Ingvar Kampar & IKEAVicky Huichi YangPun SiriattChokphiphat ChaikitkosiNatthakul IntramisukAjjana ThairungrojAkira Kitado

2012/11/21

Outline1.Company history• 1943-1973 - Start up• 1973-1988 – Expansion in Europe • 1990-current – major issues

2.Business model• Activity System map• Logistic process• Marketing Strategy• HR-The IKEA way• CSR-Limited customer service

3.Globalization strategy• How we expand• Expansion in Japan• Expansion in China• Expansion in Asia

4.Financial status in recent yrs• Revenue performance• Pricing strategy• Debt structure

5.Conclusion

CEO Vicky Huichi Yang

Mkting Akira Kitado

HR Ajjana Thairungroj

CSR Natthakul Intramisuk

Globalization Chokphiphat Chaikitkosi

CFO Pun Siriatt

About IKEA

1943 - Ingvar Kamprad founded IKEA1945 - Furniture is introduced into IKEA 1958 - First IKEA store opened in Sweden.1965 -Largest IKEA opened in Stockholm, Sweden.

1940-1960:The roots of business

1970sContinental Europe

1969 - IKEA arrived in Denmark1973 - IKEA arrived in Switzerland1974 - IKEA arrived in Germany1976 - IKEA arrived in Canada1977 - IKEA arrived in Austria1979 - IKEA arrived in Netherland

1981 - IKEA arrived in France1984 - IKEA arrived in Belgium1985 - IKEA arrived in USA1987 - IKEA arrived in UK1989 - IKEA arrived in Italy

1980sEntering USA

About IKEA

1990 - IKEA arrived in Hungary1991 - IKEA arrived in Poland1996 - IKEA arrived in Spain1998 - IKEA arrived in China1999 – New CEO/President Anders Moberg

1990sIKEA in Asia

2000 - IKEA arrived in Russia2004 - 200 Stores opened2006 - IKEA arrived in Japan

- Focusing more on social & environmental project- Cooperating with NGOs

2000-Growth & Social impact

Before 1973 (Q2)

Background:•Demand of furniture is growing•Prices are high• 1935-1946, furniture price rose 41%• Inter-association supply contracts between manufacturers & retailer

•Facing limitations given by Manufactures’ & retailers’ cartel

IKEA:Customer targeting Targeting on younger/first buyers

Low price Self-service concept, Explanatory tickets on merchandise, Knock-down kits

Location Suburban stores, Ample parking space

Short waiting time Cash and carry concept

Low cost Buying outside the cartel

Before 1973 (Q2)

Age Children Status Income(1K SKr)

Education (yr)

0-25 47% 0 55% married 65% 0-2 6% 0-6 24%

25-35

32% 1 22% single 35% 2-4 31% 7-11

63%

35-45

14% 2 16% 4-6 25% 12+ 38%

45+ 7% 3 7% 6+ 38%

1975,IKEA customer profile

Customer attitude to IKEA Positive Negative Neutral

Design 51% 10% 39%

Price 73% 4% 23%

Quality 27% 29% 44%

Distance 56% 29% 15% 1975,IKEA Buyer Behavior

Targeting on younger/first buyers

Low Price

Before 1973 (Q2)Measure IKEA Large

storeAvg. store

Annual turnover in 1K SKRr/employee

202 114 93

Annual turnover in SK/sq.m

1453 1076 704

Rent as percent of annual turnover

0.6% 3.0% 3.4%

Annual Stockturn 3.2% 2.9% 2.3%

1961,Swedish furniture retailer

Productivity

Location:Suburban aria

Personnel Occupied with

IKEA Furniture stores

Furniture sections in

department store

Selling 29% 42% 65%

Clerical 44% 13% 6%

Warehouse 17% 11% 16%

Transportation 5% 13% 5%

Workshop 5% 21% 8%

1961,Swedish furniture stores personnel functions

Self-service concept

1973-1988, Europe (Q2)

1.Oil shock2.Swiss furniture industry: extremely traditional, highly fragmented 3.German furniture industry: Largest mkt in Europe • Retailer

• Order takes from manufactures • low inventory-long waiting time for customers

• Vigorous response- legal actions against IKEA

Location Suburban stores, Ample parking space

Innovation Contemporary, simple designSelf-service, cash-and-carry concepts

Marketing Distributing catalogsHumorous, off beat advertisement

Service Immediately delivery

Low price Attract young/first buyers

Background:

Purchasing decision based on IKEA

Prior visits to store 37%

Visits to other store 72%

Information from catalog 78%

1975, Buyer behavior

Buyers’ behavior

1973-1988, Europe (Q2)

1990 IKEA’s major issue (Q3)

•Need to expand in a rapid speed(5-6 stores/yr) in order to reach sales goal

•Market changing-• Targeting on young buyers • low-middle income family is shrinking

•Maintaining Company culture value• 1000 new recruits added annually• Increasing geographical spread• Homogeneous managing group

•IKEA way vs. American way• Obedient vs. Creativity

How much we should adapt?

About IKEA-Current situationProduct Categories•9500 kinds of products•Houses/Offices/textiles/children’s section

Sustainability, energy saving and community• LED light bulb, Eco-friendly textile, energy saving solution• Reducing CO2 emissions• Working with NGOs- WWF(2002),UNICEF, Save the Children •Operating in more than 38 countries, with 287 stores..

co-WorKers per region

Europe

North Amer-ica

Russia, Asia & Australia

Region co-WorKers /region Sales /region

Europe 106,500

79%

North America 16,500 14%

Russia, Asia, Austrelia

8,000 7%

sales per region

IKEA website.

Business Model (Q1)

MoreImpulse buying

Most itemsIn inventory

Year-roundstocking

100% sourcingFrom long-term

suppliers

High trafficStore layout

Suburban Locations with ample parking

LimitedSales staffing

Increased likelihood of

Future purchase

In-house designfocused on cost

of manufacturing

ExplanatoryCatalogues,Informative

Display/labels

Ease of transport

and assembly

“Knock-down”Kit packaging

Wide varietywith ease of

manufacturing

Self-transportby customers

LimitedCustomer

service

ModularFurniture

design

SellAssembly

By customer

Self-SelectionBy

Customer

Ample InventoryOn-Site

Low Manufacturing

Cost

Michael Porter <What is strategy>

Business Model-Logistic

1.DC delivery process

3.Diret delivery

2.Transit delivery

Supplier

Supplier

+ Distribution Center

Store

•Supplier (Factories)• Low price material• All over the world

•Distribution center (Warehouse)• Control inventory• Control package

•Key to low cost• High efficiency of logistic• Global suppliers

Business - Marketing

Business - Marketing

You don’t have to purchase• Café and restaurant• Play area for children• Nursery and baby-changing facilities• Attracting customers is more important than selling furniture

Business - Marketing

Reverse marketing- USAIt’s possible even to change customs - “Many of you feel bad for this lamp. That is because you are crazy. It has no feelings. And the new one is much better.”

-----from one of IKEA’s TVCM

The IKEA way

“The true IKEA spirit is founded on enthusiasm, on our constant will to renew, on our cost-consciousness, on our willingness to assume responsibility and to help, on our humbleness before the task, and on the simplicity in our behavior.”

Corporate environment

The IKEA way

• Egalitarian Culture• People-oriented management• Informal• Creativity encouraged, bureaucracy discouraged • Younger, open recruits• “humility, modesty, and respect for one’s fellow man”

“To create a better everyday life for the majority of people.”

“simplicity, attention to detail,

practical common sense.”

The IKEA wayAchieving objectives through HR management

IKEA’s unique philosophy• Kamprad’s thesis, Testament of a

Furniture Dealer• Spreading “company legends” to

perpetuate image• IKEA ambassadors as role models• Effective quality-control

Taking care of employees• Workers more productive with basic

needs fulfilled• Company cafeteria• Medical insurance• Coverage of higher education

Cost consciousness• Kamparad’s personal cost-

conscious lifestyle• Company policies on expenses• Low turnover cuts costs

The IKEA way

Achieving objectives through HR management

Incentive-based• Promotion• Raise motivation• “unbelievable confidence in its people” • Encourages ability rather than status; establishes equal opportunities for

everyone• Line-management

“The environment puts pressure on management to perform.”

The IKEA way

Possible Challenges Regarding HR

Rapid growth & globalization• Spreading philosophy• “keep the old spirit of frugality.” • Maintaining unique “thesis” within different social cultures• Different management styles in America & Asia • Intolerance towards difference

•More flexible management style•Consider adapting to each country’s social codes•Open-mindedness

Limited customer service

Personnel Occupied with

IKEA Furniture stores

Furniture sections in

department storeSelling 29% 42% 65%

Clerical 44% 13% 6%

Warehouse 17% 11% 16%

Transportation 5% 13% 5%

Workshop 5% 21% 8%

•Explanatory tickets•Lowering selling personnel •Self pick up at warehouse•Self transportation•Self assembly

•Does not lead to unsatisfactory•Different service scale in different country

A way to keep the cost and price low

Low selling personnel cost

1961,Swedish furniture stores personnel functions

Limited customer service

Our website•Request/View Catalog•Stock Available•Store Location•FAQ•Helpful buying guide•Assembly Instruction

•Warranty information•E-shopping•Online Shipping Rate•Attach File to Order•Return Policy

Our service•Picking With Delivery•Home Delivery•Kitchen Services•Assembly

•Online Planning•Office Planning•Home Furnishing Advice•IKEA Gift Cards

Strengths•Strong internationally known brand•Unique business model, little direct competitors

•Offering innovative but functional products with low price.•Diversity franchise management

Opportunities•Moving from international to global through the development of Asia and Eastern European models.

•Ecommerce can be the additional transactional capability•Huge market in Asia

Weakness•Whilst an international brand there is a level of reliance on European markets

•lower level of customer service due to the business model•Less flexible organizational culture•International environment less sensitive

Threats•Growing competitiveness •Mainstream retailers are beginning to mirror the model of low cost value flat packed furniture

•Economic concerns over rising living costs and depleting disposable income

Inte

rnal

orig

inEx

tern

al o

rigin

Helpful

GlobalizationHarmful

Globalization- structure

•Allows rapid growth•Propel top managers to position•Pioneering spirit

OrganizationsPotential Competitors•Local furniture firms• Copy good ideas• Counterfeit goods

•Unique business model•Low price-large purchase•Good quality•Service•New design

Expansion in Japan(Q4)St

reng

ths

Wea

knes

s

Opportunities Threats

•Style sensitive market•Low Price furniture mkt growing•Stable politics

•High competition in furniture market（ニトリ、 Muji)•High age society•Inflation

•Establish flagship warehouse in JP•Establish retail venues in JP

•Low cost positioning•Offer senior’s products and special services •Spaces for smaller business

•Joint venture with furniture retailer in JP

•Hire Japanese manager•Adopt more global environment sensitiveness

•Focus on it’s “low price” and “style” positioning•Reevaluate it’s global position•Response to geographical management problems

Expansion in China(Q4)Opportunities Threats

•Low manufacturing cost•High young new generation •Big Low Price furniture market

•High competition in low price mkt•Bubble economy•Deflation

•Establish a regional factory in China•Establish retail venues in China’s major cities

•Focus on quality & style in mkting and ads

•Joint venter with local furniture firm•Integrate backward

•Compete in long term values•Quality & style•Offer recreational spaces

•Use China as a production base for Asia•Penetrate competition in China with acquired information •IKEA price should not be too low

Stre

ngth

sW

eakn

ess

Expansion in Asia(Q4)Opportunities Threats

•Low manufacturing cost•AEC free trade area•Price sensitive market•Growing economy

•High competition in furniture market•Unstable politic

•Establish a regional factory in one of ASEAN countries; Malaysia, Thailand or Vietnam

•Low cost and style market positioning.•Focus on innovation and product R&D

•Establish regional distribution unit•Joint venture with local firm

•Have secondary distribution channel in case of political turmoil

•Need to focus on “price” and “style” image in Asia•AEC can facilitate higher sale ASEAN

Stre

ngth

sW

eakn

ess

Year Revenue (EUR M)

Revenue Growth

Rate Net Profit Margin

2009 21,846 N/A 11.60%

2010 23,539 7.75% 11.42%

2011 25,173 6.94% 11.78%

• Revenue growth rate slowing down• Maintaining net profit margin• Chose to lower price

Pricing strategy

Financial status in recent yrs

20012003

20052007

20092011

05

1015202530

Total revenue

Reve

nue Strong results and growth

•Continuous growth•Able to maintain revenue growth in econ crisis •A new wage of globalization starting from 2003•Sub-prime crisis from 2008•Euro crisis from 2009

IKEA data 2011, EUR billion

IKEA data 2011, EUR Million

Financial status in recent yrs

Debt Management and StructureCurrent Ratio Debt-Equity

2009 1.77 87.64%

2010 1.76 80.60%

2011 1.96 64.81%

54%

3%

20%

23%

2001

Group Equity

Other non-current liabilities

Long-term liabili-ties

Current liabiilities

61%

4%

7%

28%

2011

A consolidated balance sheet•Current ratio increase•Debt-Equity ratio decrease

Conclusion(Q5)

•Unique business modela. Keeping price lowb. Low costc. Limited service

•Globally spreading the “IKEA way”

•Modular furniture design•A continuously growing firm•Social Responsibilities

Reference

•The IKEA website•IKEA 2011 annual report•University of Galve, Zhi Li <Competitive advantage of IKEA & IKEA in China>

•Harvard Business Review July22, 1996

<Ingvar Kampard &IKEA>•Bloomberg Businessweek April.25.2006

<IKEA’s new plan for Japan>