new employees. The presence of an IKEA store adds prestige to these cities. The range of goods is also more competitive, as consumers have much less choice than in big cities. It is easier to attract good employees and customers are willing to travel more distance than in big cities, which is an advantage given the size of the stores: high sales volumes are a necessary condition for profitability. In addition, land is usually cheaper and approval from local authorities is easier. Wages are lower, market coverage is higher, and costs are lower - resulting in a greater return on investment.

Another observation: the similarities between stores in small towns in different countries are often greater than between stores in large and small cities in the same country. State borders are not necessarily the decisive factor in what line of products to offer to the consumer or how to organize a particular type of company activity - from marketing to staff training.

USA

IKEA began its expansion into North America early on, opening a store in Vancouver in 1976. How this decision was made, I do not know. It probably reflects personal preferences and has no business logic behind it - after all, this is perhaps the most distant place from most IKEA suppliers that one could think of. However, things went well for IKEA in Canada, and the local division was instructed to enter the neighboring American market.

The first store opened in 1985 in Philadelphia. From my point of view, the US is perhaps the most difficult market for a retailer to enter at present. Almost sure: in 1985, IKEA management did not realize what it had signed up for. And this is good - otherwise the company would not be on the American market today. The unshakable self-confidence resulting from previous European successes led to the fact that the decision to conquer this new market was taken with little or no proper research. It was believed that the Swedish style and IKEA concept would suit the US in the same way as it happened in other countries, including Canada. However, the problems started from the very beginning. Five stores opened on the East Coast of the United States between 1985 and 1990, and on the West Coast the company acquired its competitor (STOR), which by 1992 added three more American stores to the IKEA portfolio.

For several years the company was in trouble: sales were poor and the business was losing money. As a result, the decision was made to halt expansion and not open new stores from 1993 to 1999. For most of this time, IKEA USA was almost non-profitable; management efforts focused on minimizing costs.

Why has the US proved to be such a difficult task? I see a number of differences from the European business environment. While competition in the home furnishings industry is modest, it is fierce in the retail industry as a whole. No matter where you place your store, most shoppers will still pass at least a couple of malls on their way to IKEA.

The costs of doing business are high. To get the same share of information presence as in Europe, you need to spend many times more on marketing. The cost of land and construction is higher than in Europe. Higher and staff costs, not to mention the cost of social security. More importantly, staff turnover is very high compared to European rates, sometimes approaching 100% per year, which automatically entails high recruitment and training costs. As a result, the level of competence of staff is generally lower. The home goods industry is characterized by weakness and lack of competition. This means that most of the IKEA range has to be imported: hot goods mainly from Asia, furniture - mainly from Europe. As a result, the company's gross profit suffers. Depending on fluctuations in the exchange rate of the dollar against the euro, the range of changes in gross profit over several years could be up to 10 percentage points. The size of the country also had a negative impact on overhead costs and created additional difficulties for management.

However, the assortment practically did not have to be adapted - with the exception of some functional adjustments, such as dimensions and dimensions.

In 1999 and 2000, when I came into close contact with the American division of IKEA, starting to work as the company's CEO, IKEA experienced a couple of the best years in its history. The US economy has strengthened strongly during the years of the Internet boom, the dollar has also strengthened, which allowed the US division of the company to make a good gross profit. However, in previous years, IKEA USA often operated at a loss or struggled to sustain itself, so there was little self-confidence. Cost reduction became a priority. The company operated fourteen undersized stores with little investment. The assortment in them was not rich and was not consistent with the overall strategy for the formation of the IKEA assortment. There was an opinion in the local division of the company that IKEA cabinets and kitchens were not sold in the American market. It was these interior items that were the cornerstone of the IKEA range in all other regions. IKEA USA was a small regional player in this market, ranking approximately 16th in terms of market share.

For years, IKEA has stuck to an unsatisfactory business model that has led it nowhere. I think a decision had to be made: do we believe that we can get IKEA to work properly in the US. If so, significant capital investment and a transition to the offensive are required. If not, it is necessary to turn off the business and leave this market. The worst option is to keep doing the same thing and expect the results to be different.

Having invested in 14 stores and achieved fairly high brand recognition after 15 years, seeing room for improvement and recognizing the potential of this huge market, IKEA decided to go on the offensive with the goal of making the US division one of the company's future pillars.

The strategy was pretty straightforward. First, the range in the US had to be aligned with IKEA's overall assortment strategy, which would allow bedroom and kitchen products to sell well and thus achieve a quantitative increase in sales - just as happened in other markets where IKEA operated. The American division needed to join the general flow and adopt a uniform strategy for aggressive sales for IKEA. Existing stores needed to be updated or relocated to better sites.

Staff turnover had to be drastically reduced in order to create a more stable working environment in the stores. The activities of the stores themselves required optimization. Sales had to be increased, both through existing stores and through the opening of new ones. Scale seemed to be an important condition for starting the model. This was necessary to make the required investment in marketing, and most importantly, to enable the creation of local production facilities. The only way to achieve relatively stable revenue growth in the US is to expand local production to hedge against currency fluctuations. When margins fluctuated up and down by 10 percentage points depending on the strengthening or weakening of the dollar, it was impossible to provide a stable level of income.

This was achieved from 2001 to 2009. IKEA USA has gone from a small regional company with 14 stores to a national player with almost 40 stores. Its market share was in second place, with sales rising from $1 billion in 2001 to $3 billion in 2009. Profitability targets are still relevant despite the severe economic downturn in the US and the weakening dollar (2010). The first wholly-owned factory in the United States has opened, and further expansion of local production is planned. Therefore, the next changes in the American economy against the backdrop of strengthening local supplies will no doubt help IKEA USA become one of the key pillars of IKEA's business in the future.

Russia

Between what happened to the company in the US and in Europe in the early 1990s, there was a lot in common. IKEA has retreated from some of the fundamental criteria for the success of its work - the systematic formation of the IKEA assortment, aggressive pricing and investment in stores. But there were differences: the need to scale up operations, adapt to a different business environment, and source locally.

In Russia, the company faced somewhat different difficulties.

The experience of IKEA in Russia will be one of the classic examples of how IKEA went its own way and took on a significant risk, radically outperforming competitors. When all other international companies made the decision to leave Russia or not enter the Russian market in the midst of the financial crises of the late 1990s, IKEA decided to come to this country. There was a rare opportunity to secure IKEA's place in the market of the future at an early stage and, given the situation in the country, to acquire land in good areas at an affordable price. The risk was calculated: even if IKEA lost everything in this market, there would be no threat to the company.

IKEA also came up with a new business model that took into account the peculiarities of the local market. Import duties on IKEA products averaged 20%, while before switching to local supplies, there was a need for imports for some time. At the same time, prices had to be kept low. So the chances of making a profit in retail for a few more years were slim. To compensate for these negative factors, they came up with the concept of a shopping center. Its main idea: in conjunction with IKEA stores, you need to build large shopping centers. According to calculations, these centers will provide a good profit, which can cover the losses in IKEA stores until they themselves become profitable. Shopping centers in themselves will be a good investment, but the main thing is that they will attract customers and, accordingly, more people will come to the store located next door. The first IKEA store opened in 2000 and the first mall in 2002.

Shopping malls were a commercial success from the very beginning. IKEA immediately took first place among the shopping centers in Russia, securing strong tenants and good attendance. The return on capital invested in Moscow centers was very high.

In addition, the stores were doing better than expected. The competition and market situation in Russia, as in all emerging markets, is ideal for IKEA. On the one hand, there are small local shops / carpentry shops with low prices, where the quality of products and their design often leaves much to be desired, on the other hand, very expensive imported designer furniture that a very limited number of people can afford. At the same time, there is a growing middle class, limited in means, but in need of good quality home furnishings at low prices. This is just about IKEA - no one else can satisfy such a request. By a happy coincidence, the state of the Russian economy at that moment was improving, and the ruble was strengthening against the dollar. The Russian division of the company was able to find sites and quickly build several IKEA stores and shopping centers. Speed ​​has become priority number one, number two and number three. The logic was this: a window of opportunity had opened and IKEA needed to open locations in different cities before anyone else did. From 2000 to 2008, 11 stores and 11 shopping centers with a total area of ​​about 2 million square meters were launched, investments amounted to 4 billion dollars. This brought IKEA to the top ten largest investors in Russia. Among the investments were also a wholesale depot and a number of furniture factories owned by IKEA. In 2009, sales of IKEA stores in Russia reached almost one billion euros, representing 4% of sales worldwide, and the stores were profitable.

However, there are a number of challenges that still need to be addressed in order to do business in Russia in the future - both for IKEA stores and in terms of shopping centers. For IKEA, the main question is how to further reduce retail prices while maintaining a reasonable margin. When the company came to Russia, it was assumed that this could be achieved in two ways. One is that there will be a gradual liberalization of the economy and Russia will join the WTO, as a result of which one could expect a reduction in import duties. However, so far there have been no positive developments in this direction. Import duties are still at an average level of 20%.

Secondly, a lot of effort and resources went into building a local supply chain with the help of both external suppliers and in-house production, and this turned out to be much more difficult than originally thought. As it turned out, competent contractors capable of creating competitive production are almost impossible to find. I think this is partly the result of the absence of an entrepreneurial tradition in Russia, and partly the influence of a difficult business environment, where bureaucracy and corruption reign. Unfortunately, there have been no significant improvements in this direction over the past ten years. Obviously, the furniture industry is not on the Russian government's list of priorities, although this would be a powerful incentive to develop exports - given the abundance of raw materials. By the way, IKEA accounts for 40% of all furniture exports from Russia, although this is a very small part of IKEA production around the world. In addition, furniture factories owned by IKEA in Russia faced a number of problems in the development of production.

Now (in 2010) I am not particularly optimistic about the prospects for increasing the share of local deliveries in Russia, unless there is a significant improvement in the business climate. Despite large-scale investments and efforts, IKEA managed to raise this figure to only 40% of the total supply for all the years that the company has been operating on the Russian market. This puts IKEA in a difficult position. The level of sales and purchasing power differ significantly between Moscow, St. Petersburg and provincial cities. If for Moscow the index is 100, then for St. Petersburg - 60, for the regions - 30. This means that in Moscow sales and profits can be controlled, but in the regions the company loses money. The situation will not change until there is a way to significantly reduce purchase prices, and so far there is no such way.

The second major problem in Russia is the development of shopping centers. They are successful from a commercial point of view - a strong tenant mix, good sales and attendance, a significant return on capital. However, there have been other major expenses that have more than wiped out the profits from the centres. This is partly due to the difficult business environment in Russia, partly the result of the priority of speed in market development, when IKEA was not always able to sufficiently manage the situation.

Rapid development made IKEA vulnerable in a number of cases that cost her dearly. Litigation and out-of-court settlements with construction companies, ordinary crooks and the authorities are of great concern when doing real estate development in Russia.

The composition of management and employees has undergone many changes, and in 2008 IKEA suspended the design of new shopping centers and stores, with the possible exception of Moscow, until these problems are resolved.

The business model of the shopping center is good, however, in my opinion, it is necessary to consolidate the business and reach the break-even point. The business model of stores needs to solve supply problems, and only then will it be possible to justify the opening of new stores.

I really hope that a solution will be found over time, as the company has every reason to build a successful business in Russia.

Asian-Pacific area

The program, which we called “Ten Challenges in Ten Years” (10/10), said: “The main challenge for us in the Asia-Pacific region is simply to gain a foothold in those countries whose markets we have already decided to enter and achieve break-even point." In 1999, the presence of IKEA in the Asia-Pacific region was extremely small. There were only six small stores that looked more like start-ups: four in Australia and two in China. Deliveries were carried out from the central warehouse in Malaysia, where the central office of the region was also located. Stores, of course, did not bring profit. The Asia-Pacific region could potentially become the "third leg" in the geographical strategy of IKEA, along with Europe and North America. Long-term growth prospects were clear.

So what's the best strategy for moving forward? And again, it was necessary to correct everything that had not been done from the very beginning: to build large IKEA concept stores, where the buyer is given access to the entire range. It was also important to understand how to set prices that would be lower than competitors, and at the same time make a profit. The answer to this question again seemed to be that it was necessary to achieve sufficient scale and reduce fixed costs in the supply chain. China is an obvious candidate, but it took time for sales in the Chinese market to grow enough, given the low purchasing power in the country and the need to keep prices low. Therefore, they decided to supplement China with Japan, where it was possible to immediately build stores with large sales volumes. The geographical proximity of these two markets had a beneficial effect. To offer customers competitive prices and a good assortment, it was necessary to build a local supply chain and establish a central warehouse in China.

The regional office moved from Singapore to Shanghai. A central warehouse for 200 thousand cubic meters was also built there, which was supplemented with local warehouses in Australia and Japan. Of course, local deliveries were easier to debug in China than in Russia. The already existing structure with purchasing offices now worked with both international suppliers and local ones in the region. The advantage compared to Russia was the lack of haste. The situation in China did not require meeting deadlines, and business could be developed in an organized manner.

In Australia, where the supply chain had already been established, the solution was simple: replace small outlets with large IKEA stores and run business as usual. Australia is similar to European markets. So they did, and now IKEA in Australia is making a steady profit.

On the other hand, Japan presented a completely new challenge than those that the company was accustomed to solving. Among the advantages - the size of the market, high purchasing power and high population density. There were few competitors, they were very traditional, there were few international companies in the market, and prices were inflated due to lack of competition. The IKEA style went well with the taste of the Japanese. Japanese society was also undergoing a reassessment of values, and IKEA's entry into the market, with its unique concept and values, could well fit into these changes.

Of course, there were certain difficulties. Land prices are very high. As the interest rate was heading towards zero, this was not a short-term problem, but there was a potential risk. Service and quality requirements are also very high in Japan, and it was not clear how much customers would accept the idea of ​​self-service. In addition, Japanese culture was very different from Swedish, so it was impossible to say for sure whether IKEA values ​​would fit her. There was no particular reason to believe that this would not happen, however, when hiring Japanese managers, this should have been considered. But most of all, the company was worried about the limits set by Japan on the content of formaldehyde in furniture: the permitted level was two times lower than in other markets. This meant that several hundred of the most important IKEA products had to be produced specifically for the Japanese market, with the purchase price being 20% ​​higher than usual. In the short term, this could be tolerated, but subsequently it seemed impossible to maintain such a price level. Before deciding to enter the Japanese market, it was necessary to come up with some solution to this problem.

The solution turned out to be very characteristic of IKEA: turn problems into opportunities! A project was launched to reduce formaldehyde levels to the level required in Japan without increasing costs. The idea was that sooner or later other countries would also tighten the formaldehyde laws, and by then IKEA would have a solution in place without having to rush through. It also seemed like a more sustainable approach to the environment. The solution was found, and today the Japanese formaldehyde standard is the standard for all IKEA products, and will soon become the new norm for the entire furniture industry.

The first store in Japan opened in 2006. By 2009, five stores were open: three in the Tokyo area, one in Kobe, and one in Osaka. In general, the IKEA range, the concept of its stores and its pricing policy have taken root well in Japan. The only concern is the low per capita consumption of household goods in Japan. To increase interest in this area, you need to work hard. By 2009, sales approached 400 million euros and IKEA was making steady profits.

In China, the tasks were different. Compared to Russia, the business environment is generally more conducive to doing business. My experience is that the Chinese authorities are cooperative, resolute, generally sincerely willing to help, and ready to act in the interests of their people. There is serious price competition; in addition, the size of the country and its population, coupled with low purchasing power, created a number of difficulties. Buying in China is easy, but selling is not so easy.

The supply strategy proved to be the key to success. Retail prices should have been at least halved from the level of prices at the time when most of the supplies came from Europe. To achieve a price reduction of 50%, local suppliers and very high volumes were required. By 2009, more than 50% of all sales in China were made locally. Retail prices were reduced in accordance with the plan. The main problem in advancing the Chinese supply strategy is to find a way to improve the quality of the products produced and the working conditions of the suppliers.

In order to successfully develop IKEA in China, it was necessary to adapt not only the supply strategy, but also some components of the commercial strategy. The decline in retail prices meant that the volume of products sold through stores was significantly higher than usual. In addition, there were also many more visitors than usually come to IKEA stores. In accordance with this, outlets should be planned. The solution was the concept of the store, according to which both the furniture exhibition and the cash hall, where goods can be picked up on their own, are located above the warehouse; thus, the building became three floors against the usual two. The additional floor made it possible to bring in more goods without buying special plots of land for storage. Land in China is as expensive or even more expensive than in Western countries. Another area that needed to be rethought was the IKEA rule, according to which an IKEA catalog is delivered to all homes located in the service area of ​​a particular store. A more selective method was required: a huge number of people lived around the shops. The range also needed some adaptation. First of all, the product line was expanded in the lower price range.

The business model in China is now working and IKEA has been able to be competitive and profitable. By 2010, there will be nine stores in China, and additional ones can now be opened faster. In three countries - Australia, Japan and China - the total sales volume is approaching a billion euros, by 2009 all local IKEA divisions began to make a profit. A solid sourcing and supply strategy is complemented by a strong team of employees. Potentially, these markets can become the engine of development for IKEA for many years to come. The 10/10 plan - to gain a foothold in the Asia-Pacific region and make stores open there profitable by 2009 - has been completed.

Local company or international retailer?

Of course, becoming a successful international retailer is a tempting goal for any company. However, along with growth and recognition comes some potential disadvantages. Many people are afraid of big business; they are afraid that small companies will be left out, that international companies are exploiting the poor in developing countries, that big business as a whole has too much influence. Connecting with local realities is very important for buyers. I think large international retailers should not ignore this fact. Having one's own identity, one's own traditions and, at the same time, links with the local culture are all important components of the values ​​and strategy of any company.

Speaking of IKEA, is it really a Swedish company with a national character? Or is it a faceless large retailer operating around the world? The founder lives in Switzerland. The headquarters is located in the Netherlands. The owner is a Dutch foundation. Less than 10% of employees work in Sweden. Only 7% of sales and 5% of purchases come from Sweden, and this figure will decrease. In fact, given that only 7% of sales take place in the domestic market, IKEA is probably one of the most globalized retail chains in the world.

So what gives IKEA that distinctive Swedish flair? I think there are three main elements: traditions, values ​​and management style, assortment. They are complemented by blue and yellow shops (the colors of the Swedish flag) and restaurants serving Swedish cuisine.

Let's start with traditions. I believe that a company must have a history and a soul. The soul of IKEA was born in the Swedish province of Småland, where the founder of the chain, Ingvar Kamprad, grew up. The history and personality of the founder explains how IKEA became what it is. All this leads to the fact that the company has a human face. The company's values ​​and management style are the glue that holds it together. IKEA's values ​​reflect those of its founder, Ingvar Kamprad, but I think they have a lot in common with how many outsiders perceive Swedish leaders and the Swedish leadership style.

Assortment: IKEA's founding documents state that in Scandinavia the assortment should be perceived as typical of IKEA, and outside of Scandinavia as typical of Sweden. This is one of the important competitive advantages of IKEA, which distinguishes it from furniture retailers in all markets. It's not just about the style of the product, but also about the interiors of the stores, and the design of the rooms in the photographs in the catalog reflects the Swedish way of life.

Over time, IKEA will become even more global in terms of markets, employees and sales. This is important for the further growth of the company. It will be necessary to further strengthen its Swedish character in other ways. "Swedishness" is a competitive advantage in terms of assortment, values ​​and traditions. This, I think, can be achieved. It is much more difficult to create a link to the local culture. For this to happen, store management needs to be given greater decision-making power, and preferably with local connections.

I think any international retailer should try to create a clear tradition and build local connections. Globality is perceived as an advantage only by some of the stakeholders, such as shareholders and the financial market. The image of a local company seems to be becoming more relevant to buyers and many other groups in the public. Local companies tend to have a more significant presence in the life of the local community. They can make decisions about sponsorship, charity and other contributions to public life, they are perceived as holders of long-term obligations in relation to society. With the help of large programs and sponsorship, decisions about which are made at the corporate level, you can only partially become a truly socially responsible business. For most people, it seems to me, participation in local life gives more reason to consider the company socially responsible.

Global expansion in retail

Globalization among large retail chains has had mixed results over the past few years. Ten years ago, while studying IKEA's competitors, I was confident that we would see a surge in international expansion among major retailers. Many have indeed made such attempts, but not all have succeeded. Very few major European retailers have been successful in the US. Very few major US retailers have been successful in Europe. The American giant Home Depot abandoned its international ambitions a few years ago. Wal-Mart made an unsuccessful attempt to enter the German market. Carrefour left Japan, Thailand, Malaysia and Russia. European companies mostly seem to be opening their branches either in neighboring countries or in Eastern Europe and Russia. American companies remain in the Americas. Japan is still subjugated by a few. Also, we haven't seen major new retailers coming from emerging markets. Why is this happening? The global supply chain is gaining momentum, but global sales through its own outlets have not gained popularity.

Some conclusions can be drawn from the IKEA experience, which I described earlier. First, to be truly successful with international expansion, you need to sell something unique. Sometimes local competitors cannot offer anything worthy. In retail areas such as hypermarkets, electronics stores or hardware stores, the offer is in most cases rather uniform, and when entering the market of another Western country, there are practically no adjustments. However, in emerging markets, the "western" offer sometimes still has a chance to be unique.

The other problem is that the most likely scenario in most emerging markets is high risk and a long period of low or no returns before results can be seen. This is probably of less interest to investors and public company executives who are looking for how to get high profits in the shortest possible time.

Finally, many large retailers have limited overseas experience, and cultural differences are a major barrier for many.

However, the constraints faced by companies are only one aspect that is hindering the global expansion of retailers. I have some questions about the general development of free market economies. Progress is slow, and in some cases, I think it is even going in the wrong direction. I think most businessmen are of the opinion that free competition is good. Ironically, there are plenty of examples of how many companies go out of their way to limit the freedom of competition. Information about undisguised price collusion periodically pops up in the press, but the practice of tacit agreements in order to avoid price competition is probably more common. For example, in this way brand owners try to control the retail prices of their customers, and retailers avoid intense price competition in order to maintain a high level of profit. All this is happening to the detriment of the consumer and companies that are trying to be competitive. In many areas of business, consolidation has become an important trend, which automatically limits competition. At best, they are an oligopoly. All this, of course, makes it difficult to enter new markets.

Governments and politicians also say they are in favor of expanding free competition. At the same time, however, we are seeing various trade barriers being introduced, extended and tightened in many markets. Examples from the IKEA experience described here include import duties (in Russia), product specifications (formaldehyde in Japan), bureaucracy and corruption (Russia again), obtaining a trade license (many European countries), and currency fluctuations (e.g. USA and Russia). All these are good examples of the problems that hinder global expansion. When a decision is made to enter a new market, one of the main questions is whether the political system in that country is democratic. I have always been of the opinion that following the instructions of the UN in this regard is not the worst option. Working in countries where democracy has not yet developed is often the best way to accelerate progress rather than promote isolation. Is it worth, for example, abandoning production in areas where child labor is used? This is an easy way out if you want to avoid making headlines in the Western press, but I think we can do more to end child exploitation if we are in this market ourselves and can make an impact through our actions, principles and values.

A more serious question to be answered when choosing a new market is corruption. This is perhaps the biggest threat to international retail, and to growth in developing countries in general. During my years at IKEA, I saw little evidence that the corruption situation was getting worse. As we all know, corruption is rampant in many developing countries, but there is growing evidence of corruption in Western economies as well. This applies to both the public and private sectors.

If you categorically say “no” to corruption (which we must do), it will become impossible to do business in many countries if your business depends on the decisions and permissions of the authorities. This is a real threat to globalization. I think there is too little effort and too little focus on reducing corruption and discussing how to deal with it from a business perspective. This issue should be a higher priority for international organizations and governments. So what can we expect in the coming years? Many of the barriers and difficulties described above are likely to remain.

In most European countries and in the US, we will see slow GDP growth, an aging population, and a shift in spending by the average family towards telecommunications, information technology, medicine and energy. Less money will be spent on household goods, clothing, building materials and other traditional retail areas. Growth will depend on whether the company beats competitors, not on market expansion. The best will survive in increasingly consolidating markets. Natural growth will be hampered if restrictions on new retailers persist and intensify in many markets. In connection with the trend towards amalgamation of companies, the antimonopoly authorities will begin to ask more and more questions to participants in potential takeovers. Many large Western retailers operating with low margins will begin to actively defend their territory. In such an environment, Western retailers will have to learn how to develop in new emerging markets. Maybe it will be even more important than many think today. If the company's market share in an emerging market turns out to be low, significant growth in this market will be required to affect the overall growth rate of many Western companies.

If India liberalizes the rules on foreign ownership in the retail sector, it will take a big step forward in the development of global retail. This will be an exciting opportunity for many successful international retailers operating in the market today. However, there is little reason to believe that such measures will come into effect in the near future. With the exception of the obvious BRIC countries, we will be able, I am sure, to observe a number of new emerging and interesting markets. Countries such as Egypt, Turkey, Mexico, Vietnam have great potential for growth. Who will be the first successful international retailer to come from an emerging market? This is a big question for today's established global retailers.

Obviously, it is very difficult to become successful working in the retail industry around the world. The various challenges in Europe, North America, Asia, Russia and other markets described above have proven to be extremely challenging for many retailers. It seems that important criteria for success are as follows: it is necessary to adapt the offer to different markets, while remaining unique; offer competitive prices, especially in emerging markets; have a strong value base that can fit into different cultures; have an approach to new markets in which the company is not only perceived as a mechanism for self-enrichment, but also contributes to society; be able to take risk and exist with low or no profit for several years in markets that will grow in the future; have a strong profitable base, due to which financing will occur. Few of today's big retailers seem to be able to afford it.

IKEA is a Swedish manufacturing and trading group of companies, which is one of the world's largest retailers selling household goods and furniture. The company's turnover in 2016 exceeded 36 billion euros. The company has long been ranked among the "Top Global Brands" (average position in the ranking is 26th), and in the latest ranking of the "World's Most Valuable Brands" IKEA was ranked 55th with a brand value of $18.08 billion.

IKEA was founded by Swedish businessman Ingvar Kamprad. He was born into a family of farmers and spent his entire childhood working in agriculture. Members of the Kamprad family before him tried to run a business, but it did not bring any special dividends. But, thanks to this, since childhood, Ingvar was well versed in trade. In his youth, he tried selling matches and fish.

In 1943, having invested all his savings and borrowed money from his father, seventeen-year-old Kamprad opened an IKEA store., whose name is an acronym made up of the initial letters of his first and last name and the names of the farm and village where he was born and raised. The choice of store specialization was influenced by the situation in the country. Finding good and inexpensive household items, essentials and furniture was almost impossible.

History of the IKEA logo, image: ikea.com

Ingvar Kamprad started his activities with the sale of small household items, and the first main model of the company's work was the mailing list.

One of the company's early promotions nearly ended up on the brink of failure. Young Kamprad decided to take out a small loan and order ballpoint pens in France, which were in short supply in Sweden at the time. For a quick sale of goods, he promised everyone who came to the presentation of coffee and a bun. This proposal attracted more than a thousand people, which greatly exceeded the plans of the young businessman. Having spent a lot of money and investing a lot of effort, he fulfilled his promise. The presentation was successful and the product sold quickly.

Video: the amazing story of the founder of IKEA.

Stages of company development

First steps

Until 1948, the IKEA store was focused on the sale of small household items. During this period, Kamprad thought about expanding the business. To expand the range, he decided to choose furniture that always has a stable demand. And at that time, inexpensive furniture was considered a scarce commodity at all. The expansion of the company began with an increase in staff. Until this period, only Kamprad himself worked in the store. In 1948 he hired his first employee. By 1950, the company's staff already consisted of 4 people.

At first, the bet in the company was made on cheap furniture., which was made in small industries. Later, the approach was changed: it was decided to purchase parts and assemble the furniture on our own. Thus, it was possible to significantly reduce prices and gain popularity among customers.

In 1958, the first IKEA brand store was opened in Elmhult. Here, for the first time in Sweden, it was possible to try furniture before buying it. Such a marketing ploy at times increased the popularity of the store.

Due to difficulties with suppliers who were forbidden by competitors to do business with IKEA, in the late 50s, I. Kamprad faced a shortage of goods for sale. To solve the problem, he decided to buy goods abroad. He found all the necessary goods at factories in Poland and organized timely deliveries to Sweden.

By the beginning of the 60s, several IKEA stores were already operating in Sweden and Ingvar Kamprad began to think about entering foreign markets. It was decided to start from Norway and in 1963 a store was opened in Oslo. And by the end of the 1960s, the first IKEA store opened in Denmark.

At the same time, tableware was added to the store's product line. Also, to reduce queues, work was carried out to optimize the number and placement of cash desks.

In 1973, in order to optimize taxation, the company's center was moved to Denmark.

Beginning of active expansion

Photo: pixabay

In the 70s, the company began an active expansion of Western Europe: stores were opened in Switzerland, Germany, and France. At the end of the seventies, the work of Ingvar Kamprad "The commandments of a furniture dealer" was presented to the world, which became a mandatory reading book for all employees of the company.

In the early 1980s, the first IKEA stores opened in Saudi Arabia, China and Kuwait.

And in 1985 the brand entered the US market. The first store was opened in Philadelphia. Ingvar Kamprad had doubts about the American market, but thanks to the hippie cult that was popular at the time, democratic and original IKEA stores quickly became popular.

In parallel with the conquest of new markets, the company expanded its product range. In the 1980s, IKEA introduced its first sofa.

In 1986, Ingvar Kamprad left his post as head of the company and became a consultant to the fund manager of the Stiching INGKA Foundation. Anders Muberg, who worked as Kamprad's deputy, became the general director.

In the early 1990s, the expansion of the countries of Eastern and Southern Europe began. The first stores were opened in Hungary and Poland, a little later the company came to Slovakia and the Czech Republic. In 1996, brand stores opened in Spain. Also during this period, a set of rules was created that regulates the work in the company.

Work via the Internet

The IKEA store was one of the first major retailers to launch online. The company's website, which talks about its philosophy, was launched in 1997.

In 1999, the company's sales amounted to € 6 billion. 20% of the volume was provided by stores in the USA and Asia. In this regard, it was decided to intensify work in these markets.

Since the early 2000s, IKEA has been actively working to develop Asian stores and e-commerce. The first store in Japan was opened in 2006, and the chain began to develop rapidly with standard technology. The Chinese market, on which great hopes are placed, did not immediately submit. The first stores opened in the early 2000s were losing money. Only after changing the concept for this market did the Chinese chain of stores begin to develop. Today it has about 10 stores.

Video: see with your own eyes how production is set up at IKEA.

IKEA in Russia

The first attempts by IKEA to enter the Russian market date back to the late 1980s. Ingvar Kamprad personally negotiated and planned to create a whole complex for the production of furniture in the USSR. But no final agreement was reached.

The companies returned to the Russian direction in the late 1990s, and in early 2000, the first store was opened in Khimki. Investments in the project amounted to about $200 million. About 30,000 people visited the hypermarket on the first day. The opening of the second store attracted over 50,000 visitors.

By 2008, there were 11 brand stores in Russia, and in 2017 there were already 14 of them.

In September 2016, IKEA launched the largest furniture factory in Russia. The investment in this project is estimated at €50 million.

Main competitors

On a global scale, the Swedish retailer has virtually no competitors. In some regions and directions, IKEA competes JYSK, Metro Group, Leroy Merlin and Hoff. Only JYSK, operating in the same segment as IKEA, can be considered a direct competitor. Metro Group, Leroy Merlin and Hoff have a wider product range than the Swedish retailer, so they compete with it partially.

IKEA today

Today IKEA is formally a Dutch company. The country of registration was changed in 2012 to optimize taxation.

In 2016, the company's revenue amounted to 36.4 billion euros. To date, the company operates 389 stores around the world, which are visited by more than 900 million visitors a year. IKEA has 183,000 employees.

The priority direction of the company's development is online sales. IKEA is developing a modern technology platform that should drive sales growth in this segment.

Significant hopes are also placed on the Chinese market, which has not yet been fully developed and has significant potential for growth.