Piecing together the Ikea story

Ikea has grown into a global brand by tapping into customers’ fondness for DIY and, as its founder Ingvar Kamprad quits the board, the flatpack giant is looking to carve out an even bigger slice of the market, writes Kyran FitzGerald

IT is a milestone in the world of retailing, the departure from the board of ‘Inter Ikea’ of 87-year-old Ingvar Kamprad, founder in the 1940s of the flat pack furniture chain, which has brought frustration and joy, in almost equal measure, to its vast and growing army of customers.

Ikea is a global giant these days. On Wednesday, the firm also announced a 9.5% rise in sales to €27bn, along with an 8% increase in net income to €3.2bn.

This iconic global brand has defied the recession by focusing on cost cutting and expanding in developed economies and, increasingly, in the emerging economies of the new world.

In the Republic, the going has got a little more difficult following a storming start, but more than 430 people are employed here.

In 2009, the opening of the Ikea store in Ballymun, north Dublin, was marked by long queues, media hype and a feeling that the capital had somehow come of age.

The great irony, of course, is that it coincided with a near wipeout of the country’s furniture retail business following the property crash.

The Swedes, however, are playing a long game.

They expect to benefit from a sustained upturn in the property market and are battling to secure permission for another large development off the M50, near Loughlinstown, south Dublin, having brought an appeal to An Bord Pleanála against the local council’s development plan.

Marketing gurus refer, increasingly, to a relatively new phenomenon known as the ‘Ikea Effect’. This describes the great satisfaction people derive from their own creations.

Ikea has cleverly drawn on the fondness that male customers have for DIY.

It has led management theorists to draw heavily on the ‘Ikea effect’ to explain the reluctance of managers to embrace outside ideas, sticking instead to their own, regardless of how successful they have proved.

Ingvar Kamprad was raised on a Swedish farm in the frugal 1930s. It is said that he started off as a boy selling matches to his neighbours, gradually expanding his products to include fish and Christmas tree decorations.

He started the furniture business from a garden shed in 1943, having briefly dallied with fascism, something he regards as his greatest mistake in life.

Ikea began as a mail order business, with furniture being introduced in 1948.

In Kamprad’s home region, Smaland, farmers traditionally supplemented their income by making furniture.

In 1951, Ingvar produced his first catalogue, opening his first Ikea showroom, two years later.

In 1955, Ikea started to design its own furniture and the first Ikea store opened in a village deep in the forests of Smaland.

As orders grew, it was possible to cut prices, producing a virtuous circle.

By 1970, Ikea had expanded into Norway and Denmark and had opened a large flagship store in Stockholm.

The 1970s brought computer-controlled product delivery and self service to the stores.

In 1986, Ingvar stood down from the CEO post, remaining on as chairman and as a regular visitor to the stores.

Outside executives have been brought in, such as Peter Agnefjall, who steps up to a senior role as president/CEO of Ikea.

Ingvar’s three sons, Peter, Jonas and Mathias have been taking on increased responsibilities.

Mathias has just been appointed as chairman of Inter Ikea Group, the week his father announced his departure from the board.

Jonas is a director of the holding company, Ingka holding while Peter chairs Ikano Group, in charge of finance, real estate, insurance and retail.

Ownership of the stores has been separated from ownership of the brands.

The structure has become increasingly complex, largely for reasons of tax planning. A number of so-called charitable foundations have been established.

During the recession, Ikea launched a new strategy aimed at cutting prices by 2% to 3% a year in an effort to carve out even more market share.

It is currently expanding into China where it will open a huge outlet next winter.

Ikea’s director of business navigation, Ian Worling recently detailed to the publication, Strategy & Business, the new strategy based on increasing volumes to lower costs while overhauling the supply chain and trimming management costs to the bone.

In Ireland, sales have held up at €102m in 2011 and 2012, but profits have tumbled, down from almost €12m in 2010, to €5.4m in 2011 and just €2.4m, last year.

Ikea was always going to struggle to maintain the euphoria of 2010, after its long-awaited Ballymun opening.

Prior to this, customers travelled en masse to the Ikea store near Belfast.

The future here looks promising for Ikea despite the drawn-out consumer recession.

Conceivably, Ikea could move directly into a house-building sector which is crying out for innovation.

It could also serve as an exemplar for a new wave of companies emerging in places like Brazil where design has always been given a high priority.

The success of the Kamprad family is a reminder that it is possible to grow a huge-scale consumer business from modest beginnings in a thinly populated peripheral economy. Irish entrepreneurs, please take note.

Factfile: Ingvar Kamprad

Born: 1926. Southern Sweden. Grew up on a farm. nCareer: 1943: Started Ikea as a mail order business. 1948: Sells his first furniture. 1955: First store opens. 1960: Ikea sources furniture overseas for first time. 1986: Ingvar steps down as CEO. Oct 2012: Listed as the fifth wealthiest person in the world. However, much of his fortune is invested through a ‘charity’, making precise estimates uncertain. Jun 2013: Steps down as director from Ikea board.

Family: Married to Margarethe. (deceased); Three sons.

Main residence: Lausanne, Switzerland.

Hobbies: Shopping for bargains in markets.