Ikea Case Study Essay

Ikea Case Study Essay

This is a case study on IKEA. The case study will introduce IKEA, analyze its history, state its mission, and explain what it does and its profitability. It will additionally discuss IKEA operations design, location and layout of stores, delivery and manufacturing process of its products.

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The case study will also introduce John Lewis, compare and contrast it with IKEA. It will state the problems facing IKEA and conclusively highlight its operations and sales functions.
IKEA

IKEA is a private owned company that sells furniture and household items; it draws its market from all over the world. IKEA was started by a 17-year old Swedish named Ingvar Kamprad in 1943. Ingvar Kamprad was born in 1926 in South Sweden.
IKEA History

The history of IKEA is tied to the founder Ingvar Kamprad. Ingvar Kamprad is from Smaland in Sweden. It is said that Smaland does not offer much opportunities but its people are very sharp and skilled.

IKEA is an acronym developed from the initials of the founder’s name, Ingvar Kamprad (I.K), “the first letter of the farm he grew in, Elmtaryd (E) and his village, Agunnaryd (A)” (IKEA, 2009, p. 1). IKEA locations are now owned by INGKA foundation.

Initially, IKEA dealt with products like pens, ladies’ stockings, watches, picture frames and small furniture items. It distributed its wares through the county’s milk van. However, in 1951 IKEA decided to zero in on furniture products only and additionally produced its first catalogue.

IKEA opened its first store in Almhult, Sweden in 1953 and outside Sweden in 1963 (Norway) and Denmark in 1969. IKEA expanded rapidly opening many stores outside Sweden; in 1987 it won the Excellent Swedish Design prize. As time went by the company incorporated children items (IKEA, 2009, p.1).
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IKEA Mission and Profitability

IKEA has a big mission, “to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices affordable to the majority” (IKEA, 1994, p.1). The INGKA foundation which owns IKEA is a Dutch charitable organization controlled by Kamprad family and thus IKEA profit is non-taxable. IKEA annual revenues total to US$28.8 billion, making it the world’s largest furniture manufacturer.
IKEA Delivery and Manufacturing Process

IKEA has a labor force of highly qualified staff of 130,000 people around the world. IKEA products are manufactured in a responsible way and follow the normal supply chain. The designing is undertaken in Sweden but the manufacturing process is carried elsewhere where expenses are minimal.

The IKEA furniture is assembled by the buyers saving on expenses. IKEA products include furniture and accessories for kitchens, living rooms, bedrooms, bathrooms, and children rooms. Annually, the company enjoys a demand of 410 million shoppers.
IKEA Operations Design

The naming of IKEA store-brand products is a complex system that can amaze anybody. They are named by a single word which in most cases originates from Sweden. Many IKEA products are divided into special categories and named accordingly.

This is referred to as the Nordic naming which was developed by IKEA in conjunction with Colin Edwards a renowned international naming expert, “For example, all carpets are named after Danish locations, while chairs and desks are given men’s names” (Ellis, 2011, p. 1).

However, the Nordic naming has in many instances lead to some interesting and conflicting marketing issues in countries where words may have different meanings from what they were intended. In such a case, renaming has always been the only option.

The IKEA vision is to make people comfortable: “IKEA actualizes this by offering a wide range of well-designed, functional home furnishing products at prices comfortable to a common man” (Ellis, 2011, p. 1).
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However, in offering low prices, IKEA does not compromise its principle of sustaining its business and hence sells at breakeven price. The supply technique of IKEA is amazing in that it is beneficial to the customers and the environment: the reduction of trucks in the supply chain has lowered carbon dioxide emissions.

IKEA restaurants offer only reusable plates, spoons, knives e.t.c; Customers all over the world have responded positively to IKEA’s strategy as justified by IKEA’s continued rising turnover (IKEA, 2009, p.1).
Layout of IKEA Stores

The general layout of an IKEA store includes one or more showroom floors for large pieces of furniture and various room sets. IKEA stores in most cases are housed in a building with dominantly a blue color. Many IKEA stores are situated outside the city centers to enhance their accessibility and reduce the cost of establishment. However, the format of the stores conveniently changes with government conditions.

The IKEA showrooms are located upstairs. They also have minor departments, such as lighting and textiles, which are well distributed throughout the major departments. The layout of the shop is made in such a way that all that customers have a view the products on sale before proceeding to the payment section (Chopra, 2009, p.1).

Most IKEA stores are open full time and replenish their products at night. Majority of IKEA stores offer a counter where all damaged, returned and formerly showcased goods are displayed before being sold.

IKEA restaurants also have unique features in that instead of providing chain restaurant outlets, the IKEA markets its own food in counter-service eating areas. This food is usually extremely affordable in line with its vision. IKEA restaurants open earlier than the stores. Many stores also have a Swedish- made food, Swedish-style groceries and Scandinavian cookies.

IKEA had more than 300 stores in 35 countries by 2008: Some of the stores in Europe are located in Belgium (1984), Czech Republic, Germany (1974), Denmark (1969), Spain (1981), Greece, France (1981), Iceland, Ireland, Italy (1989), Cyprus, Hungary, Netherlands, Norway (1963), Austria, Russia, Poland, Portugal, Romania, Switzerland (1973), Slovakia, Finland, Sweden (1953), Turkey, United Kingdom (1987).

Some of the stores in North America and Caribbean are located in Canada (1976), United States (1987), and Dominican Republic. Stores in Middle East are located in Kuwait, Israel, Saudi Arabia, and United Arab Emirates. Stores in Asia/Pacific are located in Australia, China, Hong Kong (1975), Japan (1974), Malaysia, Taiwan, and Singapore (1978).
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IKEA has opened more stores in the 21st century and has planned to open its first shopping centre in Croatia in 2012 and the Winnipeg store by 2013 in Canada (Staff Writer, 2008, p.1). Notable is the fact that Germany has the most locations, with 43 stores throughout the country, while the United States comes close behind with 34 locations. IKEA is headquartered in Delft, Netherlands (Finchy, 2010, p.1).

IKEA dominance in the market has conspicuously been catalyzed by a variety of reasons, which include: price, style, products range, high class customer service, 24 hour service and money for value aspects which have boosted its market share.

Due to the affordability of IKEA products to poor college students, the company has become a popular culture reference in America. Several books have been written and songs composed in praise and reference to the company. The Company has however not registered much success in developing countries.
John Lewis

John Lewis is an internationally recognized chain of departmental stores operating in Great Britain. The earliest John Lewis store was launched in 1864. This store is situated along Oxford Street, London. It is owned by the John Lewis Partnership and deals with a wide range of furniture, office equipment, furnishing textiles, linens, china wares, cleaning materials, electrical gadgets, and party stationery.

John Lewis collection, John Lewis men, and John Lewis women have also been introduced. John Lewis restaurants have also been in operation. Lewis Partnership which owns John Lewis stores was founded by John Lewis son, John Spedan Lewis in 1920 (John Lewis Partnership, 2011, p.1).

The partnership is governed by its constitution and company principles. From a humble beginning as a drapery store the store has expanded immensely. John Lewis stores continued to expand with acquisition of more stores like Jessop’s in Nottingham in 1933, Selfridge Provincial stores in 1944 and Herbert Parkinson in 1953.

All acquired stores were rebranded to John Lewis though Oxford Street shop remains as the main branch in the Partnership.

To date, John Lewis Partnership has 76,500 permanent staff /partners and own 35 John Lewis shops in United Kingdom, a production unit, 267 Waltrose supermarkets, an online and catalogue business, and a farm. John Lewis Partnership is a successful and visionary mode of business whose first priority is guarding partner’s interests.

The partnership has a gross turnover of over 8.2 billion pounds where the benefits and profits are shared by the partners. John Lewis operations are multi channeled, it has a ‘home’ format initiative and its Waitrose supermarkets are very convenient.

John Lewis Partnership success was rewarded in 2011 when they won the, “Retailer of the Year award” at the Oracle Retail week Awards (People and Partners, 2011, p. 1). More than 40 million customers shop at John Lewis annually.
Comparing IKEA and John Lewis

Both IKEA and John Lewis are internationally recognized stores that transact their businesses in various countries all over the world. This is evident from the many stores they have which are located in different parts of the world. Both IKEA and John Lewis are non-governmental hence privately owned: IKEA owned by INGKA foundation while John Lewis is owned by John Lewis Partnership.

Additionally, both companies deal with furniture products, furnishings and catalogue business. Of concern is that both companies have grown tremendously over the years enjoying high demands for their products, recording massive sales turnovers and getting international recognition: IKEA won the Excellent Swedish Design prize in 1987, while John Lewis won the Retailer of the Year award in 2011.

Both companies are more dominant in the countries where they were found; IKEA is dominant in Sweden while John Lewis is dominant in UK. Both companies have also started engaging in restaurants in the recent years.
Differences between IKEA and John Lewis Companies

IKEA is solely owned by INGKA foundation while John Lewis is owned by a group of people called the John Lewis partnership. This leads to differences in management. IKEA has its background in Sweden while John Lewis has its background in the UK. IKEA annual profit is non-taxable while that of JOHN LEWIS is taxable.

This is because IKEA is owned by a charitable organization, INGKA which enjoys a tax exemption while John Lewis is owned by John Lewis Partnership which does not enjoy tax exemption.

While IKEA designs and manufactures its furniture products, John Lewis does not manufacture but only sells the ready made furniture. IKEA has a policy of building its own stores in matters of expanding its business while John Lewis acquires already built stores for expanding its business.

IKEA workers are just employees while all John Lewis workers are partners of the company and as such the workers of IKEA and those of John Lewis have different working terms. While IKEA was named among the 100 Best Companies for working women, John Lewis had harsh working conditions for the women in earlier times (Memory Store, 2011, p.1).

While IKEA mostly extends its profits to charity, profits and benefits of John Lewis are shared among the partners. IKEA has developed an environment friendly policy while John Lewis has not.

IKEA uses the Nordic naming method to name its furniture products but John Lewis uses the general method of naming since they do not manufacture products. Acquired stores by John Lewis preserved their names until recently while stores owned by IKEA bore its name from the start.
IKEA Problems

Despite its resounding success and dominance in the world of furniture, IKEA has faced a lot of challenges and problems in its operations and existence. IKEA founder Ingvar Kamprad was involved in the pro-Nazi New Swedish Movement a situation which created a lot of tension when IKEA was opening stores in Israel.

He later regretted his involvement terming it as the greatest mistake in his life. IKEA received a lot of criticism when Canadians realized that IKEA charged twice the price in goods in Canadian stores compared to those in American stores. IKEA was also accused of imperialism in regard to the naming of its products. IKEA engaged in worker mistreatment at one time.
Operations and Sales Function

Operations are all the activities involved in running an enterprise with an aim of producing value to customers. IKEA has a workforce of 130,000 people around the world serving its growing number of esteemed shoppers. The customers have in a long time appreciated this service. John Lewis has a workforce of 76,500 permanent staff that similarly serves the company customers.

The main function of sales is to feel the needs and satisfy the wants of customers. A sales department will strive to attract and retain customers: “IKEA products are based on a functional approach to design and they are also attractive, practical and easy to use” (IKEA, 2009, p.1). The products are simple and offer full customer satisfaction. John Lewis products are pretty and make household chores easier and quicker to do.

The appliances are modern hence convenient to use. The washing machines make cleaning easy and improve the sanitation conditions. Hence, from their sales turnover IKEA and John Lewis products attract and retain customers. This is due to the satisfaction that they derive from their products.
Conclusion

It is evident from statistics derived from the case study that IKEA and John Lewis companies have made great impact in the business world. They have brought furniture and other products close to the consumers through their well distributed stores located all over the world.

They have given consumers a variety and timely satisfaction from their wide-range of products that are easily accessible. The existence of the two companies dealing with almost the same products, and subsequent dominance in different countries demonstrates fair market competition.
References

Chopra, R 2009, IKEA case study, Slide Share.Web.

Ellis, J 2011, What is IKEA? Conjecture Corporation, Wise Geek. Web.

Finchy, A 2010, IKEA introduction. Finchy Summer Blog. Web.

IKEA 2009, IKEA introduction, Education Highway. Web.

John Lewis Partnership 2011, John Lewis Partnership, John Lewis Partnership. Web.

Memory Store 2011, Working lives, John Lewis Partnership. Web.

People and Partners 2011, People and Partners, John Lewis Partnership. Web.

Staff Writer 2008, What is IKEA anyway?, Manitoba press council. Web.

Ikea Case Study Essay