IKEA, Sweden’s Jewel

Kamprad Expands to America

The first North American store opened in 1985 in Plymouth Meeting, PA, a suburb of Philadelphia. A few painful lessons were learned here. For example, some items, such as bed sheets, were marketed using a metric system—resulting in low U.S. sales and high rates of return. The savvy Swedes soon adapted their merchandising strategies.

Today, IKEA has 171 stores in 31 countries—all of them in close proximity to large urban areas—including 15 in the United States and nine in Canada. The global network brings in $9.6 billion a year, employs 65,000 co-workers, and is visited by 260 million people annually.

Last December, IKEA opened its second store in Moscow. First to cross the threshold was a cat—a time-honored tradition in Russia when a new building is opened (cats are believed to have magical powers and drive away evil spirits). But not just any cat came traipsing in.

“We ran a competition to find a handsome cat with a Swedish heritage,” wrote Irena Vanenkova, head of public relations for IKEA Russia, in the company’s newsletter.

The publicity it generated was impressive: 20 newspapers, magazines and Web sites wrote about the competition. Such PR would have cost many thousands of rubles in advertising with none of the resulting positive editorial coverage.

Flat-packed Products

The current IKEA business model is revolutionary—unlike any retail-catalog operation in the world today. To understand how they have achieved this status, it’s important to examine a few key elements.

Kamprad’s original concept of creating products that can be flat-packed for easy delivery has been carried to the limits. If furniture can be flat-packed, many more SKUs can be inventoried, and customers can take delivery at the store.

Similarly, if kitchen items are designed to be stackable, shipping pallets can contain far more items, thus saving costs, and passing those savings on to the consumer. An example is the design of the IKEA BANG coffee mugs that stack into themselves, enabling a pallet to contain 2,000 rather than the usual 400 of a traditional design. With this kind of efficiency, IKEA sells these handsome little mugs for only 50 cents each. And 25 million are projected to be sold in the coming year. What’s more, since many of IKEA’s customers have small kitchens—as in starter homes or college apartments—these mugs take up 80 percent less room on the shelf.