Localization at IKEA

IKEA may be the world’s most successful global retailer. Established by Ingvar Kamprad in Sweden in 1943 when he was just seventeen years old, the home-furnishing superstore has grown into a global cult brand, with 230 stores in thirty-three countries that host 410 million shoppers a year and generated sales of €14.8 billion ($17.7 billion) in 2005. Kamprad himself, who still owns the private company, is rumored to be the world’s richest man. IKEA’s target market is the global middle class who are looking for low-priced but attractively designed furniture and household items. The company applies the same basic formula worldwide: open, large warehouse stores, festooned in the blue and yellow colors of the Swedish flag, that offer 8,000 to 10,000 items, from kitchen cabinets to candlesticks. Use wacky promotions to drive traffic into the stores. Configure the interior of the stores so that customers have to pass through each department to get to the checkout. Add restaurants and child-care facilities so that shoppers stay as long as possible. Price the items as low as possible. Make sure that product design reflects the simple clean Swedish lines that have become IKEA’s trademark. And then watch the results: customers who enter the store planning to buy a $40 coffee table and end up spending $500 on everything from storage units to kitchen ware. IKEA aims to reduce the price of its offerings by 2 to 3% per year, which requires relentless attention to cost cutting. With a network of 1,300 suppliers in fifty-three countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Consider the company’s best-selling Klippan love seat. Designed in 1980, the Klippan, with its clean lines, bright colors, simple legs, and compact size, has sold some 1.5 million units since its introduction. Originally manufactured in Sweden, IKEA soon transferred production to lower-cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. Today, there are five suppliers of the frames in Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, production has been concentrated in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decisions enabled IKEA to reduce the price of the Klippan by some 40% between 1999 and 2005. Despite its standard formula, however, IKEA has found that global success requires that it adapt its offerings to the tastes and preferences of consumers in different nations. IKEA first discovered this in the early 1990s, when it entered the United States. The company soon found that its European style offerings didn’t always resonate with American consumers. Beds were measured in centimeters, not the king, queen, and twin sizes that Americans are familiar with. Sofas weren’t big enough, wardrobe drawers were not deep enough, glasses were too small, curtains were too short, and kitchens didn’t fit U.S. size appliances. Since then, IKEA has redesigned its offerings in the United States to appeal to American consumers, and it has been rewarded with stronger store sales. The same process is now unfolding in China, where the company plans to have ten stores by 2010. The store layout in China reflects the layout of many Chinese apartments, and since many Chinese apartments have balconies, IKEA’s Chinese stores include a balcony section. IKEA has had to adapt its locations to China, where car ownership is still not widespread. In the West, IKEA stores are generally located in suburban areas and have lots of parking space, but in China they are located near public transportation, and IKEA offers delivery services so that Chinese customers can get their purchases home.