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Ikea Invades America

Essay by   •  April 5, 2012  •  Research Paper  •  2,728 Words (11 Pages)  •  1,936 Views

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IKEA Invades America

In 1943 Ingvar Kamprad, a 17 year old Swede, started a catalog business using money that his father gave him. The catalog business was successful and Ingvar was soon able to expand. He noticed that there was a serious lack of affordable furniture in Sweden and decided to combat this problem with his growing catalog business. The company that formed was named IKEA. The furniture catalog was so successful that in 1958 Ingvar opened his first store in Sweden, and from this point on the business has continued to expand. IKEA has become the world's top furniture retailer with 154 stores servicing 286 million customers a year in 22 countries, including the United States.
 The furniture market in the United States accounts for $67 billion in retail sales. The market share in this segment is highly segmented, with the top 10 retailers having only 14.2% of the market share. IKEA is currently the 14th largest retailer. The market displays a large gap between the low and high end retail market. The low end of the market generally consists of general discount stores such as Walmart, Costco, and Office Depot. These stores are not specialists in furniture and generally provide low quality, unattractive, utilitarian furniture, poor sales support, and poorly managed inventory. The furniture is sold aggressively by maintaining tight margins. 
 In contrast are the high end retailers, who are specialists in furniture and provide attractive show rooms with helpful and knowledgeable staff. In order to encourage people to purchase furniture despite the higher prices, easy credit and various payment plans are often available. These high end retailers compete heavily on the selection of furniture they provide to differentiate themselves from one another. Other competitive focal points of the high end retailers are quality and service. They often market their furniture as products that will last people for the rest of their lives. In addition to these selling points, these retailers offer home delivery and assembly, and will remove any old furniture for clients.
 IKEA entered the U.S. market 17 years ago with its first store in Philadelphia, PA. When it first entered the market, the company found that Americans did not like its products. IKEA clearly did not understand its new market. The company took customer complaints into careful consideration and when combined with market research it was able to solve the problems it faced. Using this approach IKEA was able to grow in the 1990's, doubling its U.S. revenues from $600 million to $1.27 billion.

Problem Identification
 IKEA has a unique business model that focuses on providing high quality products at the cheapest cost to consumers; however, their product line is limited in selection. It has successfully created its own unique niche selling Scandinavian style furniture, but "Scandinavian design and style is a niche and it is not to everyone's taste."1 IKEA is looking to find balance between maintaining this unique style approach and expanding into new locations without becoming just another supplier of traditional furniture.
 IKEA's business model ultimately relies on a working partnership between itself and the customer. They provide limited customer service in the store, leaving a large quantity of potential buyers with minimal assistance. If customers find products they wish to purchase, they are able to find them at the end of the store in IKEA's warehouse in flat packaging made for easy transportation both to the store and for customers to carry home as well. In addition to do-it-yourself shopping and transportation, IKEA requires customers to assemble furniture themselves in order to save on labor costs.
 At the present time, IKEA has only 14 retail outlets, predominantly concentrated in metropolitan areas in the mid Atlantic region of the country and California, with interior locations in the major cities of Pittsburgh, Chicago, and Houston. Although being a powerhouse in a niche market has successfully made the company the fastest growing furniture retailer in the U.S. and the seventh largest retailer at the time (excluding general merchandise retailers), if it aims to accomplish the goal of operating 50 stores in the U.S. by 2013, IKEA must figure out how to expand its presence outside of the areas it is currently in. In order to expand into new locations IKEA needs to evaluate its strengths and weaknesses and identify the opportunities and threats that it faces in its desire to more than triple the amount of locations it has.

Situational Analysis
 Strengths: IKEA has unique strengths in its current business model which have allowed it to grow to the size it is today. IKEA is not new to the global market, and is in fact one of the most globally recognizable retail brands and is the largest furniture retailer in the world. This will aid its credibility in the eyes of consumers in new U.S. markets, as information about the brand is easy to find and the fact that it is used in so many countries reinforces its reputation and image. The sleek minimalist design which has made it so popular in Europe has created a recognizable product line, as well as allowing the company to keep production costs low and prices low for consumers. The simple designs allow for compact packaging, saving the company money on shipping as well as allowing consumers to easily transport items to their homes themselves. The do-it-yourself design of the products allows IKEA to save money on shipping and assembly, with the responsibility of assembly left solely to the purchasers. IKEA's in-store experience also sets it apart from competitors, as shoppers are invited to walk through clean and attractive room displays, and are encouraged to interact with the products before picking up their choices from the warehouse shelves themselves. The strengths of the in-store experience go beyond the display set ups with additional perks for the shoppers at all locations, such as child care centers and on site restaurants and food stores.

Weaknesses: Some of IKEAs strengths can also present some weaknesses, especially in the U.S. market where consumers are used to having things delivered to their doorstep already assembled for them, and having customer representatives and sales people on hand at all times during the process. The fact that products must be assembled by the purchaser at home may be off-putting to some, as well as the limited customer service presence during the in-store purchasing process. The "hands-off" strategy requires customers have enough self-direction to choose products that are right for them without the help of sales people, as well requiring that they have their own transportation to bring their purchases home with them. Additionally, build-it-yourself



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