Executive summary
In this report, could see the analyse of well-known home furnishing retailer,which is IKEA the one of largest furniture retailer in the world. The purpose of the case study is to analyze IKEA’s current strategy, Porter’s 5 force analyzing of competitor ,internal company analysis and discuss major issue that the company faced.
Key word: IKEA, Poter’s five force, strategy, strengths, weakness
Contents
Introduction and company overview…………………………………………………………………………. 4
IKEA current strategy……………………………………………………………………………………………… 4
Low-cost leadership strategy………………………………………………………………………………………… 4
Distribution Strategy ………………………………………………………………………………………………… 5
Service Strategy ……………………………………………………………………………………………………….. 5
supplier strategy ……………………………………………………………………………………………………….. 5
Product Strategy ……………………………………………………………………………………………………….. 5
Sustainability strategy ………………………………………………………………………………………………… 6
Competitor of IKEA in furniture industry Analysis…………………………………………………… 6
Porter’s five force analysis………………………………………………………………………………………………. 7
Rivalry among existing competitors………………………………………………………………………………. 7
Threat of new entrance…………………………………………………………………………………………………. 8
Bargaining power of suppliers………………………………………………………………………………………. 8
Bargaining power of buyers ………………………………………………………………………………………… 9
Threat of substitutes …………………………………………………………………………………………………….. 9
IKEA internal company analysis………………………………………………………………………………………. 9
Strengths of IKEA ……………………………………………………………………………………………………….. 10
Weaknesses of IKEA. …………………………………………………………………………………………………… 10
Conclusion…………………………………………………………………………………………………………………. 11
Reference …………………………………………………………………………………………………………………… 12
Introduction and company overview
IKEA, Ikea is the global furniture retailer from Swedish, Ikea’s business philosophy is to offer the household articles which are variety, beautiful and practical.It is a concept originally began to provide affordable Home Furnishing products to the public rather than just a few services.(The IKEA concept 2014) IKEA stores have set in 42 countries, The area of all IKEA stores combines was 9,883,241m²and has 775 million IKEA store visits with EUR 29.2 billion sales turnover for the year of 2013 (IKEA Systems B.V., 2013)
IKEA current strategy
A business can create opportunities and counter threats by leveraging its strengths and addressing its weakness. At beginning, low-cost leadership strategy as the most important strategy in IKEA,with expansion of the market,the company began to consider enhancing services and distribution.Then cooperating with OEM manufacturers to strengthen supplier strategy, after that IKEA produces a series of production to meet middle-age customers needs. Now IKEA is committed to making its products sustainability and environment friendly.
Low-cost leadership strategy
IKEA mission statement is “To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”( IKEA concept,2013) For IKEA, the self assembly features cuts operational&transportation cost. This determines the IKEA products to maintain a low price and the practical pursuit on the basis,and IKEA has always emphasized the low price strategy.
Distribution Strategy
IKEA’s distribution strategy is the world’s independent store creation,IKEA design their own proprietary products, and cooperates with local suppliers direct-to-consumer control terminal products to consumer sales channels. IKEA has 345 stores in 42 countries. Among 42 countries ,US had 50 stores(10% of total revenue) ,become the second-largest market after Germany( Hill&Jones, 2011)
Service Strategy
Different from ordinary home market, allowing consumers to experience IKEA deeply understands a product’s pros and cons. If the product is not damaged, it can be returned unconditionally within 60 days (application IKEA free membership, 180 days) (IKEA concept,2013).Selling on the Internet and selling along with catalogs of company’s merchandise.
Supplier strategy
IKEA is using labeling production (OEM) model of operation, by monitoring its outsourced manufacturer of quality and technology ,auditing to a unified “IKEA standards.” is able to know all of its terminals worldwide product range ,sales,inventory,orders, and a series of data.with these data, the IKEA Group can sent orders to its OEM manufactures.IKEA also by JIT( Just In Time timely supply system) to manage their production, reducing the large number of inventory of production, it can save15% cost per year (Andersen,2009)
Product Strategy
At first , IKEA follows the focused on the low cost strategy, the young buyers looking for stylish and fashionable furniture and home accessories at a low cost are IKEA’s target market segments.(Bloomberg,2010) Then IKEA faced to the fact the median age and income The IKEA challenge is the median age and income levels are expected to rise in most developed countries, and the target market of young low to moderate income families IKEA will atrophy of the facts. For overcome this problem, IKEA decided to expand to other areas such as furniture, office furniture and more traditional furniture design for older wealthy people.
Sustainability strategy
In recent years IKEA has a focus on sustainable development and environmental design in its choice range of suppliers,material,and stores. It is further found that the potential business to provide sustainable solutions. Pay attention to people and environment,encouraging better use of raw ,clean materials and energy. This can reduce costs,and help enterprises achieve its green goals and has an overall positive impact on the environment. Using of raw materials increased the use of recycled or reclaimed waste products across all stores from 84% in 2011 to 90% in 2012( Steve Howard,2012)
Competitor of IKEA in furniture industry Analysis
Over the past few years, the economic depression and consumer spending grew less than personal disposable income growth.Consumer are expected in the coming years will be more cautious and avoid too much debt burden. This will influence the prospects of the real estate market as well as the furniture market.However, It shows high potential of economic growth especially with the emerging economies,provides a promising future(Thelander,2009) for a corporation such as IKEA.
After a strategy to enhance market share, the Swedish furniture retailer IKEA has become the UK’s largest household furniture retailer.IKEA will occupy its market share in the UK increased to 6.1% (Verdict Research),while most other companies in the industry to take the contraction in market share strategy.Successful furniture retailers have one thing in common,that has brand appeal,In UK,there are a few furniture retailers occupy a larger market share in the furniture market. Single product integrated store DFS, Dreams, furniture store giant IKEA, ILVA, the main general store such as Argos, Next, M&S, John Lewis,etc.
Porter’s five force analysis
Porter’s 5 forces is a tool, the analyses of industrial structure and the 5 competitive industrial st(Raab , 2012). This model is usually used to analyse the competitive power of a specific industry where a company operates,determine the probability of the company’s profits in a particular industry. Present below, is the Porter’s five force analysis of IKEA.
Rivalry among existing competitors
IKEA is in an extremely competitive industry, there are many other low-cost,good quality furniture manufacturer such as Argos, DFS, Euromarket Design.IKEA have its unique DIY( Do-it-yourself) sales model to attract customers,IKEA has a team to develop new products,updating technology,and most of IKEA’s product are fashion so that makes IKEA unique. As a result one of UK furniture retailer Dreams is now reported to increase its market share( Mintel Oxygen 2010) against IKEA to make the fierce competition.
However, nowadays several well-know furniture store the operation difficult and was forced to withdraw from the market .Allders,Courts,Feather&Black ,DP Furniture Express(Durham Pine)and Klaussner (Furnitureland) have been bankrupt.While the Co-operative group announced at the 2012/2013 annual closed its 38 stores and furniture stores in 36. But IKEA been profitable,so the competitive rivalry is likely to diminish.
IKEA is also distinguished by direct strategic competitor in location which is best applicable to their clients( e.g. Suburban areas in Europe and North America in the metropolitan of China) (WEC,2011)
Threat of new entrance
This power is considered to be weak, new furniture retailer entry to the market and quickly became for a competitor to IKEA is unlikely, due to market saturation, but also requires a lot of capital investment.In addition,Low price,high quality and modern product which is brand value of IKEA that pose challenges to new entrance to enter the home market (Jonhannson,&Thelander, 2009;WEC,2011)
Any have good prospects of gaining industry will exist potential competitors,IKEA must prepare and future competitors race.Focus on product differentiation and achieve economies of scale.standardization of the difference of demand and production combination. Only in this way, in order to better participate in market competition.
Bargaining power of suppliers
Bargaining power of suppliers are weak because IKEA suppliers continue to compete in order to maintain it is relationship with the global giants and looking for opportunities to form partnerships with IKEA. IKEA is use of global sourcing strategy, supply some products in one country and purchase in the global,and some of the same product procurement in different countries. Suppliers are the important part of the entire supply chain, through the standardization and institutionalization of mass production to improve the ability of enterprises efforts to achieve mutual benefit and win-win situation.
Bargaining power of buyers
This force is strengthening if there is the same products, and IKEA does not have price advantage, while IKEA’s main marketing strategy is low-price,but in some countries, the price advantage of IKEA is not obvious, such as China, and that the customers are likely to give up IKEA purchase. because of IKEA uses flat packaging, consumer self-transport, assembly, if need to IKEA distribution services, it will have to pay additional fees. Therefore,when IKEA product pricing it need to comprehensive measure, it is necessary to achieve the purpose of profit, but also allow consumers satisfied.
Threat of substitutes
From the perspective of an alternative point of view,the furniture industry is not much choice However, for the IKEA furniture companies, facing the threat of substitutes mainly from the personalized home furniture companies,such as Argos, but IKEA characteristics still did not match it in the perspective of brand awareness.IKEA brand perception is “trendy” ,Argos is “affordability” and John Lewis is “quality”( Mintel Oxygen, 2010) .Overall, the threat of substitute is not very strong.
IKEA internal company analysis
The IKEA Group is controlled by INGKA Holding B.V. That belongs to Stichting INGKA Foundation .IKEA has developed a good structure of inbound logistics management 10000 and 2000 supplier products produced, distributed and transported to the IKEA 27 distribution center shop. The logistics function accounted for 25% of the work each store ( IKEA company webpage, 2013) having high level of commitment to human resource practices and effective staff training and development programs. Kamprad (CEO of IKEA) think that a company’s “identity”,company introduction, selection, guide, quantity, quality and price are all critical factors in successful companies in the furniture business (Bloomberg, 2005; Time, 2009)
Strengths of IKEA
• The key strength is wide range of products and styles so that have a powerful brand image.
• Low-price that as many people as possible can affordable.
• No production facilities,warehouses and factories,because outsourcing all the manufacturing to suppliers.
• Unique designs,store layout .
• Global sourcing model.
• Committed to green materials and environment protection.
• Good facilities in the store: restaurant and daycare center.
• Strong financial strength, in 2012 the total assets is 44,678 million/euro (balance sheet IKEA 2012)
Weaknesses of IKEA
• IKEA furniture needs its own DIY assembly,it is difficult for some customers
• The scale and scope of its global business. This can make it difficult to control standards and quality.
• The need for low cost products. The need to balancing between the products of high quality and low price.
• IKEA also need to distinguish between themselves and competitors’s products.
• Swedish designs may not appeal to the global market
• For expanding IKEA, the economies of scale can make huge profits,but the consequence is too big to control global unified standard and is not capable of managing stakeholders.
• In Asia market, the East West cultural differences
In the future, it also launched a new sustainability plans 1.5 billion Euro investment in wind and solar energy through aim to reduce carbon emission,and achieve zero wastage through to 2015.it will combine social,environmental and economic issues(Will Nichols 2012 ). In addition, IKEA target by 20 percentage points to improve energy efficiency,encouraging suppliers to do the same . It will replace 1.2 million light to low-power LED light in store and it would only sell LED lights in stores from 2016 (Steve Howard,2012) and it will improve relationship with suppliers stakeholders, and consumers. That trends to resulting in business competitiveness sustainability,and get higher profits.
Conclusion and recommendation
IKEA is a success global chain of furniture brand,with hundreds of stores in the world.through the Potter’s five competitive forces analysis, for external competition aspect, the mainly threaten is from existing industry competitors ,and buyer bargaining power. Although IKEA already do low-price sales, but in some countries, especially in some Asian countries,IKEA’s price is not the industry the lowest price.Through the internal strengths and weakness, IKEA should maintain their advantage and transforming the weakness into strengths. The problem is that the strategy is applied to the global market,and did not make a different strategy to the different cultural market,such as China, China has huge market potential,however IKEA sales in China accounted for global sales ratio is not significant. IKEA need comprehensive enterprise external environment, internal environment, developing a more appropriate strategy in China. Second, The location of IKEA are always not in the downtown center because IKEA is a large retailer,and also saving money to keep prices low.For many people it is not convenient .instead of IKEA’s rival Argos which is taken catalog marketing model,it has stores in most shopping center.
Reference
Andersen, M. Skjoett-Larsen, T. (2009) “Corporate social responsibility in global supply chains”, Supply Chain Management: Journal, pp.75 – 86
BBC News (2012) UK inflation rate rises to 2.7% in October [online]
Bloomberg Businessweek. (2011, January 16). IKEA reveals the extent of its success, 39-40.
IKEA Group. (2011). Inter IKEA Systems Publishing. Sweden.
IKEA concept (2013), The IKEA concept [online] Available at
http://franchisor.ikea.com/Whoweare/Pages/IKEA-retailing-facts-and-figures.aspx
Johannson, U. & Thelander, A. (2009). A standardised approach to the world? IKEA in China.
International Journal of Quality and Service Sciences, 1, 5, pp. 199-219.
Mintel Oxygen (2012) Furniture Retailing 2012, UK August 2012, Mintel Oxygen
McGraw Hill Professional, (2011) praise for the IKEA Edge, Sweden, Studentlitteratur AB
Will Nichols (2012) part of the guardian environment network
http://www.theguardian.com/environment/2012/oct/23/ikea-clean-energy
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