1. STRATEGIC RETAILING
© Roshan Jacob

2. “If retailers are to succeed in an overseas market, they must not only master the traditional
skills of market segment cultural and economic traditions of the host country.”
(Ingvar Kamprad, founder, IKEA 1993)
IKEA is the largest furniture retailer in the world and offers a
wide range of well-designed and functional products at a low
price with the idea of serving low-middle income groups. The
company was established in 1943 by Ingvar Kamprad, an
entrepreneur from the Småland province in southern Sweden.
The IKEA Group is owned by Stichting INGKA Foundation
which owns INGKA B.V. - the parent company of the IKEA
group. IKEA has about 127,800 co-workers and 253 stores in
24 countries with 1,220 suppliers in 54 countries (IKEA 2009).
IKEA entered the Singapore market in 1978 with its first store
at Sixth Avenue.
The IKEA Concept began with Ingvar's innovative
idea - to offer home furnishing products of good
function and design at prices much lower than
competitors by using simple cost-cutting solutions that
did not affect the quality of products. Ingvar used
every opportunity to reduce costs and scraped and
saved in every way possible; except on ideas and
quality.

3. The IKEA Vision
To create a better everyday
life for the masses.
The Business Idea
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.
The Approach
“Your partner in better living.
We do our part, you do
yours. Together we save
money.

4. IKEA has its façade clad in the main colors of
Sweden‘s flag, yellow and blue. Life size banners are
displayed at strategic points to immediately grab an
individual‘s attention. IKEA uses ambience and
psychological factors (contrasting hues, magnitude,
and zonality) to attract shoppers with a single purpose
– clear and concise visual communication with its
customers.
For the interior, its main aisle is unpainted concrete
flooring, which conveys a low-cost, no frills
environment that is in sync with IKEA‘s low price
concept (franchisor.ikea.com 2009). On the other
hand, light-colored laminated flooring for showrooms
create a professional yet relaxing ambiance.
IKEA uses bright lighting to suggest a value store
image, for it targets the mass market and works within
their budget. But for most of its showrooms and
exhibits, incandescent lighting is used for a relaxed
and welcoming feel, implying how ideal homes should
look like, leading to classical conditioning. To appeal
to the shoppers’ senses, soft soothing music is played
in the background to create a more relaxing
environment which causes shoppers to stay longer.

5. The mega store comprises of four levels in total – the first two
levels are car park lots and the top two stories are showrooms.
IKEA is designed around a "one-way" layout. This format is
designed to encourage the customer to see the store in its entirety,
although, there are often shortcuts to other parts of the store.
Showrooms are set up to its very last details along every aisle, and
almost seem like beckoning shoppers to explore each display area.
For each section, a huge variety of furniture is offered to suit the
customer‘s individual preference and budget.
IKEA has artfully placed selections of supplementary goods on the
staircase landing to utilize space and leads to impulse purchases.
A lift is also provided for shoppers with trolleys or the handicapped
to get to the lower level with ease
IKEA uses spine layout for its circulation, with a single main aisle
running through the store. The furniture is displayed in a variation
of free-flow, grid and loop layouts, allowing shoppers to touch and
try the items out, engaging them in total sensory with the
merchandize.
Utilizing its space with
unconventional layouts to
efficiently house their
huge array of
merchandize, customers
feel that IKEA is like a
labyrinth, with more and
more to explore and
uncover with each corner
and section they turn to.

6. The vast majority of IKEA stores are located outside of city
centers, primarily because of land cost and traffic access. IKEA
buys the land where it opens new stores, and builds all new
stores from the ground up, thereby eliminating leasing or rent
fees. This approach is financially savvy in the long run. Several
smaller store formats have been unsuccessfully tested in the past.

7. Timings
An important feature of many IKEA stores is their long opening
hours. Many IKEA stores are in operation 24 hours a day with
restocking and maintenance being carried out throughout the
night. However, public opening hours tend to be much longer
than most other retailers, with stores open well into the evening.
In the Tampines outlet for example, the store is open till 11 pm,
while opening times is often around 9am.
Restaurants
IKEA stores also feature restaurants serving traditional
Swedish food such as potatoes with Swedish meatballs,
cream sauce and lingonberry jam, along with a few varieties of
the local cuisine like Nasi Pandang, and beverages such
as lingonberry juice, although there are variations. Besides the
Swedish staples, hot dogs and drinks are also sold at the
bistro, Also items such as Prinsesstårta - Princess cake are
sold as desserts. Refills of coffee, tea, and soft drinks are free.

8. Grocery Store
IKEA also has a mini shop selling Swedish-made, Swedish-style
groceries, such as Swedish meatballs, packages of gravy and
various Scandinavian cookies and crackers, as well as salmon
and salmon roe.
Child Care
Most IKEA stores have a play area, named Småland, for children
aged 3 to 10 years. The service is offered completely free of
charge. Parents drop off their children at a gate to the
playground, and pick them up after they arrive at another
entrance. The area mostly features things such as slides,
seesaws, cartoons, a ball pit, etc.

9. The IKEA experience
IKEA customers are actively involved in the shopping experience.
The IKEA Concept relies on customers to choose, collect, transport
and assemble IKEA products themselves. All products in the store
are supported by price and product information that is clearly
marked on large, easy-to-read tags, enabling visitors to
serve themselves. There are of course, knowledgeable co-workers
available to customers when needed.
The shopping sequence first involves going through furniture showrooms and making note of selected
items. The customer collects a trolley and proceeds to an open-shelf warehouse for smaller items
(Market Hall). Then the customer visits the furniture warehouse (Self-Serve) where previously noted
showroom products in flat pack form is picked. Finally, the selected products are taken to the cashier's
station to make payment. The IKEA store is laid out so they will not only find what they came for, but also
be inspired by unexpected ideas and low-priced products as well.
Most IKEA stores offer an "as-is" area at the end of the
warehouse before the check-out counters. Returned, damaged
and formerly showcased products which are not in new condition
or taken out of the IKEA product range are displayed here, and
sold with a significant discount, but also with a "no-returns" policy.

10. The store provides everything that is needed for convenient
shopping: pencils, notepads, tape measures, store guides, IKEA
catalogues, shopping bags, strollers and trolleys. Customers
may need to bring a car to take purchases home, or they can
use the low-priced IKEA home delivery service if that is easier.
Costs are kept under control starting at the design level of the
value-added chain. IKEA also keeps costs down by packing
items compactly in flat standardized embalagens and stacking
as much as possible to reduce storage space during and after
distribution in the logistics process.
IKEA manufactures quality products with components
derived from all over the world utilizing multi-level
competitive advantages, low-cost logistics, and large retail
outlets in suburban areas. Furthermore, cost-leadership
has been effectively incorporated into the organization’s
culture.
In return for high sales volume, IKEA accepts low profit
margins. Also, IKEA's marketing emphasis on budget prices
and good value clearly communicates cost leadership to
customers. High quality is associated with input and process
variables. Cost reduction, on the other hand, does not mean
reducing the quality of these variables, but rather do things
better, and more efficiently. Cost leadership is a part of the
management culture.

11. Product
From the drawing board onwards, cost-consciousness is an ever-
present part of the production chain. In many cases the final cost of
the product is determined at the very outset of the design process.
Through access to good, inexpensive raw materials, IKEA works
together with its suppliers to make full use of the materials.
Transport
Large volumes in combination with flat packaging are vital for IKEA
to transport products economically from the supplier via the stores to
the customers. At present, 20 percent of all IKEA goods are
transported by rail.
The main goal for the distribution at IKEA is to manage and transport
the goods flow from thousands of suppliers, which is to be connected
to the operational needs of each individual IKEA Store. The
challenge is to connect the geographically widespread IKEA Stores
in Beijing, China, San Francisco, USA and Moscow, Russia to the
thousands of globally outspread suppliers, which can only be
achieved by coordination.

12. Pricing
Customers play their part in keeping prices low. Using the information
on the product price-tags, customers collect what they want to buy from
the racks in the store‘s Self-Serve Area, take the products home
themselves and put them together with the help of the enclosed
assembly instructions.
Perhaps the most instrumental factor in enabling customers to
comprehend and relate to IKEA’s values is its international pricing
mechanism, wherein all product prices are guaranteed to be sustained,
at the annual catalogue rate. This not only ensures customer
confidence but has been proven favorable in informing customers to
make the most of the seasonal reduction in prices on selected
products.
IKEA’s pricing strategy is not plain - low price, but value for money.
They also cut down on the costs in sales personal, as IKEA customers
need to pick up their own merchandize and clear their own trays at the
food court.

13. Merchandize
At the IKEA store, there are hundreds of inspirational displays -
from realistic room settings to real-life homes, all with product
combinations that provide fresh ideas and know-how on
contemporary interior design. There are about 10,000 products
in the total IKEA product range; complete with information on
prices, color, constituent materials, finishing‘s variants and
maintenance tips. The core range is the same worldwide. The
profile of its well-designed and high quality range is distinctively
Swedish/Scandinavian. All of IKEA’s products are labeled
"Design and Quality, IKEA of Sweden."
IKEA’s on-shelf merchandize presentation and visual merchandizing is creative and truly inspiring. It
never fails to excite shoppers with the endless possibilities and instills in them a sense of awe with
the abundance of merchandize displaying variety, assortment and depth. Merchandize are displayed
in an organized manner and arranged according to an allocated amount of floor space; showing what
can be done with IKEA’s products regardless of space. Props are used as much as possible in order
to enhance the sensory stimulus factors for the consumers.
In other areas, merchandize is neatly laid out with supplementary
products used as props to enhance the impression it gives to
consumers. Consumers are encouraged to test the products, such
as beds and sofas. This stimulates the sensory appeal to the
consumers during their post-transaction stage, tranquilizing the
knowledge and impression that has previously already been
conceptualized by the brand‘s image.
The children’s section offers a wide assortment of merchandize
with a plethora of colors. This section is especially vibrant, with
attractive merchandize ranging from products with complimentary
colors to that of contrasting and eye-catching ones.

14. Hardlines and softlines are seen throughout the store. Wall fixtures
are used to display art pieces, and in the lighting section, to display
lamps. Light bulbs are placed nearby using dumping for an impulse
purchase decision. Gondolas are used to stack products on
shelves, such as in the utensils and tableware section; while pots
are arranged on make-shift shelves in the ‘Featured’ fixture, with
promotional price signage hanging above. Rugs of assorted colors
are stacked or pegged to the wall, with carefully measured gaps
between each rug and the next. By doing so, it has an orderly
appearance from the consumer‘s perspective.
The furniture warehouse area is the final section of the store, with
all merchandize dismantled and packed in boxes. Here, shoppers
perform an important retail task of self service, and collect their
goods just before payment. Merchandize in this area is rather heavy
and bulky, and hence placed right before the cashiers for the
convenience of customers and safety of other shoppers.
While developing new products and gauging the turnover of existing
ones, IKEA’s product managers use a price matrix to identify gaps in
the company's product lineup - and how much to charge for the new
product. To identify market opportunities, they take a product council
directive, plot the existing product lineup on a grid, and look for
empty spaces.

15. Manufacturing
Although IKEA household products and furniture are designed in
Sweden, they are largely manufactured in developing countries
to keep down costs. With suppliers in 55 countries, roughly 2/3
of purchasing is from Europe with about 1/3 from Asia. A small
amount of products are produced in North America.
Comparatively little production actually takes place in Sweden,
though it still remains the fourth-largest supplier country (behind
China, Poland and Italy). China accounts for about 2.5 times as
much supply as Sweden. For most of its products, the final
assembly is performed by the consumer.
Top 5 purchase countries
• China 18% • Italy 7%
• Poland 12% • Germany 6%
• Sweden 9%

16. IKEA: Supply Chain Management
Distribution
IKEA uses excellent supply chain concepts to offer good value to its customers by reducing and
eliminating wastes at every stage. Close relationships with their suppliers enables IKEA to make a
real difference, with economical bulk production to keep the prices low while ensuring good quality.
Also, flat packing reduces transportation, assembly and retail costs.
For IKEA, distribution is an important
part of the equation of creating home
furnishing articles at prices which are as
low as possible. Today approximately
10,000 IKEA products are manufactured
by 1,220 suppliers and transported to
186 IKEA stores around the world, often
via one of the company‘s 28 central
warehouses and distribution centers. At
IKEA, distribution is all about making the
route from the manufacturer to the
customer as efficient and short as
possible.

17. IKEA WAY
The IKEA Way on Purchasing Home Furnishing Products (IWAY)
has been introduced in all IKEA units and a compliance audit
group has been formed to perform and calibrate the audits. IWAY
includes not only environmental concerns but also labor, social,
and forestry issues. IWAY explains the minimum requirements on
social and working conditions and environmental demands at
IKEA suppliers range. It includes 19 different areas divided into
more than 90 specific issues and defines what suppliers can
expect from IKEA and what IKEA requires form suppliers
concerning environment, labor and working conditions, and
forestry management.

18. IKEA’s Value Proposition
IKEA is committed to designing great products in
terms of convenience, functionality, price and
quality and hence delivers clever solutions and
great value to the customers. They achieve this by
using the best of supply chain practices, lean
management, minimizing retail, production and
distribution costs and using inexpensive materials in
innovative ways.
Great Functional Design
Easy to use, practical and yet attractive are the
mantras for IKEA design. It follows a no frill
approach and allows the customer to customize to a
large extent. Innovation is the key to the great
designs that IKEA produces which simplifies
everyday home furnishing needs.
Extensive Range and Variety
IKEA has positioned itself to be the one stop destination shop for all home furnishing needs. It covers
all home solutions, ranging from kitchen, bedroom, bathroom, living rooms to office solutions, small
home decor products, lighting, carpets, small kitchen knick knacks, storage boxes, kids toys, etc. It
houses such a wide range of product categories and great depth in each category. These products
are very practical, appealing and modern; for everyday use.
IKEA: Customer Values

19. Convenience
All home needs under one roof. The simple return policy, simple
display of product information, the touch and feel of the products, helps
customers make most of their decisions by themselves. Customer
Service representatives, though few in number are always ready to
help the customers. The children‘s play area, the family great value
restaurant, special events, catalogue, seasonal themes, etc definitely
provide convenience to the customers.
Right Quality
Keeping the customer in mind, IKEA doesn‘t invest in unnecessary
expenses and focuses on appropriate quality for the right use. All their
products undergo rigorous tests to ensure they meet the required
quality and safety standards.

20. Catalogue
IKEA publishes the annual IKEA catalogue. Currently it is
printed in 27 languages for 36 countries, and is considered
to be the main marketing tool of the retail giant, consuming
70% of the company's annual marketing budget. The
catalogue is distributed both in stores and by mail. The
catalogue itself is printed on chlorine-free paper of 10-15%
post-consumer waste.
Loyalty Program
IKEA has launched a loyalty card program called ‘IKEA Friends’. The
distinctive yellow card is free of charge with a minimum purchase of
$300 and comes with a validity of two years. Benefits of becoming an
IKEA Friends member include exclusive perks such as discounts on a
special range of products in the IKEA store in addition to free drinks,
bonus points and invitations to IKEA’s sales previews, activities or
events. The card also gives discounts on food purchased in the
restaurant and the Swedish Food Market

21. Social Initiatives
IKEA Social Initiative was formed in 2005 to address
the company‘s commitment to investments in social
programs on a global level. What once started as
IKEA’s fight against child labor in the supply chain has
developed into a broad commitment - to create a
better everyday life for many children.
IKEA Social Initiative has chosen to concentrate its
long-term commitments on South Asia, and especially
India, where the needs of children and women are
great, and where IKEA has long business experience.
Save the Children is the world‘s largest independent
organization for children, working to secure children's
rights and improve children's lives in over 125
countries worldwide. Save the Children and IKEA have
worked together since the mid 90’s on an international
and local level. IKEA Social Initiative supports a range
of their programs

22. UNICEF is on the ground in over 150 countries and
territories to help children survive and thrive, from early
childhood through adolescence. The IKEA Social
Initiative has supported UNICEF programs for more than
a decade and has a corporate partnership with IKEA,
working at an international and local level.
The WWF and IKEA co-operation first began in 2002 to
jointly promote responsible forestry. The first years of co-
operation showed that by working together, more can be
achieved.
The IKEA Group and WWF co-operate in climate-change
projects aimed at reducing emissions of greenhouse
gases (CO2) generated by IKEA operations, in order to
reduce its impact on climate change.

23. Consumers were noted to be more careful with their spending and would only purchase products if
they provided adequate value for their money spent. With IKEA’s value propositions and customer
centric culture, it has definitely scored with its customers, while its popularity continues to grow with
the masses.
As climate change issues and global warming problems are continually highlighted, awareness of
environmental issues has increased amongst consumers. This increases consumer demand for
green products and places pressure on manufacturers to develop or import new environmentally-
friendly products. IKEA’s commitment to environmental sustainability and responsibility has resulted
in initiatives to reduce carbon footprint from all IKEA related operations. Currently, IKEA uses 71%
renewable materials in its products. IKEA’s proactive measures also ensure that its suppliers strictly
comply with the IWAY code of conduct.
IKEA’s success in the retail industry can be attributed to key aspects such as its vast experience in
the retail market, product differentiation, and cost leadership. Owing to its success and aggressive
growth strategy, IKEA is accelerating store rollouts in both large outlet and new high-street formats.
New large outlets are set to open worldwide, at an average cost of $66 million per store. The firm
plans to boost their profile in three of its fastest-growing markets: In Russia, where it is already a
huge success in Moscow, in China, where is has a strong footprint, and in the US, where the goal is
to have 50 outlets. IKEA demonstrates that, when underpinned by strategic partnerships with
manufacturers and suppliers, providing access to affordable contemporary design, in an exciting, yet
simple format can be a winning formula to become the world's most successful multinational retailing
company.

24. © Roshan Jacob