Sounds + Food 'n' Retail

I'm glad to get this out of my life. It is probably the last bit of procrastination left over from the period spent writing my thesis. Following is a continuation of my coverage of IKEA's growth as a business, which I began, in a wordy fashion, by looking at the Scandinavian years. I decided to shorten that somewhat, as really the book (if you can read it) already does a great job of describing IKEA, though my version is perhaps easier to digest.

1961 - Already when Ingvar Kamprad started trading, he had formed relationships with suppliers from abroad. He employed this strategy also when he launched IKEA, forming relationships with Polish and other Eastern European suppliers, which gave him a drastic price-advantage over his competitors.

1973 ca. - After the incubation-time in Scandinavia, Switzerland was the first country, that IKEA expanded too. Reasons included its neutrality, a healthy economy, low taxes, and a greater entrepreneurial spirit.

1973 ca. - When the Kamprad family left Sweden, they founded several foundations in the Netherlands, Switserland, Panama, and the Dutch Antilles.

1974 onwards - Expansion in Germany, Munich (one of the wealthiest cities in DE). The store was a great success, and Germany is still a pillar of profitability for IKEA today.

1975 - first stores opened in Australia, Honk-kong, and Canada, through franchising. In 1980, IKEA took over the Canada-chains, as those were not being run well.

1978 - First store in the Netherlands. It did not go well at all, due to a lagging marketing-campaign. Only in 1982 onwards did IKEA book successes with the Dutch. 1994 started a huge boom of expansions in the Netherlands (more detail was provided about Dutch branches, because the book was Dutch). Belgium also saw stores after 1978.

1982 - IKEA set up Stichting INGKA Foundation in the Netherlands, which was Kamprad's way of keeping IKEA for IKEA instead of having to give it away after he died. It was in charge of IKEA from then on.

1983-4 - stores in Gran Granaria, Tenerife, and Saudi-Arabia.

1984 - IKEA starts "IKEA Family" loyalty program for customers and also introduces its first luxury furniture product-lines.

1985 - first store in USA and kept expanding. Famously (I read at least 1 case-study about it) there was some teething-trouble at the beginning and it took a while for IKEA to find the correct formula for the US market.

1986 - 60-year old Kamprad steps back as CEO and gives reigns away to 35-year old Anders Moberg.

1989 - the fall of the Berlin wall. The roughly 500 suppliers that IKEA had been working with in the Eastern block, suddenly found their economic situation drastically change and prices started to go up. Out of loyalty, IKEA vowed to pay up to 40% of the price-increases for its Polish partners.

1991 - the Eastern European crisis lead to a strategy-change. IKEA became a producer of furniture. Due to its long-lasting relationship and involvement with suppliers, it possessed the necessary know-how, and becoming a producer would also have positive effects on its flexibility. IKEA could focus on Just-in-Time production to overcome the production-problems it had had in the past. In 1991, it took over a Swedish producer of wood-products, and after the privatisation of the Polish furniture-industry, IKEA took over three companies there in 1992 as well. This became part of a trend and every-time it had the chance, it would take over a supplier in Eastern Europe.

1991 onwards - also saw an IKEA expansion of stores in Eastern-Europe.

1992 - IKEA took over Habitat, a British retailer of furniture, that had previously caused a style-revolution in Britain. Until now, IKEA had not expanded to the UK, and it was assumed that it was Habitat's strength that was keeping it at bay. It was forced to sell, after expanding to France, Germany, and Spain, which had caused it to make huge losses. IKEA also used its presence in those countries as launch-pads, keeping Habitat as a separate brand.

1998 - China! Already having been a supplier of IKEA's since the 70s, and generally believed to be a huge opening market, IKEA opens its first store in Shanghai, through a joint venture with a Chinese firms. It was an exploratory step as the Chinese were not yet economically ready for the type of products the IKEA offered, though the assumption was that China's economy would grow 10% per year. IKEA wasn't competing on price either, basically being more expensive than any local competitor. Only after severe price-drops, did the business take off.

2000 - Russia. The company had already had talks in 1988 to open for business there, however the collapse of the Russian empire delayed that. Finally, based in part on Kamprad's gut-feeling, the decision was made. It was a good one. In year 2, the annual revenue was $260 million, making it one of the most successful expansions ever. 45,000 people applied to 600 vacancies in the first store. Due to high import-taxes of 28%, the decision was also made to start producing furniture locally also.

And everything else… is history.

Note that, as I used a single source for this time-line, a Dutch/German book on IKEA's 11 secrets, this blogpost cannot be taken as an ultimate authority on IKEA's growth-strategies. At the very least, I got some dates wrong.

Final thoughts
In my first post about IKEA's growth, I wanted to make clear that how a business expands is largely related to its origins. The relationship with Eastern-Europe is both due to a cultural proximity with that region, as well as Ingvar Kamprad's drive to lower costs. Germanic countries were also a logical step because of linguistic, and hence cultural similarities, as well as similar economic conditions.

Territories with which it was as yet unfamiliar, were being expanded into in a risk-reducing fashion, through franchising in Canada, China, and Australia, and later on in China, through joint ventures also. The acquisition of Habitat in the UK, could be perceived as a risk-reducing move also.

It is generally recognised that European firms are better at managing international expansion, simply because of the compressed experiences they get from growing in heterogeneous Europe, which makes them more flexible in other countries also. Still, you could see that certain culturally remote countries posed some difficulties, such as the US and China, and even the campaigns in Germany and the Netherlands did not proceed flawlessly.

All that aside, to me the most interesting part of all of this was IKEA's shift in strategy in the 90s, turning from being a retail-outlet to a producer-retailer hybrid. It is both a radical shift, but from what I understand, a very logical one.

That's it. Tomorrow, I'll publish some notes about the biggest pros and cons about IKEA's business.

The picture is a mash-up of the Evolution 101 podcast logo and IKEA's logo.