IKEA is a furniture design company that specializes in the sale of flat-packed furniture, kitchen appliances, and other home accessories. The IKEA business model provides the framework for how the company runs profitably.
IKEA operates as a franchise and earns the majority of its profit from annual franchise fees. Aside from that, they accrue income through the wholesale of products and retail catalogs to franchisees.
Additionally, the company’s sale of ready-to-assemble furniture as well as the unique structure of its physical stores and customer-friendly online stores serve as a secondary means of income.
Using these systems, IKEA succeeded in becoming the world’s largest furniture retailer.
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IKEA was founded in 1943 by Ingvar Kamprad as a mail-order sales company and only introduced furniture to their sales five years later, in 1948. Möbel-IKÉA, their first store, opened in 1953 in Lmhult, a town in Smland, southern Sweden.
In 1963, the first IKEA store outside Sweden opened in Norway, and it was closely followed by its Denmark store in 1969. IKEA quickly spread to other parts of Europe throughout the following decade, with showrooms opening in Switzerland (1973) and West Germany (1974).
By the end of the decade, IKEA had already established itself as a top player in the furniture industry, opening stores and showrooms in different parts of the world. In 1973, the company operated in Japan through a joint retailer under the name “IKEA Corner”. Unfortunately, due to corporation problems, the Japanese business was shut down in 1983, only to return twenty years later in 2003. In 1975, IKEA opened stores in Australia, Canada, and Hong Kong. And, in 1978, Singapore and the Netherlands got their slice of the IKEA pie.
The 1980s brought with it further expansion for the company following the opening of stores in France, Spain, Belgium, the United States, the United Kingdom, and Italy.
IKEA made its first appearance in Latin America in February 2010, opening its first branch in the Dominican Republic. Its first store in India was opened in August 2018 in Hyderabad, the capital of southern India’s Telangana state.
IKEA’s largest store, measuring 65,000 square meters, is located in the Philippines and was opened in November 2021.
2019 marked the launch of the company’s mobile app, IKEA Place. Making use of augmented reality technology, the application allows users to see how products would look in their own homes. This, combined with other features, has made the app extremely popular among consumers, leading to the over 31.3 million downloads and 4.6-star average rating that it boasts.
Due to the COVID-19 pandemic, IKEA has had to cease publication of their popular annual catalog after seventy years in print. The company has also been forced to shut down one of its stores in Guiyang and is undergoing stock shortages and shipping problems. The prices of their products have also increased.
In March 2022, IKEA paused all retail operations in its 17 Russian stores and its stores in Belarus as a result of the Russian invasion of Ukraine. The company announced in June 2022 that it would sell all four of its factories in Russia, close its offices, and reduce its workforce.
IKEA is owned by Inter IKEA Holding B.V., a holding company under the private foundation Interogo Foundation. Interogo Foundation is a self-owned entity, and there is no individual beneficiary.
Inter IKEA Holding used to be under the ownership of IKEA’s founder, Ingvar Kamprad, but is now run by the company’s CEO, Jon Abrahamsson Ring.
All IKEA stores (except one) operate under franchise agreements, and the company makes the majority of its money from annual franchise fees and the wholesale of products to franchisees.
IKEA combines this franchise system with a direct producer-to-consumer system to generate income.
In exchange for access to the IKEA trademarks, authorization to market and sell the IKEA product range as well as managing IKEA stores and sales channels, IKEA franchisees pay Inter IKEA Group an annual fee of 3% of their net sales.
IKEA franchisees must purchase their store’s inventory from the company’s product supplier. The wholesale of IKEA products to franchisees generated $25.46 billion in revenue in 2021.
The sale of the IKEA catalog and other materials created for IKEA franchisees is marked under what the company refers to as “other income”. This makes up the least percentage of the company’s income.
The IKEA Business Model can be explained in the following business model canvas:
IKEA’s customer segment is single customer-oriented.
IKEA targets young middle-class individuals who are cost-conscious and in need of stylish, quality furniture. The company provides for them by offering such products at a lower price than competitors.
IKEA’s value proposition consists of:
Use of renewable sources: The use of renewable resources attracts customers to the eco-friendly side of the company, as well as creates a healthy balance between business and the environment.
IKEA’s channels consist of:
IKEA’s customer relationships consist of:
IKEA’s revenue streams consist of:
IKEA’s key resource involves around 1,400 suppliers from over 60 countries. These suppliers provide IKEA with furniture designs, wood, distribution facilities, and other necessities the company requires to function.
IKEA’s key activities consist of:
IKEA’s key partners consist of:
IKEA’s cost structure consists of:
You can take a look at our Top 10 IKEA Competitors article to find the top IKEA competitors and alternatives.
Here’s a breakdown of IKEA’s SWOT analysis:
-> Read More About IKEA’s SWOT Analysis.
IKEA is the world’s largest furniture company, and it is known for its high-quality, low-cost DIY furniture, kitchenware, and home accessories.
The company aims to create a better everyday life for many people and has since succeeded in doing so.
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