Retail Presentation on:

What it is

• IKEA is a privately-held, international home products retailer .

• It sells low-price products, including furniture,, bathrooms and kitchen accessories.

• The customer has to assemble many of the products.

• 265 stores in 36 countries (mostly Europe) only 30 stores are run by franchisees outside of the Ingka Holding.

• Ikea website contains about 12000 products & in 2006 their were 260 million visitors to its website

• Employs 1,04,000 people(2006).

• Business Idea: To offer a wide range of well designed, functional products at low prices.

• Vision: “To create a better everyday life for the many people”.

• Ikea wants to create product with minimum impact on environment, so products are manufactured in a socially

responsible way.

• Organizational structure is flat with words like sameness and team-work given weight age.

• Analogy based on simplicity and cost consciousness.

History n Facts

Founded : 1943 in Älmhult, Småland, Sweden

Headquarters : Leiden, The Netherlands

Founder : Ingvar Kamprad, founded at the age of 17. Resigned as CEO in 1986.

Ownership : Stichting INGKA Foundation . Mix of profit, non-profit organisations. • Originally, IKEA sold pens, wallets, picture frames, watches, jewellery.

• First store outside Sweden was opened in 1963 in Oslo.

• IKEA contributed 1 euro to UNICEF from each soft toy sold during the 2006 holiday season, raising a total of €1.75 million.

Sales

• 20.6 billion euro (Rs 1187 crore)• Financial year 2007 (1 Sept 2006–31 Aug 2007)• 17% sales increase from last year

Stores

IKEA STORES• 220 IKEA stores in 33 countries/territories:• 19 new openings FY07• 24 stores in 15 countries/territories run by franchisees outside the IKEA

Group

Visitors

OUR VISITORS• 583 million visitors in year 06-07• 1.1 million visitors every day • Average customers are Middle class professionals, ages 25 – 44

– Enjoy self assembling and saving money• Average sale is $ 90• 200 million visitors on our web site

Catalogues

IKEA CATALOGUE• Most important marketing channel• 175 million copies• 52 editions• 25 languages

What's so special about IKEA products?

Product range is extensive enough -to have something that appeals to everyone -to cover all functions in the home -the products are modern not trendy so they are practical enough for everyday use.

Cost advantage-low price and yet good value for money. (excellent relationship with suppliers)- flat packed furniture cuts costs on transportation and assembly.

Function -products are based on a functional approach to design. IKEA design means products that are attractive, practical and easy to use.-no fringes attached.-they give genuine solutions for specific home furnishing needs and are made of the most suitable materials for their purpose.

The right quality-the quality of a product is appropriate for the intended use.

•IKEA publishes an annual catalogue.

• First published in Swedish in 1951

•The catalogue is now published in 17 languages for 28 countries, and is the main marketing tool, consuming 70% of the company's annual marketing budget.

•The catalogue is distributed both in stores and by mail.

•Most of the catalogue is produced by IKEA Catalogue Services AB in IKEA's hometown of Älmhult, Sweden.

•The catalogue itself is printed on chlorine-free paper of •10-15% post-consumer waste.

CATALOGUE

Price Strategies• Price is defined as the amount of money charged for a product or service. In addition price is a flexible element since it can be changed quickly.

• Low Price is not appealing unless it represents good value for money. This is where IKEA is able to make a real difference. IKEA is committed to having a good relationship with our suppliers and so we are able to purchase good quality, economically produced designs that are bought in bulk to keep costs down. By making all our furniture flat packed we cut down on transportation and assembly costs.

• The Price a company charges will be somewhere between one that is too low to attain profitability and one that is too high to create any demand.

• The Business Idea of IKEA is “To create good design that works and has a price that everybody can afford to pay”.

Environmental Factors Affecting Pricing

• Costs, marketing objectives, merchandising and marketing mix strategy are example of internal factors

• The nature of the market and demand, competition and other environmental factors represent external factors.

Price-Style Matrix

• At IKEA, all articles are divided into sixteen different categories considering their style and price.

• Four styles are Style1, Style2, Style3 and Style4 whereas the four price groups are referred to as A, B, C and D.

• The products in the price group A are more aggressively merchandised and positioned out in the stores than products belonging to the other price groups.  

Pricing new products

• When Management decides on developing a new product they examine if there is a market demand for the product.

• Thereafter the position in the price style matrix and the absolute price-tag are established.

• When placing a product group into the matrix its target groups’ ability to pay is taken into consideration.

• An introduction of a new article often results in price adjustments for related products, in order to retain the price balance within the matrix.

SUPPLY CHAINWith more than 220 store in 33 countries and 12000

articles the supply chain has to be impeccable to create differential advantage.The IKEA Group has 31 distribution centres in 16 countries, supplying goods to IKEA stores,

and 45 trading service offices in 31 countries. This enables them to develop close relationships with their 1,500

suppliers in 50 countries.•China is IKEA's main purchasing market and 15 per cent of all home furniture sold by IKEA is made from materials purchased in China. Raw materials are secured considering the following things:1 Plantation are identified which are more then 4000 hec.2 FSC is a certification which is must in consumer markets.3 They give active support to farmers.4 They still support supplying from small scale plantations and farmers.

Lead times

• Great emphasis is put on the ordering and distribution methods. IKEA’s suppliers are categorised according to the lead time that they work on. IKEA’s policy is to try to shorten lead times gradually. IKEA staff refer to the supplier ladder.

• A supplier may start to supply goods on either a long warning fixed time delivery basis or a call-off. Call offs are time based methods and once the supply chain is functioning smoothly the supplier will progress to an order driven method: Order Point Distribution Centre (OPDC) at progressively shorter lead times, from weeks down to days, with the manufacture and delivery of goods being triggered by orders

• Once a supplier is able to achieve this they explore the possibilities of cutting the distribution link out of the chain so that retail stores deal directly with factories (Vendor Managed Inventory or VMI) perhaps with goods bypassing the distribution centres altogether and going direct to retail stores

The Supplier’s Perspective

• The degree of support is impressive. The manufacturer acknowledges that the margins he earns from the products he sells to IKEA are far lower than from other customers but the support he receives and the nature of the relationship he has with IKEA far outweigh this disadvantage. This includes:

• Contractual Trust. He knows that he will always be paid within 30 days.

• Product Life Cycles. IKEA tries to keep product life cycles as long as possible.

• Investment. If he has an opportunity to generate extra capacity that will allow him to manufacture products more cheaply for IKEA they may assist with credits .

• IT. The supplier will be linked to ECIS, IKEA’s own system. This will allow him to have total transparency of the supply chain so that he can see IKEA sales forecasts and view inventory levels in distribution centres and stores.

• Technical advice. IKEA staff are on hand to give advice on a number of aspects of the business from the layout and flow on the factory floor to the design of packaging. This allows the supplier to develop distinctive competences

Objectives and Future plans

• Position IKEA as the leader in the home furnishings market.

• Deliver 60,000 visitors to the store during the four-day opening period.

• Deliver a very aggressive sales target (the number is confidential).

• Provide a strong sense of connection between IKEA and the local community.

– Effectively communicate IKEA's personality (fun, empathetic, intelligent) and its product range (quality home furnishings for the entire home).

IKEA Acacia business in South East Asia 2010

• Annual Business value 2006: 100 Million USD

• Acacia timber 2006: 200.000

Concerns if to reach 100 million USD

Secure Raw material/FSC certification•Identify plantation bigger than 4000 ha.•FSC is a must in the consumer markets!•Promote supplying from small scale plantations and farmers

Production efficiency/competence at supplier/quality onproduct

•Efficiency and technological level still too low.•Inconsistent wood supply prevents development of competitive suppliers

Wood Price•Wood prices on Acacia is the highest in South East Asia (World).•Increased wood and production prices can jeopardize the competitiveness

Future Expansion plans

Upcoming openings

• Rostov, Russia - November 2007 • Orlando, U.S.A. - November 2007 • Istanbul II, Turkey - November 2007 • Malaga, Spain - October 2007 • Grenoble, France - October 2007 • Sunrise Florida, U.S.A. - October 2007 • Novosibirsk, Russia • Belfast, U.K. - December 2007 • Coventry, U.K. - December 2007• Oldenburg, Germany - December 2007• Rostock, Germany - December 2007• Samara, Russia - February 2008 • Brest, France - March 2008 • Cincinnati, Ohio U.S.A. - March 2008 • Shenzhen, China - March 2008 • Kobe, Japan - April 2008 • Slependen, Norway - April 2008

Expansion plans in Asia ( China)

• Ikea to speed up the expansion in China from its 2007 fiscal year.

• Ian Duffy, IKEA's president for Asia Pacific, stated Ikea achieved an increase of 38% in sales.

• Only four stores in China in spite of nine years of existence.

• Following a three-phase strategy in China – A period of landing– Setting up standard stores – Increasing the rate of opening of new outlets.

• IKEA plans a new distribution center in Shanghai , largest in Asia Pacific region and seven new stores in China in the next five years at cost of US$82 million

• Able to handle 60 containers of merchandise a day — twice the capacity of a distribution center in Malaysia that is currently the largest in the region.

Expansion plans in India

• Although Ikea stores have yet to arrive in India, its catalogs are sold by street hawkers and bookstores in many major cities.

• Locally made knockoffs of Ikea furniture are ubiquitous in the homes of professionals in India's rapidly modernizing cities.

• The company has no plans to open a store anytime soon in India, in part because the nation's licensing laws for foreign-owned businesses which make it difficult.

• The furniture industry in India is considered as a "non organized" sector,

– Handicraft production accounts for about 85% of the furniture production in India.

– The furniture sector in India only makes a marginal contribution to the formation of GDP, representing just a small percentage (about 0.5%).

Social Responsibility

• Low price but not at any price• IKEA wants to create products with a minimum impact on the environment and make sure they are manufactured in a socially responsible way

Social Responsibility (contd..)

• IKEA home furnishing stores may be the first major company in the country to take a stand against the ubiquitous waste. The Swedish manufacturer will no longer be offering customers free plastic bags.

• Every plastic bag at every IKEA store in the U.S. will cost five cents. The proceeds from the campaign will go to American Forests, the nation's oldest nonprofit citizens conservation organization, to plant trees to restore forests and offset CO2 emissions.

• As an alternative, and to influence customer habits in an environmentally responsible direction, IKEA is reducing the cost of its reusable 'Big Blue Bag' to 59 cents, from a dollar.

• The INGKA Foundation is officially dedicated to promoting “innovations in architecture and interior design". With an estimated net worth of $36 billion, the foundation is unofficially the world’s largest charitable organization, beating out the much better known Bill and Melinda Gates Foundation, which has a net worth of approximately $33 billion.

Trivia

• IKEA stores are designed around a "one-way" layout which leads customers along "the long natural way".

• Many stores include restaurants serving typically Swedish food, a few varieties of the local cuisine, and beverages

• Despite its Swedish roots, IKEA is actually owned and operated by a complicated array of not-for-profit and for-profit corporations of which Stichting INGKA Foundation located in Leiden in the Netherlands is the ultimate owner.

• The IKEA corporate structure is divided into two main parts: – Operations – Franchising.

Trivia (contd..)

• The IKEA trademark and concept is owned by an entirely separate Dutch company, Inter IKEA Systems. Every IKEA store, including those run by Ingka Holding, pays a 3% franchising fee to Inter IKEA Systems

• The central purpose of IKEA’s intricate corporate structure appears to be tax avoidance. By funneling its profits through a nonprofit foundation, IKEA drastically reduces the tax burden .

• The foundation's nonprofit status also means that the Kamprad family cannot reap these profits directly, but the Kamprads do collect a portion of IKEA sales profits through the franchising relationship between INGKA Holding and Inter IKEA Systems

Summary

• IKEA provides a functional, beautiful andaffordable home

• IKEA attempts to reach good results withsmall means

• IKEA is “not for the rich one but for thewise one”