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Ikea business model

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ikea business model

We gonna discuss about ikea business model which just recently comes in India but a big furniture player in the world

Like Wallmart comes through Flipkart. IKEA Can destroy

the whole furniture market in India

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Wallmart works in cost leadership and economics of sale strategy and IKEA also works in the same way

They will offer you the product at a very lower price than any retail shop

Many people said that IKEA ruins the domestic market

Recently IKEA comes in India and open at Hyderabad and going to open stores in Mumbai and Gurugram

IKEA had invested 800 crores come to India. It has more than 9500 products and has more than 350 stores in 35 countries

And till yet the company is at Profit

In 2017 their profit is 912 Million dollars. You can convert into Indian rupees to find out how much they earn

It works in cost leadership and operates at a very less profit margin

Now let’s come to the starting o the company to know how it started

Ingvar Kamprad born in 30 march in 1926 in a small village of Agunnaryd

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And that time Sweden was a very poor place

He spent his entire childhood in poverty

At the age of 6, he started selling matchboxes

And, by the age of 10, he used to travel his nearby village on his cycle to sell Christmas product

At the age of 17 in 1943, he got good marks in his study

And then his father gifted him some rupees as a prize

With that money, he started his company IKEA

You can check out these names on their websites because you know I am not good enough at Pronunciation

If I pronounce wrong then many people will offend. He basically mixed his name and village name to make IKEA

IK comes from his name and EA comes from his village name. You can check out these names on Google to know how to pronounce

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After 2 years he started to supply products through trucks. It means the company was growing quickly

By 1947 he tie-up with local manufacture and sell their products

Till 1955 local retailers boycott him because he was selling their products at a very low price

because their mindset is operating at a low-profit margin

In 1973 due to high taxes in sweden, they moved to Denmark

If they pay tax then they have to increase their prices and then less market will be acquired

Their strategy is to work at cost leadership and operate at a very less profit margin by selling more units

Suppose the cost of the product is 8 and profit is 1 rupee and tax is 2 rupees. With tax, they will have to sell the product at 11 and without tax, they will able to sell at 9

That’s why they moved to Denmark

Now let’s talk about what is special in their products

Because they normally buy from manufactures. But they add one revolutionary thing

And that you can separate the furniture and then attach them yourself

Due to this their logistic cost reduce

So in order to move products at lower prices and start making modular products

He named this thing flat back furniture

They directly sell from his warehouse and the logistic cost was less so that’s why they were able to operate at a less margin

SO they had a good product and good pricing then they started to expand globally

But it doesn’t mean product quality will be poor because the price is cheap

Their products are at a cheap price but the quality is good

They spent a lot of money on their research and development but they don’t manufacture themselves

They give a design to the manufacturer and take a patent on it so that nobody can copy

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And they usually buy products in bulk so that they will get products at lower cost

They usually find those people who can give their products at a low profit margin

They buy products in bulk from all the people and then start selling them globally

And another thing is their company is NGO

He would be the richest person on this planet if we calculate his entire net-worth

But he is not because his company is NGO

But is it right to donate all the money to charity? Maybe he

does this so that any poor man can afford their product

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Basically, they made a design box and whatever profit they earned through that it all goes to charity

And rest of the profit used for re-investing in business like the product, warehouses, franchise and all

So after researching about him, I got to know that he has kept the trademark by his name or company name.

So the Trademark is on your name.

So the same thing is happening here. Company is working in the form of NGO so they don’t have to pay TAX. and the company is earning through trademark

I have also heard that IKEA doesn’t pay good to their labors and they don’t get a good atmosphere

Now let’s analyze the behavior of the person

His father used to tell him that you don’t wake up on time

SO he took the alarm clock and set alarm for 6AM and

destroy the snooze button

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According to him, we should divide our time in 10 minutes frame and then divide the work according

We have to try to waste as less as we can of each 10 minute

Let’s assume you sleep for 8 hours so divide rest off the time In 10 minutes sloth

So now let’s see how much time you will waste from each slot. SO this was his strategy

He always used to travel in economy class

He called “co-worker” to his every employee

Basically, he was trying to make a good atmosphere but still, people say they don’t pay good wages to an employee

He used to stay at cheap hotels and drive an old car. He always focuses on his work rather than a showing-off

He could show off things like big houses, cars and all. But he earned and always gives on charity

Now you can research like how much he earns and how much he re-invested

Also research on How much he gives on charity and pay liability and all.

Like I said they have come to Hyderabad. You can check out their websites and see all the available products

If we talk about margin then I researched a lot but didn’t find anything

Even I studied their balance sheet but didn’t find about the margin

Basically, after doing research I got to know that this company don’t believe in showing things

If I talk about Wallmart then they talk openly about their profit margin

But they don’t show and they are growing exponentially from last few years

And now they are also trying to grow online In India

Because In India, Pepper fry, urban ladder and other companies have already captured the market

IKEA has a price advantage and people in India are educated enough to use Amazon or Flipkart

So If IKEA will offer at good prices maybe he will win the game

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They have also built TV in their showroom from where you can order the products

And then the product will be delivered to your house automatically

Ideally, their products are portable so you can easily carry them on your car

But they will also deliver you if the product is not portable

So this was all about IKEA and I hope you like this company

I personally like this company and always wanted them to come to India so that we can buy furniture at a cheap price

I wanted the same thing from Wallmart as well as and now both these companies have come

Many people believe that furniture business can be only run through offline mode because of the touch factor

After 5 years I will show you what can be done

Many people say that the wholesale market will always be there

But according to me, the wholesale market will start to diminish

The manufacturer will directly sell his products online rather than giving margin to the distributors

Let’s see after 5 years

So I am talking futuristic. After 5 years the online market will be so big.

The wholesale market will start to diminish because more and more people are shifting to online platforms

I spent too much time in researching about Ikea business model.

If you wanna appreciate this article . please share as much as possible.

_______________ Gauhar Ali

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