IKEA, a well-known brand in ready to assemble furniture, kitchen appliance, home accessories and many other useful goods and home services. But had you ever thought of how IKEA earn after proving home appliances and customized furniture in very cheap rates and what’s IKEA business model?
The company’s franchise hold the highest part in IKEA revenue model. They charge a specific fee to all the franchise around the world including company owned franchise.
But there are some more sources from which company earn.
Let’s understand what how IKEA earn deeply.
Table Of Contents
- About Founder and CEO.
- Unique Selling Proposition
- How does IKEA earn?
- Future Aim
About Founder and CEO.
IKEA is a multinational company founded in 1943 by a 17-year-old boy Ingwar Kampard, headquartered in Delft, Netherland.
The company’s name is an acronym that consists of the first and second letter of first and last name of founder respectively. And 3rd letter of the company’s name represents the name of family farm where Ingwar was born which was Eimtaryd. And last letter represents the hometown of Ingwar which is Agunnaryd.
|Chairman & CEO (INGKA Holdings)||Jesper Brodin|
|Chairman & CEO (Inter IKEA Group)||Torbjörn Lööf|
The idea behind starting the company was, and is, that everyone should afford stylish and modern furniture.
So as to do this, in 1947, Ingwar started selling the products made by local manufacturers and started delivering furniture in milk delivery vans.
Later in1955, as Ingwar was selling the products in cheap price, the manufacturers started boycotting the company. And this forced him to design products in home.
He just followed a simple and innovatively unique way of selling furniture which is Unique Selling Proposition (USP) for the company. The concept was simple, affordable, flat-pack furniture.
The first store was opened in Älmhult, Småland, in year 1958 with the name Möbel-IKÉA. Möbel means furniture in Sweden. And the first store opened outside Sweden was in 1963 in Norway.
It started spreading in many European countries in 1970, and got a huge level of success and opened in many countries.
In 1990s and 2000s, the company expanded so much that they had 53 stores in German and 51 stores in United States.
IKEA business model is diversified, like furniture and homeware, smart kitchen, houses and flats, Solar PV System, Furniture Rental and many other ventures. Let’s discuss them.
Furniture and Homeware
The company mainly focuses on providing furniture on cheap price and to do this cost cutting they adopted the idea of providing the furniture which can be assembled by the customer, which help them in their cost leadership strategy.
Some most popular and most sold product of IKEA is armchair, bookcase, sofa which are most sold product after 1970s.
They names their products with differently instead of assigning a product code which helps them remember easily. Some names are Jerker computer desk, Lyckhem (means bliss), Fukta plat spray.
In 2016, the company started a Smart Home business and their first product was smart lighting kit, and for this they had a partnership with Phillips Hue. They introduced wireless charging furniture.
They also launched SYMFOISK, which was built in collaboration with Sonos Smart Speaker. It was a lamp and bookshelf speaker. These speakers can be controlled by the application of Sonos and IKEA too.
The company has also expanded in houses and apartments. The purpose was to decrease the price which are involved in first time buying. They started this with a joint venture with Skanska in 1996. Currently they are working in 7+ places which are United States, London, Ashton-Under-Lyne, Leeds, Gateshead, Warrington, Liverpool.
In April 2019, the company tested new concept, which was renting the furniture.
The company worked according to the requirement of the demanded product and company delivered them by manufacturing easily disposable furniture, so they started renting the furniture and make it usable before finally recycling it.
They also had some other ventures which they either acquired or established as a subsidiary.
The company owns the Russia based Mega Family Shopping Center.
In August 2008, they also launched virtual mobile phone network in UK but in June 2015, they ceased its services.
In August 2012, the company announced the establishment of chain of hotels in 100 economy in Europe, but they own few hotels in Scandinavia which have not been carrying the name of IKEA and neither using the furniture and furnishing by IKEA. And the company only owns one hotel.
But in April 2018, they got the permission for the chain of hotel’s concept but as per the research there is no indication whether those hotels are completed or have been constructing or not.
In September 2017, company announced of acquiring San Francisco based TaskRabbit, but later TaskRabbit still operate as an independent company.
In March 2020, they partnered Pizza Hut Hong Kong and launched a new side table called SAVA, named after its resemblance to a pizza saver. The table resembles a pizza box and building instructs to order Swedish Meatballs from Pizza Hut.
And currently in April 2020, they acquired AI imaging startup Geomagical Labs.
Unique Selling Proposition
The company has a very simple and understandable unique selling proposition (USP). They say “Do It Yourself” which means the company provide un-assembled furniture which can be easily assembled by any one and even non-professional.
And this subsequently enabled them to provide products in cheap cost and this is the main reason which allows them to adopt and still work on Price-leadership model.
How does IKEA earn?
You will be shocked after knowing this that IKEA is a non-profit organisation.
Yes, they have a complex corporate structure and this is so, because of a reason.
Lets understand what is its corporate structure. The company is divided into 2: –
Inter IKEA System is owned by Inter IKEA Hondings, and Inter IKEA Holding is owned by Interogo Foundation. And in 2016, the INGKA Holding sold its design, manufacturing and logistics subsidiaries to Inter IKEA Holding.
And this complex structure help them to minimize tax and makes a non-profit organization.
Basically, they earns from its franchise, by charging a specific fee to all the franchise around the globe. The profit of IKEA in 2018 was €1449 and which increased to €1485 in 2019, directly by €36 Million from 2018 to 2019.
Here is a video which will help you get things better.
As per the company, the future aim is to sustainably provide the products and services which they provide in more effective and efficient manner. Their vision is “To create a better everyday life for many people”.
The main financial vision of the group is to grow by own resources and they invest in long term for good and sustainable growth.
The company has 313 stores in almost 38 countries, which means there is so much capacity and chances of growth and expansion in the company.
They says “We want to make sure that IKEA is accessible, so that more people can create a better everyday life at home”.
The company re-invests its majority of profits in their stores, product development, sustainable solutions and by continuously lowering prices to our customers.
Here is a table of the company which will help you understand more about IKEA business model: –
|Number of Outlets (2019)||433|
|Chairman and CEO||Jesper Brodin (INGKA Holding)|
Torbjörn Lööf (Inter IKEA Group)
|Products||Ready-to-assemble furniture, Homeware, Smart Kitchen products.|
|Revenue (FY 2018-19)||US $45.4 Billion|
|Owner||Inter IKEA Group|
|Number of Employees (2019)||211,000|
IKEA is the one of the best business models which was started from scratch and the unique way of product gain a huge popularity among the world. They diversified themselves by starting a new trend of providing un-assembled furniture to always be in trend in the competitive world.
They always focused on a model of price-leadership which always make them first priority of the customer and that’s the reason how it became so profitable in a less time. IKEA expanded itself in multiple countries and they settled-up their manufacturing unit to decrease the cost and provide product with cheap cost.
So the IKEA business model was best as it found a unique way to conquer the market and made a very simple concept to make its business vast.
IKEA unique way of decreasing the cost was providing unassembled furniture which results in decreasing the transportation cost and hence make its products cheaper.
IKEA is owned by Stichting INGKA Foundation
IKEA stands for Ingvar Kamprad (the founder’s name), Elmtaryd (the farm where the founder grew up), and Agunnaryd (the founder’s hometown).
It is headquartered in Delft, Netherlands
Yes, it is an online as well as offline store.
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