Wednesday, 18 April 2012 15:55
Lessons from Ikea
“In most European countries and the US we will see low GDP growth, an aging population, and household spending shifting toward telecommunication, IT, medical, and energy and away from home furnishings, fashion, DIY and other retail sectors. Growth will depend on beating the competitors, not on expanding the market.
"The best will survive in increasingly consolidated markets. Organic growth will be difficult with present and new restrictions in many markets. With increasing consolidation, competition authorities will increasingly question potential.”
So writes Anders Dahlvig, former CEO of Ikea in his book The Ikea Edge. He goes on to warn that Western retailers operating on thin margins and their home turf will have to learn how to expand in emerging markets if they want to survive.
But this expansion will be far from easy.
As this is the view of the man who made Ikea into one of the most successful international retailers in the world, it is worth taking seriously.
Dahlvig points out that few US companies do well in Europe (Walmart and Home Depot have both given up under their own names), and the reverse is equally as difficult, as both Ikea and Tesco have experienced.
The other major hurdle is regulation. India is currently a forbidden land because of foreign ownership rules and China is equally determined to favour local companies over foreign ones.
With increasing consolidation, competition authorities will question potential acquisitions even more stringently.
The burning question, not addressed head on by Dahlvig, is where online shopping fits into this scenario.
Dahlvig prefers to concentrate on what made Ikea great, rather than how it is going to address a shopping channel it has so far only embraced as an additional shopping catalogue. For a store that thrives on its reputation for being ultra modern, this is an interesting omission. With a singular lack of concern for marketing, it fails to mention the Ikea Family loyalty card either, or how it communicates with its customer base.
The Ikea Edge is not a book about the future use of technology. It is an insight into the mindset of Ikea, and how its management makes retail decisions.
Its goal remains to provide good design at affordable prices to as many people as possible. This was the overriding principle of its founder Ingvar Kamprad and little has happened in 30 years to change it.
There is certainly no denying how good Ikea is at what it does. It achieved 11% yearly sales growth and annual operating profits in excess of 10% during the time Dahlvig was at the helm (1999-2009). In this period it hired 70,000 new employees and opened new shops right across the world.
The difference with Ikea is that it combines traditional business goals like profit and growth with social responsibility and environmental stewardship.
This is illustrated in the carpet department. Ikea is responsible for a massive 20% of all rug exports from India. As a major customer, it has been able to influence working conditions, half child labour in the factories of its suppliers, and through investment, provide education and healthcare in association with UNICEF. All suppliers have to follow the Ikea code of conduct.
With global attention to detail –which includes the number of screws in a flatpack, Ikea has developed a recipe that has proved enduring so far.
The Ikea Way, by Anders Dahlvig, published by McGrawHill (£17.99).