How Ikea Reassembled Its Growth Strategy
Few brands reach the iconic stature of Ikea, the Swedish furniture company founded in 1943 that sells ready-to-assemble furniture. Known for its simple product design; its massive, friendly retail stores; and its very low prices (which have dropped an average of 2 to 3 percent each year since 2000), the company has built a remarkable level of customer loyalty around the world.
From its beginnings, the company concentrated on continuous cost reduction in a way that elevated it almost to an art form. As founder Ingvar Kamprad wrote in his autobiography, The Testament of a Furniture Dealer: A Little Ikea Dictionary (Ikea, 1976), “Wasting resources is a mortal sin at Ikea.… Expensive solutions to any kind of problem are usually the work of mediocrity. We have no respect for a solution until we know what it costs.”
But starting in 2008, facing rising prices and a global recession that hit its core markets (new homeowners and middle-class consumers) especially hard, Ikea set out on a new strategic path: to offer even lower prices to consumers, while positioning itself for long-term growth. It accomplished this through the simplest of methods: focusing relentlessly on separating “good costs” (productive investments) from “bad costs” (unnecessary expenses). The company then invested 100 percent of its net savings on building up the essential qualities of its business or lowering the price of its products. (At other companies, even 25 percent reinvestment is considered remarkable.) The results to date have been impressive: about 10 percent annual top-line growth and stable margins, despite the ongoing price reductions and economic pressure of the past few