ikea the global retailer case study

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Case Study of IKEA: Growth Of A Global Retail Giant

August 28, 2019

If you haven’t heard of Ikea, you’re probably living under a rock. 

I kea, the Swedish furniture company, is a household name. It helps design and sell ready to assemble furniture, home accessories, and more.

Founded by Ingvar Kamprad in 1943, he had the roots of a furniture dealer. Grown from local Swedish soil, he spent years occupying the local market before expanding operations globally.

To give some idea of its global expansion footprint, here are some facts:

• First Store Outside Sweden: Norway 1963
• First Store in APAC: Japan 1974
• First Store in the US: Plymouth Meeting in Philadelphia in 1985.

You might be asking well, how many IKEAs are in the world? As of November 2018, there are 424 IKEA stores in 52 different countries around the world.

Pretty impressive right?

But how did Ikea manage to expand whilst others like Walmart, Tesco and more have failed?

Let’s explore why others have failed firstly.

Overall there were will always be a multitude of reasons on why each one failed but the one major reason for failure for most of them was the lack of cultural awareness. 

Many companies, especially global US ones have failed when they go overseas (or at least into certain markets) because they take their winning strategy in their local market and try to apply it to another country.

Best Buy tried to sell complex electronics products to the Chinese market when the market there was still buying basic technologies such as CDs and DVDs (and these are still popular today!).

Walmart tried to sell the American Dream…in Germany. It doesn’t take a rocket scientist to work out why that didn’t work.

IKEA is a great example of how to meet local cultural customs

Although its branding shines bright outside the store, in every interior, there are subtle changes tailored to accommodate cultural differences in every country.

Here are some awesome examples:

China — entire sections on balconies in showrooms.

Balconies are very common in Chinese homes. Especially in areas where space is limited, balconies are often an area for extra storage or at least a chair or two.

Depending on the location in China (north or south), balconies are used not only for drying clothes but can be used for food storage as well.

Korea — Super ‘Single’ Sized Bed

When Ikea was first opening its store in Korea in 2004, it did market research on product designs and the market.

It ended up finding out that Korean’s bedrooms sizes were much smaller than Americans. This resorted them designing a ‘super single’ sized bed which was bigger than your normal average single but perfect for the bedroom sizes of Korea.

But what else beyond cultural reasons?

So we know that Ikea hit all the cultural tick boxes but it takes more than that to succeed at the growth of what Ikea has managed to achieve.

Ikea also nails many other factors around its products, targeting and of course the problem they are trying to solve.

Ikea solves the problem of buying furniture

Although Ikea has changed its products depending on markets, its innovation around flat packing furniture is still applicable globally.

Furniture historically has been a long term process with lots of anxiety and hair-pulling involved.

Not only does it cost a lot of money, the thought of finding the right design and then needing to put it together afterward resulted in people putting it off.

Ikea, instead, made this process easy. 

According to analyst Shoulberg:

“They created products that were nicely designed, if not particularly durable, that were intended to be used immediately… and disposed of when they wore out or, more likely, when the user had moved on to a different taste level or purchasing strata,” he writes. “It’s a seminal change in the home business and one that conventional furniture stores are still trying to come to grips with.”

Not only this but Ikea kept it affordable whilst not being too cheap at the same time.

All of this solves a big problem as Ikea not only helps you pick out the right designs by giving you the visualization tools you need but the ability to assemble it in less than a day with affordable pricing.

It hits the right generation and demographic

To be fair, when you go to an Ikea store, you don’t really see many grandmas and grandpas.

More than often, you see young couples and families on the hunt for their next collection to their home.

With its showrooms and clean, aesthetic looking designs, it appeals to a younger demographic and that is exactly the target audience they go for.

This demographic tends to have more stylistic choices, buys with their eyes and most importantly, have disposable income (which can make for impulse decisions!)

Get the job done today

Along with the demographic point, Ikea reinforces an attitude of getting things done today.

As mentioned earlier, Ikea solves an age-old problem of buying furniture. You can visualize, buy and assemble it all in one day.

When you go “ I need to furnish my living room today ”, Ikea most likely pops in your head as a location of where to get things.

In some countries, they even have on-site assembly depending on the cultural differences of each country. 

Ikea stores are a destination

Ultimately, Ikea is a place to visit the showroom and even grab a bite to eat (hence their cafeterias).

Big department stores are often a place for consumers to shop and browse but Ikea is the one place in mind when people want to look around for furniture.

More than often, even if you’re not buying, you’re there for home inspirations all the way to buying a hot dog.

When you’re at an Ikea, you know why you’re there. 

This makes it an incredible global iconic brand and why they have managed to expand globally so successfully.

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But Ikea will figure it out and will do so faster than just about anybody else in retailing. We all may occasionally have some trouble putting together one of its bookcases, but no retailer has put together a global strategy better than Ikea’s.

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Exploring digitalisation at IKEA

International Journal of Retail & Distribution Management

ISSN : 0959-0552

Article publication date: 15 March 2022

Issue publication date: 19 December 2022

The paper aims to clarify how an incumbent retail organisation explores digitalisation for its existing business.

Design/methodology/approach

The paper draws from an in-depth case study of home-furnishing retail giant, IKEA conducted with semi-structured interviews, participant observations and document analyses.

In the exploration phase of digitalisation, three major activities – interpreting, interrelating and integrating – illuminate how the exploration process can be organised in practice.

Originality/value

Although digitalisation ranks amongst the most significant ongoing transformations in retail businesses, research on how incumbent retail organisations have engaged in exploring digitalisation in practice has remained scarce. The paper contributes insights into digitalisation processes in retail businesses that may also apply to other trends affecting the retail industry.

• Digitalisation
• Exploration

Hagberg, J. and Jonsson, A. (2022), "Exploring digitalisation at IKEA", International Journal of Retail & Distribution Management , Vol. 50 No. 13, pp. 59-76. https://doi.org/10.1108/IJRDM-12-2020-0510

Emerald Publishing Limited

Copyright © 2022, Johan Hagberg and Anna Jonsson

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Digitalisation , defined as the “integration of digital technologies into everyday life by the digitization of everything that can be digitized” ( Hagberg et al. , 2016 , p. 696), ranks amongst the most significant ongoing transformations in business, one that has introduced new ways of doing business whilst challenging established ones ( Leeflang et al. , 2014 ). As such, digitalisation has been characterised as a disruptive change that tests industries, their accepted logics and even individual businesses (e.g. Verhoef et al. , 2015 ; Hänninen et al. , 2018 ).

In literature addressing retail, digitalisation has received increased attention from both consumers' and retailers' perspectives ( Frasquet et al. , 2021 ), including in terms of omni-channel strategies ( Verhoef et al. , 2015 ), business models ( Jocevski et al. , 2019 ), multi-sided platforms ( Hänninen et al. , 2019 ) and the reconfiguration of retail stores ( Hagberg et al. , 2017 ). Most recently, according to Hänninen et al. (2021) , such research has integrated far more discussion and theorising about digitalisation across the value chain. However, the organisational processes that catalyse the incorporation of digital technologies in retail businesses – in March's (1991) and Winter and Szulanski's (2001) terms, the exploration phase – have received less attention. Therefore, this paper focusses on that very phase – the early stage of digitalisation – to contribute insights into digitalisation in retail ( Hänninen et al. , 2021 ) whilst answering the call for research on “how firms adapt their business models in response to external threats and opportunities” ( Saebi et al. , 2017 , p. 567).

The paper aims to clarify how an incumbent retail organisation explores digitalisation for its existing business, even as potential disruptions, their meanings and their consequences remain uncertain. To that purpose, the paper builds upon an in-depth case study on IKEA, an established firm in today's dynamic retail sector, an environment in which digitalisation especially urges business actors to rethink their ways of doing business and attracting customers ( Hänninen et al. , 2018 ; Blom, 2019 ; Jocevski et al. , 2019 ). It draws upon first-hand experiences with, and insights into, how IKEA has explored digitalisation, even when the concept was relatively elusive and how it would affect IKEA's business. In describing IKEA's exploration phase and what digitalisation has meant for its business, the paper delineates three major activities of that exploratory process: (1) interpreting what digitalisation means, (2) interrelating digitalisation and the existing business and (3) integrating new ideas and solutions in light of digitalisation.

In what follows, we review literature on digitalisation in retail and research focussing on that process's exploration phase and development in businesses. Next, we describe the methodological considerations made for our case study on IKEA. After that, we present our findings in terms of three major activities that guide the exploration phase. We conclude the paper by discussing our findings in relation to the literature and addressing our research's limitations.

2. Literature review: exploring digitalisation in retail

Having significantly impacted retail in recent years, digitalisation has become an important topic in research on the industry ( Hänninen et al. , 2021 ), especially regarding specific applications of digital technology – for example, the use of smartphones in physical retail settings ( Fuentes et al. , 2017 ; Grewal et al. , 2018 ), augmented reality ( Scholz and Duffy, 2018 ; Caboni and Hagberg, 2019 ) and digital signage ( Dennis et al. , 2012 ; Jäger and Weber, 2020 ). Studies on specific technologies have been accompanied by broader frameworks for integrating various digital technologies into retail, not only by turns based upon their usage and retailers' objectives ( Wolpert and Roth, 2020 ), their social presence and consumers' convenience ( Grewal et al. , 2020 ) and their use in relation to shopping behaviour at various stages of the customer's journey ( Rosengren et al. , 2018 ; Blom, 2019 ; Roggeveen and Sethuraman, 2020 ), but also by general frameworks of what digitalisation implies for retail business overall ( Hagberg et al. , 2016 ). In such studies, digitalisation in retail has received sustained attention regarding several aspects of consumer behaviour ( Hure et al. , 2017 ; Pantano and Gandini, 2018 ), the retailer–consumer interface ( Hagberg et al. , 2016 ; Roggeveen and Sethuraman, 2020 ) and retailers' ways of doing business ( Verhoef et al. , 2015 ; Hänninen et al. , 2018 ). The processes in which incumbent retailers develop their businesses in light of digitalisation, however, have received far less attention.

Because digitalisation, understood as the integration of digital technologies, is arguably not a binary shift from one stage to another but an ongoing process without a clear beginning or end ( Hagberg et al. , 2016 ), its exploration in retail warrants a more processual perspective, particularly regarding its influence on how retail organisations alter their businesses (cf. Langley, 1999 ). Along with frameworks addressing how retail businesses can integrate digitalisation in various ways, the actual processes that may result in digital integration need to be explored and modelled. That need directs our attention to the exploratory processes through which retail businesses may approach digitalisation and, more specifically, to how digitalisation consequently influences established business models. Especially for the latter reason, we gave priority to incumbent retailers, whose business models and established ways of conducting business often confront such considerations.

Despite extensive research on what constitutes a business model, understandings differ about how to define, explore and leverage one. In fact, Teece (2018 , p. 41) has estimated that there are probably as many definitions of business model as there are models themselves. According to Ritter and Lettl (2018) , a business model, simply put, is a company's “way of doing business”. In this paper, considering how business models have been discussed in retail settings ( Sorescu et al. , 2011 , p. 4), we broadly understand a company's business model as representing “the firm's distinctive logic for value creation and appropriation”.

Although various external events may necessitate changes to ways of developing and operating businesses, digitalisation itself is not an event but an emergent, comprehensive and uncertain phenomenon. Indeed, digitalisation can span several external and internal aspects of businesses, as well as pose myriad implications for individual business models. To date, though scholars interested in digitalisation have examined different approaches to innovating business models, from making gradual, evolutionary adjustments to radically altering them ( Berends et al. , 2016 ; Inigo et al. , 2017 ; Snihur and Wiklund, 2019 ), how the exploration phase of digitalisation is understood and organised merits further investigation.

Following March's (1991 , p. 71) definition, exploration refers to searching for, innovating and experimenting with something novel. The concept as used by March (1991) is often considered in relation to exploitation, which refers to refinement, efficiency and implementation of “old” routines or certainties in an organisation. As noted by He and Wong (2004 , p. 481), researchers in strategic management, organisation theory and managerial economics have applied the two concepts in order to understand how innovations occur and how an organisation learn and develop dynamic capabilities to meet change. Previous studies either focus on the trade-off between exploration and exploitation or the balancing act between the two as discussed within literature focussing on ambidexterity and means for developing dynamic capabilities (e.g. Benner and Tushman, 2003 ; He and Wong, 2004 ; Vahlne and Jonsson, 2017 ). The two concepts have also been applied in processual research describing the evolution and development of an organisation. Winter and Szulanski (2001) use the two concepts when outlining their theory of replication as strategy and suggest a two-phase model where the organisation first enters the exploration phase “in which the business model is created or refined” (p. 731) and then move on to the exploitation phase. The argument that exploration and exploitation can be understood in terms of different phases of a process has been adopted also by researchers focussing on, for instance, retailers' internationalisation process ( Jonsson and Foss, 2011 ), the transition into retail omni-channel strategies ( Picot-Coupey et al. , 2016 ) and reverse knowledge flows within franchise organisations ( Friesl and Larty, 2018 ). Still, how the exploration phase is organised and how it can be understood remains to be further investigated. To the best of our knowledge, there is a dearth of research focussing specifically on the exploration phase and how it develops in practice. Whilst existing studies do explore the exploration phase, it is also discussed in relation to the exploitation phase with focus on the outcomes rather than the processual aspects of the phase as such. For this paper, we zoom in on and examine the exploration phase and how it can be understood in the context of retail digitalisation. In particular, when emergent trends such as digitalisation, a change process, challenge established business models, more comprehensively re-engaging the exploration phase can become essential.

3. Methodology

Investigating a complex phenomenon such as digitalisation, and given our aim, calls for a qualitative in-depth case study ( Eisenhardt, 1989 ). According to Dyer and Wilkins (1991 , pp. 615–617), case studies aim to “provide a rich description of the social scene”, “describe the context in which events occur” and thus offer opportunities for other researchers to see “phenomena in their own experience and research”. In that sense, rich, explorative case studies provide avenues for future research or, as more broadly conceived by Doz (2011 , p. 588), “offer the opportunity to help move the field forward and assist in providing its own theoretical grounding”.

Our in-depth case study focussed on IKEA, a global home-furnishing retail company, and its work with developing an understanding of digitalisation. IKEA is a particularly interesting case that has attracted practitioners seeking a benchmark in a hitherto successful business model (e.g. Jonsson and Elg, 2006 ; Edvardsson and Enquist, 2011 ; Burt et al. , 2016 ). IKEA has frequently been used as an empirical example in the business models literature (e.g. Hedman and Kalling, 2003 ; Sorescu et al. , 2011 ) and subject to in-depth case studies of the development of specific aspects related to the IKEA business model over time (see e.g. Salzer, 1994 ; Jonsson, 2007 ; Tarnovskaya et al. , 2008 ; Edvardsson and Enquist, 2011 ; Hellström and Nilsson, 2011 ; Burt et al. , 2016 , 2021 ). In addition, there are several studies of various aspects related to digitalisation, including store format development ( Hultman et al. , 2017 ) and comparison of IKEA's digital catalogue and website ( Garnier and Poncin, 2019 ). IKEA has also served as an in-depth case for studies of exploration in relation to exploitation and replication ( Jonsson and Foss, 2011 ; Vahlne and Jonsson, 2017 ). The present study adds to this literature through an in-depth case study of IKEA's digitalisation process in an early explorative phase.

In the ten months from September 2014 to June 2015, we observed IKEA's work on exploring digitalisation and the trend's potential impacts on various parts of the organisation's business model and participated in a project undertaken in support of such exploration. In that form of action research ( Patton, 1980 ), engaging in IKEA's internal exploratory work as researchers allowed us to understand digitalisation's implications by discussing them with representatives at IKEA, which, at the time, considered knowledge of those implications to be important because they, along with digitalisation itself, remained unknown. Using such methods enabled us to contrast findings from interviews with findings from observations and synthesise the results in light of theory ( Ghauri and Grönhaug, 2002 ). In particular, our case study revolved around two ongoing projects and the processes of working within them: IKEA's “E-Commerce Programme”, later named the “Multichannel Transformation Programme”, and a project designed as a pre-study addressing the future role of IKEA's physical stores and the challenges and opportunities that they face amid digitalisation.

We collected data with three overlapping methods: in-depth semi-structured interviews, participant observations and document analyses (for an overview, see Table 1 ). As for the first, we conducted 21 interviews with senior executives with different functions in different departments at IKEA as detailed in Table 1 . Using purposeful sampling, we interviewed IKEA managers and employees working with and/or preparing for the organisation's digitalisation about their experiences with and thoughts on the concept of digitalisation and its implications. The interviews combined retrospective questions about IKEA's business model with questions about current situations experienced by the interviewees and prospective enquiries about IKEA's future in relation to digitalisation. All interviews began with open-ended questions about digitalisation in general and digitalisation at IKEA in particular. As the interviews progressed, questions became more structured and delved into the future role of IKEA stores, the specific challenges that IKEA faces, whether they will affect the IKEA concept and if so, then how. All interviews were recorded and transcribed verbatim and translated into English in those cases the interviews were made in Swedish.

Meanwhile, participant observations involved three meetings – before, during and after data collection, respectively – with the project manager of the pre-study to discuss the overall project. Those meetings lasted 11 h and 36 min in all. We also engaged in both in-store observations and meetings, lasting 10 h in total, whilst visiting an IKEA store in the Altona borough of Hamburg, Germany that operates as a test store for new concepts (e.g. urban proximity, technical solutions and delivery solutions). The local managers who accompanied us during our in-store observations also met with us twice: once with five other store managers and once with five employees from different departments. We conducted both meetings as group interviews guided by the same questionnaire used in the individual interviews. During all observations, we took field notes for data about the employees' perspectives and what digitalisation meant in practice. That information was valuable when conducting interviews with IKEA managers responsible for strategic decision-making and for translating digitalisation into IKEA's business model. Last, we also collected documents and visual communication, both public and internal, for analysis. The internal documents contained information about the pre-study, the “E-Commerce Programme”, the “Multichannel Transformation Programme” and the movie “ Shop with Laura ” (see Table 1 ) and public documents included information about the IKEA history, vision and business idea statements. Documents were collected on the basis of their mentioning during the interviews or participant observation sessions. These constituted sources of detailed information preserved from the time in which they were written and less dependent on the informants' memories. Throughout data collection, we facilitated informants' validation of the data on several occasions (cf. Silverman, 2006 ), which afforded us the opportunity to discuss our observations and findings with the participants. Apart from our participant observations, we also hosted two internal workshops with the project manager of the pre-study to discuss our findings.

To analyse the data, we used systematic combining ( Dubois and Gadde, 2002 ) – i.e. alternated focus between our empirical material and theory – whilst developing our case study and the emerging framework. For integrity's sake, we triangulated the three major sources of data – participant observations, interviews and document analysis ( Silverman, 2006 ) – during all four steps of data analysis. First, we coded the transcripts with reference to keywords and phrases related to digitalisation and its consequences for the retail industry in general and IKEA in particular. In that step, we adopted an emic perspective that prioritised the perceptions and understandings of the informants ( McCracken, 1988 ). Second, following Langley's (1999) suggestion, we took a narrative approach to comprehending the process-related data, namely by drafting a general description of the process with illustrative quotations from material collected in the field ( Berends et al. , 2016 ). Third, whilst working abductively between the empirical material and our emerging analytical framework, we used theoretical coding ( Charmaz, 2014 ) to sort, integrate and organise the material to represent a three-phase process. In so doing, we gradually shifted to an etic perspective – i.e. from the informants' perspective to our own perspectives as observers of the empirical material. Fourth and finally, we reorganised the material and wrote a case narrative structured according to the three abovementioned activities as presented next.

4. Exploring digitalising: the IKEA way

In the past 70 years, IKEA has grown from a small, family owned company in Sweden into the world's largest retailer of home furnishings. Arguably, IKEA's rapid international expansion resulted from the three-phase development of a formula that has been replicated in all markets where IKEA has entered an expanded, where the first phase commenced by exploring IKEA's business idea and opening test stores in markets outside Sweden ( Jonsson and Foss, 2011 ).

IKEA's business idea builds upon two concepts – the idea concept and the concept in practice – that together define what, in theoretical terms, could be understood as IKEA's business model. Whereas the idea concept refers to IKEA's vision “to create a better everyday life for the many people”, its philosophy of co-creation (i.e. “We do our part, and you do yours”) and the central role of IKEA stores, the concept in practice refers to IKEA's practices of examining specific sets of variables whilst adjusting to local markets ( Jonsson and Foss, 2011 , p. 1,090). The two concepts are mutually dependent; if the concept in practice does not change, then the practices of the idea concept will eventually become irrelevant and not reach “the many people”.

In 2014, drawing from insights during its internationalisation, IKEA realised that digitalisation could be both a challenge and an opportunity amid its recently declining expansion. For decades, IKEA had experienced outstanding success in replicating its business model: an average yearly increase in sales of approximately 8–10%, the constant meeting of new sales targets and a steady rate of expansion, with 12–14 store openings per year. In 2013, however, IKEA's steady growth declined in some markets, as the rapid worldwide growth of e-commerce in retailing continued to challenge physical stores and change the competition. In response, the company decided to decelerate its international expansion in favour of exploring what digitalisation could mean for their established business model. At IKEA, it was, therefore, considered increasingly important to return to a state of exploration in which key variables describing the idea concept and the established concept in practice would be re-evaluated. Moreover, as increasingly more young employees at IKEA sought new, 21st-century ways of reaching “the many people” – i.e. current and potential customers – both IKEA's employees and customers began looking for digital solutions and new ways of working.

In the following sections, we recount how IKEA engaged in exploring digitalisation in the IKEA way and how it (re)imagined reaching “the many people” in the shifting retail landscape. The story begins when the intersection of digitalisation and IKEA's business model was becoming increasingly apparent but not yet regarded as a phenomenon that would require radical changes, and it ends six months later, when the exploration phase resulted in an understanding and approach that we term the re(in)innovation of IKEA's business idea. In particular, we discuss how IKEA interpreted, interrelated and integrated digitalisation with its established ways of doing business. Although we have structured our discussion in three subsections, each addressing one of those three activities, the activities should not be considered as occurring along a linear path but instead as three aspects of the exploration phase.

For an overview of the activities and related steps, please see Table 2 .

4.1 Interpreting digitalisation

In 2014, aware that IKEA retailers in the USA were witnessing a cannibalising effect on their physical stores because of e-commerce, IKEA took its first steps towards exploring digitalisation. IKEA realised that its E-Commerce Programme launched only a year prior, could not simply be rolled out as initially planned but needed to be informed by a discussion about what e-commerce and digitalisation would mean for sales in IKEA's physical stores. Although digitalisation was becoming a widely discussed concept in retail at the time, it had remained undefined, and it was unclear how, or even whether, it was distinct from e-commerce. Recognising that possibility, IKEA's global expansion manager initiated several internal projects to explore what digitalisation meant and how it might relate to IKEA's business idea.

E-commerce is how we do business electronically, so it's about selling: selling online. But digitalisation is much bigger than that […] It's about the whole company, because it involves, for example, online learning. I think that e-commerce is not just about selling; it's about fulfilment, the buying process. (Development Manager, E-Commerce Programme)

Digitalisation is broader than e-commerce. It's also more about how we approach customers: how we communicate and how we ensure that all of our customers have the same knowledge, whether they're buying things in the store or online. Digitalisation is something that happens in the store. It's how we provide all of the information to our customers: where the products come from, what they do and how you can use them. (Supply Manager, IKEA Supply AG, Logistics)

As that quotation suggests, despite references to what digitalisation might mean and what it truly is, its signification remained vague. Even so, it appears that digitalisation might have generally been understood as offering digital information to customers. Making sense of digitalisation thus involved distinguishing digitalisation from e-commerce to not only explain how the concepts differed but also make digitalisation manageable for and relevant to customers.

So, all of a sudden, the amount of information that we have about people and how they live, move, interact etc. is phenomenal. And it's in combination. It's not urbanisation only; it's urbanisation plus digitalisation that gives us the opportunities. It's an example of how combined trends can become very powerful. (Digital Business Manager, Inter IKEA Systems B.V.)

It is exponential because every new invention in the digital space is built on previous ones. So, it's a combined effect that creates exponential speed. So, ignoring it, as Kodak or Nokia did, will be very dangerous. On the contrary, it can be very powerful, like for Apple, Google, Facebook, etc.

For me, digitalisation is a moving target. Its content is changing all of the time. To some extent, we use a lot of digital technology already—it's just that it’s outdated, right—so we're changing how we digitalise instead of digitalising something that is not digital. (Global Retail Logistics Manager, Retail Logistics IKEA of Sweden)

Gradually, it became clear that digitalisation not only needed to be understood in the sense of selling goods online but would have broader implications for the company. As a case in point, when observing customers who had already developed new shopping behaviours – using mobile phones to search for products from both outside and inside stores, for example – IKEA realised that new mobile solutions had to be integrated with traditional retail logic. As a result, IKEA unveiled the “Future Role of the IKEA Store in a Multichannel Environment” project to emphasise the need to understand and combine related trends. The project was initiated to jumpstart a shift towards what IKEA called a “seamless customer journey”. Consisting of five sub-projects, the project prompted the redefinition of the E-Commerce Programme and later evolved into the Multichannel Transformation Programme.

Digitalisation means nothing, I would say. Because what we want is to secure a solution for when you, the customer, move between the store and the web. It might be a digital solution, but it can also be a physical solution, or something else. The only thing that's important is to solve some sort of need and to learn more about those needs. (Group Retail Manager, Global Retail Services IKEA Group)

The expansion manager also emphasised that instead of simply focussing on defining digitalisation, routines and skills need to be developed for facilitating “disruptive developments” and finding new solutions and ways of testing new ideas. Understanding how various activities were organised and integrated was also considered to be pivotal. The idea addressed in many interviews – namely, that digitalisation both enables and requires the integration of knowledge – was explained as enhancing the focus on customers and their experiences. That perspective marked a shift into the phase in which IKEA began actively exploring what digitalisation meant to its ways of doing business by revisiting the idea concept and the concept in practice.

Altogether, the first activity of the exploration phase, interpreting, refers to ways of understanding and making sense of digitalisation and the changes that it was considered to imply. The process can be described as encompassing three steps: differentiating (i.e. distinguishing and delimiting digitalisation from other concepts), combining (i.e. making connections between digitalisation and other trends and concepts) and concretising (i.e. defining digitalisation and making it actionable). Building upon lessons from that work, IKEA transitioned into the second activity of exploration where it began relating digitalisation more explicitly to IKEA way of doing business.

4.2 Interrelating digitalisation with established business ideas

Whilst interpreting digitalisation, informants increasingly reflected on what it would mean for IKEA's established business ideas. After all, the replication formula was being challenged by not only digitalisation but also urbanisation. Mounting criticism about globalisation and calls for de-growth were also seen as challenging the existing understanding of doing business – i.e. by selling furniture “to the many people” – and concerns for sustainability were identified as needing to be incorporated into understandings of digitalisation.

To ensure that all IKEA employees shared the same interpretation of digitalisation and how it relates to IKEA's established business model, it was considered to be necessary to visualise the future. To convince internal sceptics, it was considered to be especially important to also visualise how digitalisation could generate opportunities for sales and attract a broader customer base and thereby more fully reach “the many people”. It additionally required ideas about urbanisation, sustainability and ways of offering not only furniture but also services, both in terms of continuity and making it easier to shop. Some proposals even conceived collaborating with second-hand retailers or establishing an organisation that would create opportunities to sell recycled and/or used furniture.

We wanted to have a completely different kind of interaction with our customers: a completely different type of conversation, a completely different type of engagement. So, I made a video that I think is very entertaining. […] She [Laura, the protagonist] wants to decorate her children's room, and the videos show her journey until she's satisfied. (Web and Digital Manager, Web and Digital Retail Services)

To develop a “seamless” experience for customers, it was considered to be crucial to introduce multiple perspectives, which seemed to require visualising the journey of customers in order to ensure focus on their experiences. To that end, it was expressed that all perspectives in IKEA's value chain had to be considered, and a consensus was emerging that different perspectives needed to be integrated in order to realise digitalisation. It was also clear that integrating knowledge from various functions in order to avoid a silo mentality would require more effort.

Our model has been built on direct deliveries to our stores, where you [the customer] do your part, we do our part, and then we save money. We need to think about a completely different kind of integration in how we develop and how we lead the overall development. To make that happen, we're now investing billions in new infrastructure—large investments in IT—but that's not what will take us into the future . (Group Retail Manager, Global Retail Services IKEA Group)

It was necessary to look inwards and to involve different views and perspectives, both across different parts of the company and from the outside. The same informant underscored the importance of accessing different perspectives to also “integrate the outside perspective into our structure, so that we do not get too isolated and, in that way, also cultivate our own skills”. The involvement of different functions and external partners prompted discussions about what digitalisation meant in relation to the established retail logic of “You do your part, we do our part (and together we save money)”. As it became clear that digitalisation would inevitably affect IKEA's business model, the question of how that process would unfold increasingly became the topic of discussion.

In sum, the second activity of the exploration phase, interrelating, refers to assessing digitalisation in relation to established ways of doing business in three steps: visualising (i.e. what the future might look like), mapping (i.e. what functions, areas and parts of the business model will be involved) and evaluating (i.e. how digitalisation will affect the business model and current ways of doing business). Based upon insights from that work, IKEA advanced to putting lessons learnt into practice and began the third activity: integrating new knowledge with existing knowledge.

4.3 Integrating digitalisation into a business model

From the internal projects related to efforts of interpreting digitalisation and interrelating it to other trends, IKEA's managers concluded that its established business model needed an update and that the antidote, digitalisation, also offered an opportunity to fully realise the business idea of offering products and services to “the many people”. To that end, testing new ideas, learning from them and making any necessary adjustments were considered to be important tasks. Thus, to be able to integrate digitalisation with the business model, it was necessary to experiment with numerous ideas and solutions as was done at numerous IKEA locations. For example, at IKEA in Altona, new ideas and concepts were tested to see whether they could satisfy a more digital, urban segment of customers. The Altona store was not only constructed differently from the standard global store format, in terms of size and layout, but also to accommodate for trends in urbanisation. It had also been adapted to test new concepts in practice, including new logistics and distribution solutions, and the normal pathway through the IKEA store had been partly removed to attract customers passing by outside. In the United Kingdom, by comparison, as a result of exploring digitalisation and testing new digital solutions, IKEA had launched its first app.

Experiences from testing new ideas and solutions were transferred back to the IKEA Group and Inter IKEA Systems. Thus, an important step was reviewing and learning from those experiences followed by transferring them internally within the organisation. In relation to the Altona store, both IKEA's management team in Germany and the IKEA Group's management team followed the experiences closely. Beyond that, many employees from IKEA worldwide visited the UK and/or Altona stores simply out of curiosity.

That's the essence of IKEA. If you remove everything, then the core is what's left, and that's IKEA… [We] need to develop our concept, take it further and say, “This is how I see IKEA today”. We have to be on track and dare to test and create other formats… So, IKEA has to change; otherwise, it's the beginning of the end. (Group Retail Manager, Global Retail Services IKEA Group)

The concept manager also reflected on how those changes would affect the idea concept and the concept in practice, as well as the latter should not come at the former's expense: “I mean the concept, if we go back to it, and the vision… part of the recipe for success has been just doing things together, engaging people” (IKEA Concept Manager, Inter IKEA Systems B.V.). Thus, integrating digitalisation into IKEA's business also implied reconnecting with IKEA's roots and reflecting on the idea concept as “the core of the core”. After all, although IKEA was changing at the time and continues to change, it remains the same IKEA. In that sense, revising the business model appeared to be quite natural, for though it had always changed in one sense, in another sense it had also always remained intact. The conclusion was that to be able to sustain the idea concept, “the core of the core”, the concept in practice needed to change, which would imply searching for new formats and new solutions to further leverage IKEA's business. IKEA's managers realised that although the basic needs were the same, people had changed and were continuing to change, and the experiences of customers demanded far more focus. For those reasons, a new position, global customer experience manager, was created. The shift implied a return to the core of IKEA's concept and vision – “to provide products and services that are both cost-efficient and innovative” – and that digitalisation had forced IKEA to rethink its processes of achieving those ends. As another informant argued, the entire process of re-evaluating the way of doing business – i.e. the IKEA way – had alerted managers and employees not only to IKEA's strong vision and business model, but also its need to seize the opportunity to fully realise that vision and reach “the many people” both online and offline.

All of the work to prepare IKEA for the digital shift had prompted a return to the company's roots and the questioning of proven solutions, which is indeed one of IKEA's ten values, perhaps best be described as shifting from interpreting digitalisation and interrelating with IKEA's business model into integrating and turning it into practice. That integrative phase also precipitated how IKEA re(in)novated its business model. IKEA's approach of digitalisation could thus be understood as returning to the company's original idea; the understanding of the idea concept will never change, but the concept in practice has to be rethought and new ideas and practices tested and evaluated in order to continue to reach “the many people”. To that end, practising and testing new solutions were crucial strategies for IKEA, not to mention integral to the IKEA concept and its organisational culture.

In all, the third activity of the exploration phase, integrating, refers to the actual digitalisation of the business idea by steps of practising (i.e. developing and trying different solutions to test and learn from them), reviewing (i.e. sharing knowledge within the organisation to learn from practice) and revising (i.e. connecting and evaluating changes to the established business model in order to provide continuity).

5. Conclusion

This paper has sought to illuminate how an incumbent retail organisation approached digitalisation for its existing business at an early, exploratory phase when possible disruptions, their meanings and their consequences remained uncertain. To that aim, we have provided an account based upon our in-depth case study of IKEA and how the company explored digitalisation at an early stage. We have delineated the exploration phase as consisting of three chief activities – interpreting, interrelating and integrating – each of which we have detailed by identifying certain steps therein. Together, and with reference to IKEA's case, those aspects allow an understanding of the exploration phase.

Compared with previous studies on exploration and exploitation (e.g. March 1991 ; Winter and Szulanski, 2001 ) and specifically in the context of retailing ( Jonsson and Foss, 2011 ; Picot-Coupey et al. , 2016 ; Friesl and Larty, 2018 ), our paper contributes with insights on how the exploration phase is understood and organised in practice. The study further contributes to previous literature of IKEA's business model ( Hedman and Kalling, 2003 ; Sorescu et al. , 2011 ) and specific aspects of the IKEA business model (see e.g. Edvardsson and Enquist, 2011 ; Burt et al. , 2016 , 2021 ) by outlining the exploration phase in further detail. Although the activities of the exploration phase – interpreting, interrelating and integrating – stem from a specific case, we believe, following the potential of qualitative in-depth case studies ( Dyer and Wilkins, 1991 ; Doz, 2011 ), that they may provide value for analysing what digitalisation or any other current or future trend means to retail businesses apart from IKEA.

Because our study was performed at a relatively early phase of adapting the business model at IKEA, some of the outcomes of that process were beyond our study's time frame. However, conducting the study during the process afforded the advantage of revealing ambiguities, scepticism and reservations amongst employees and managers, all of which are important for understanding how retail businesses can be transformed in practice due to digitalisation. In hindsight, some of those uncertainties may be expected to fade or fall into oblivion once changes appear as a continuation of their antecedents and become institutionalised in the ordinary course of business, whether such a development occurs and, if so, then how it remains to be investigated. In any case, a key contribution of our study is the understanding of how an organisation such as IKEA, a global retail giant, organises its efforts to explore digitalisation in relation to its existing business. Still, as this study was conducted in a relatively early phase of the digital transformation, we believe that the findings may differ from later implementations when digitalisation has increasingly become a norm rather than an exception and retailers having increased abilities to learn from their and other's previous experiences. An important opportunity for further research would be to study more recent cases of exploration phases in relation to digitalisation as well as comparing incumbents and entrants as well as larger and smaller organisations.

Using a case study to develop an understanding of digitalisation in retail has advantages and disadvantages. On the one hand, it affords a more profound understanding of how retail businesses are transformed due to digitalisation in practice, as well as detailed insights into the practical work within the company (cf. Saebi et al. , 2017 ). On the other, however, it can be difficult to apply the results of case studies in forming a basis for scientific generalisation ( Yin, 2003 ). Although an analysis based upon a particular case can indeed provide an understanding of the practical process, that process is liable to differ between companies and between industries. In IKEA's case, as an organisation that many companies use as a benchmark due to its long-term success, no precedent construct existed for understanding how digitalisation in retail would look – for example, by relying on normative models – but instead surfaced as an emerging process. A better understanding of how a specific retailer has approached digitalisation complements current understandings of retail's digitalisation in general ( Hagberg et al. , 2016 ; Hänninen et al. , 2021 ). By extension, we believe that the suggested conceptual framework for understanding and organising the exploration phase could be a useful tool for retail managers to explore not only digitalisation, but also any other transformation and the consequences for their businesses.

Types of data sources

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Acknowledgements

The authors contributed equally to this work. The paper is part of a research project with financial support from The Swedish Retail and Wholesale Development Council. The authors would like to thank Niklas Egels-Zandén for comments on an earlier draft of this paper, and also colleagues Catrin Lammgård and Malin Sundström who were also part of the research project. In addition, the authors would like to thank the people at IKEA who have contributed with their time and reflections, and in particular, the authors would like to appreciate Martin Hansson and Carole Bates for showing interest in this research and for inviting the authors to participate in the internal work of trying to interpret what retail digitalization means to IKEA.

Corresponding author

About the authors.

Johan Hagberg is professor of business administration specialising in marketing at the School of Business, Economics and Law, University of Gothenburg. His research revolves around the digitalization of retailing, consumption and markets.

Anna Jonsson is associate professor at Lund University, School of Economics and Management. Her research interests include learning and knowledge sharing in organizations and society. She has conducted research about various industries and organizations, including the retail industry.

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How IKEA Evolved Its Strategy While Keeping Its Culture Constant

If you’re leading your team through big changes, this episode is for you.

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The Swedish furniture maker IKEA found huge success producing quality furniture at affordable prices. But in 2017, the company was at a crossroads. Its beloved founder had died, and the exponential rise of online shopping posed a new challenge.

In this episode, Harvard Business School professors Juan Alcacer and Cynthia Montgomery break down how IKEA developed, selected, and embraced new strategic initiatives, while fortifying its internal culture. They studied how IKEA made big changes for the future and wrote a business case about it.

They explain how the company reworked its franchise agreements to ensure consistency among its global stores. They also discuss how IKEA balanced global growth with localization, developing all-new supply chains.

Key episode topics include: strategy, growth strategy, disruptive innovation, emerging markets, leadership transition, competitive strategy, company culture, succession.

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

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HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. The Swedish furniture maker IKEA found huge success producing quality furniture at affordable prices. But in 2017, they were at a crossroads. Their beloved founder had died, and the exponential rise of online shopping posed a new challenge. Today, we bring you a conversation about how to develop, select, and embrace a new strategic initiative – with Harvard Business School professors Juan Alcacer and Cynthia Montgomery. They studied how IKEA made big changes for the future while fortifying its internal culture and its external identity. In this episode, you’ll learn how the company reworked its franchise agreements to create a more managerial and modern culture, and ensure consistency among its global stores. You’ll also learn how they balanced global growth with localization – including new supply chains. This episode originally aired on Cold Call in June 2021. Here it is.

BRIAN KENNY: For some of the world’s most celebrated founders, the entrepreneurial drive kicks off at an early age. Mark Zuckerberg developed Facebook in his Harvard dorm room at the age of 18. Michael Dell made $200,000 upgrading computers in his first year of business, he was 19. Before Jack Dorsey founded Twitter, he created a dispatch routing platform for taxis in his hometown of St. Louis, while he was in middle school. But then there’s Ingvar Kamprad who began selling matches at the age of five to neighbors in his rural Swedish homestead. By the age of seven, he was buying matches in bulk in Stockholm and selling them at a profit back home. Ingvar learned early on that you can sell things at a low price and still make a good profit. A philosophy that fueled the success of his next business venture, IKEA. Today on Cold Call , we welcome professors, Juan Alcacer, and Cynthia Montgomery to discuss their case entitled, “What IKEA Do We Want?” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents network. Juan Alcacer’s research focuses on the international strategies of firms in the telecommunications industry and Cynthia Montgomery studies the unique roles leaders play in developing and implementing strategy. They are both members of the Strategy unit at Harvard Business School. And thank you both for joining me today. It’s great to have you on the show.

CYNTHIA MONTGOMERY: Thanks Brian.

JUAN ALCACER: Thank you for having us.

BRIAN KENNY: You’re both here for the first time, so we’ll try and make it painless so we can get you to come back on. I think people are going to love hearing about IKEA and getting an inside view. Most of us have had that experience of being like mice in a maze. When you go into an IKEA store, you are compelled to walk through the whole place. It’s really brilliant, so many of the touches and things that they’ve done. And this case helps to shine a light, I think, on some of those decisions and how they were made. I had no idea how old the company was. So just starting with its history, it’s going to be good to hear about that. Juan, I want you to start, if you could, by telling us what would your cold call be to start this case in the classroom?

JUAN ALCACER: I like to start the case, bringing in the emotions of the students and their relationship with IKEA. So most of our students have had some experience with IKEA. So I’d just start asking how many of you have been in IKEA, and then I’d start asking why? Why did you go to IKEA? And this time telling you all the things that you just mentioned, for instance, walking through the maze, going to eat the meatballs. So they started bringing all these small, decisions that were made through the years, that made IKEA, IKEA.

BRIAN KENNY: Who doesn’t love the meatballs? Cynthia, let me ask you, you’re both in the Strategy unit at Harvard Business School, there’s a lot of strategy underlying this whole case. I’m curious as to what made you decide to look at IKEA and sort of, how does it relate to your scholarship and the things that you think about; the questions you try to answer?

CYNTHIA MONTGOMERY: I’m really interested in the choices firms make about who they will be and why they will matter? The core questions at the identity of a company. In 1976 Kamprad laid out very, very carefully. What IKEA would do, who it would be. He identified its product range. The customers it would serve, the company’s pricing policy, all in a document called, The Testament of a Furniture Dealer. And he described it as, “the essence of our work.” And 45 years later, it was still required reading for all of the IKEA’s employees. It’s probably the most compelling statement of corporate purpose I’ve ever seen.

BRIAN KENNY: Remarkable in a company that’s based on furniture. It was a very, sort of powerful thing. There’s an exhibit in the case that shows the whole Testament. Maybe we can dig a little bit into the history here. I alluded to the fact that it’s been around for a long time. Cynthia, just tell us a little bit about how the company came to be and how it evolved over time.

CYNTHIA MONTGOMERY: IKEA started actually as a mail-order business in Sweden and in the late 1940s Kamprad noticed that despite a lot of demand for furniture, agreements between the furniture manufacturers and retailers were keeping furniture prices real high. He was interested in a different set of customers. And he decided that to attract farmers and working class customers, he needed to be able to offer quality furniture at lower prices.

BRIAN KENNY: What were some of the early challenges that they faced. I’m also curious a little bit about the Swedish culture and how that sort of factors in here. Because there was definitely undertones of that factoring into the way they set this up.

CYNTHIA MONTGOMERY: It’s a virtue to be frugal and to be very careful about how you spend your money. And that made a huge impression, particularly given his background, growing up on a farm for Kamprad, he decided he really wanted to lower the prices of furniture and began to do so. And it turned out that there was a very, very strong response from other furniture manufacturers who basically said that they were going to boycott him. They wouldn’t allow him into their furniture fairs, him personally, as well as his company. And so in turn, what happened was that they also pressured local suppliers not to sell to a IKEA anymore, basically trying to force him out of the market. And what happened was that that actually drove Kamprad to Poland as a source of supply because local firms wouldn’t supply him anymore. And in the process, he discovered that Polish manufacturers could actually make furniture at far, far lower costs than Swedish manufacturers. And that essentially gave IKEA a cost structure that was more like a difference in kind, than a difference in degree. And that proved enormously important to building almost insurmountable competitive advantage for IKEA.

BRIAN KENNY: He was also really keen with innovations early on that things like the restaurant area and the childcare space, what were some of the insights that drove him to make those kinds of decisions?

CYNTHIA MONTGOMERY: One of the things that he decided quite early on is that he wanted to have the stores located out of town. And the reason is because land there was much, much cheaper. So he built these ,as you described earlier, Brian, these gigantic stores on the outskirts of town and they had lots and lots of square footage and lots and lots of merchandise, but you know, it took time to get there. It took time to shop there and what he wanted to do was make it worth it for the customers to make the trip, worth it for them to spend a lot of time in the stores. So he decided to add restaurants and the now famous meatballs, which come in several flavors, actually around the world, and to add childcare centers that would care for young children while the parents shopped. On the low cost front, he was innovative in other ways, he actually borrowed the idea of flat pack from another innovator, but he’s the one that actually brought it to life in such a big way. Then he discovered that if you let the clients go in and pick off the furniture packs themselves, they could even save more money and lower the costs in the store.

BRIAN KENNY: So they have a pretty complicated org structure, when we start to dig into some of the nuance of the case. Juan, could you describe for us, how they’re set up from an org structure standpoint?

JUAN ALCACER: You have to realize that coming from Sweden, which is one of the countries with the highest taxation for corporations in the world. So early on, they decided to find some organization structure and legal structure that would allow them to lower taxes. And that created basically an ownership based on foundations, based in the Netherlands. And they decided, early on, to separate the company into pieces. One is the franchise store, which is basically running the brand and running the management image of the brand. And then the operational part of the company, which is a franchisee. And for many years, those two things were separated. The franchisee was also in charge of manufacturing and so forth. So it was a very strange structure, that was put in place in part by the charisma and the leadership style of Ingvar Kamprad. If I can go back to your question about the Swedish culture. One of the things that, at least for me, is very striking is that when you look at multinationals, there’s a thing called the liability of being a foreigner, which means that when you go to another country, you have some disadvantages. And you try to mitigate that liability of being a foreigner, by pretending to be of that particular country. IKEA went with a totally different approach, they’re totally Swedish. Names of their products are impossible to pronounce. The fact that they have meatballs, they have their Swedish flags all over the place. They embrace the Swedish spirit as a part of the brand. You don’t see many multinationals with that. That makes IKEA what it is today.

BRIAN KENNY: I definitely think that’s part of the appeal here in the US, for sure, is people being exposed to the Swedish culture in a way they never had before. What is the culture of the company like, what’s it like to work there?

JUAN ALCACER: We went to both the Netherlands and to Sweden and we had a great time. It’s a very egalitarian culture. All the VP’s, high-level managers, none of them have an assistant. Only the CEO has an assistant. They don’t have offices, so everybody shares an open space. The whole place is decorated with IKEA furniture, everybody talks to each other by their first name. It’s very collegial, very friendly.

CYNTHIA MONTGOMERY: I would add to that. I think IKEA was incredibly generous to us, in the sense that they shared all kinds of confidential, internal documents and were really willing to talk in a very open and forthright way, about both their strengths and their challenges, which was incredibly refreshing. And as Juan said, that it was very egalitarian, and not surprisingly IKEA was one of the first companies to embrace democratic design. And that spirit was everywhere in the company.

BRIAN KENNY: Cynthia, what would you say are some of the keys to their success over the years?

CYNTHIA MONTGOMERY: I’d say that IKEA basically picked a lane and stuck with it. They had clarified, as I said at the top of the show, very, very carefully about what they wanted to do, who they wanted to be. And what they said is, look, this is what we’re going to be about. We’re going to offer an extensive range of practical, well-designed furnishings at low prices. And we’re going to serve the many, not the few. And the many are those with limited financial resources. When you have such clarity about what you want to do, then you can set out and try to maximize how you approach that. Essentially IKEA built a system, to do exactly that, extremely well and their distinctiveness made them truly an iconic firm. And it’s great when you talk with students about, what’s the purpose of your business?, What are you doing? What’s interesting is that oftentimes they can describe much more carefully what IKEA is doing, than what their own businesses doing. The last thing I would add, is that as Juan one said, they’re really synonymous with Sweden and they put that right out there. It’s almost like the way that Coca-Cola is synonymous with the US. And that has been a big part of their advantage.

BRIAN KENNY: Okay. So we’ve painted a very rosy picture for IKEA, but it’s an HBS case. So there’s tension, inevitably. So let’s dig in a little bit to where the case brings us. I’m going to mispronounce his name. I hope I don’t, but Torbjörn Lööf is that close?

CYNTHIA MONTGOMERY: Yeah.

BRIAN KENNY: He is the protagonist in the case. And he is stepping into a leadership role here really after an iconic leader has stepped back and that’s a challenge. Any time that happens, and a leader has to step in. And as he starts to sort of peek underneath the hood a little bit, he starts to see some of the challenges that IKEA is facing in this now seventh decade, I guess, of their existence. So Juan, maybe you can set that up for us a little bit.

JUAN ALCACER: It’s not only that he is stepping in the shadow of a leader that created the company. It’s that the company is still controlled by the family. So this is not a public firm, this is a private firm. So, he had to basically walk a very, very thin line, trying to take IKEA towards the future, but still preserving the past. And he had basically two main tasks, one is short term, that organization restructure that we were talking about, that was very complicated was created products. As I said before, the franchisee, which is basically the one that was running all the operations, was also the manufacturer. But there were other franchises. So for instance, the operations in Middle East are run by another company. So they wanted to create a system of transparency, that all the franchises are run the same way. When you have a franchisee that has basically represented 80% of your sales, and the ones that are representing 2% or 3%, there is an imbalance of power. So they tried to create a structure that is more managerial, that is more modern, that will allow to create incentives for new franchisees to come into the system. So that transaction was basically transferring production and transferring the functions that were in the franchisee back to the franchisor. There were 25,000 people that have to move from one place to another.

BRIAN KENNY: Wow.

JUAN ALCACER: They didn’t move physically, but in terms of the legal status they shift around. And the second is to bring IKEA to the world. What they observed is that there were some changes in demographics, they were targeting the low-income, what they call the thin wallets of the world, but it turned out that people that would go to IKEA are not thin wallets anymore. These people have already moved towards the middle-class and they also have this whole, to increase the number of consumers to three billion, and that meant that they have to basically grow globally, at a rate that they have never done, before they had two or three markets, like China and India. They also have the issue of eCommerce, to pick up and every retailer in the world is dealing with that. So, it’s two steps. One, getting the house in order, and second one, creating a path for the future for IKEA to become an icon for the next 75 years.

BRIAN KENNY: Yeah. And I also think at some level it’s hard to sustain that original mission that they set out with, when you’re trying to expand so rapidly and bring in a much larger audience. Cynthia, I don’t know if you have other observations about these changes they were facing.

CYNTHIA MONTGOMERY: Absolutely. Because one thing is that you can look at the challenges that came from expanding into new geographies. But the other thing that they found in a large study that they did, is that there were challenges in their core business as well, that the countries they’d been in for a number of years, and what I’ll call the big blue box stores, mostly in developed countries. What they found is that increasingly many of their customers in those markets wanted new conveniences. They wanted stores that were located closer to city centers because a number of people say in their late twenties, early thirties are not driving and don’t have cars. And they found that there was an increasing demand for delivery and assembly services for shopping online. These trends are worrying to a huge number of retailers, but particularly a challenge to IKEA because low price, low, low price, so low that that people can recognize the difference. That being at the heart of their strategy. And customers’ willingness to spend time getting to the store, hauling furniture about, ultimately assembling it. Those are at the very, very heart of their low-cost strategy and their very distinctive value proposition. It was a big challenge within the developed markets as well.

BRIAN KENNY: And depending on where they went in the world, a different set of challenges pops up almost everywhere. Juan, you mentioned earlier that they pushed back against localization, but is that a sustainable strategy? When you’re trying to go into entirely new markets like China and India.

JUAN ALCACER: The beauty of IKEA is that they found a segment across different cultures that was very similar. College students the United States, that needed to have furniture for a few years only, it could be young couples that are opening a new house, in some places it’s immigrants that are moving from one country to another country that need to buy furniture, but they don’t have the money to do so. So there was this very common segment across the world that they were able to then define, that allows them to have basically 80% of their line, of their range, is common across countries. And they have around 10% to 20% that varies by country. Now, when they go to China, and they go to India, they find that the changes have to be of a higher scale for three reasons. One, the tastes are different, also the materials, when you are going to India and you are going to houses that are in a high humidity environment, the type of wood that you can use is different. Now you start, not only changing the look of the product but you also have to change how you made it. And the third big challenge is when you look at what is defined as thin wallet, in these markets, is really thin. It’s not thin wallet in Sweden, it’s not thin wallet in the United States. So, you have to go to prices that are really, really low. And that means that you are already a low cost producer but you have to go even lower. That means that you have to change your supplier, so it starts changing the fundamental parts of the business model that they created through the years.

BRIAN KENNY: And it could probably, pretty easily, get away from you. So this does call for a strategy. Cynthia, can you describe for us what the three roads forward are? This was sort of underpinned their strategy going forward and how they were going to deal with some of these challenges.

CYNTHIA MONTGOMERY: Basically, the three roads, the first was affordability, as Juan said, this isn’t affordability in the way that they, at the level at which they’ve traditionally thought about it. This is affordability for wallets that are either very thin or actually where the willingness to pay just isn’t as high, because they’re accustomed to having goods that are at very low prices. So they wanted to attack affordability for people who could not afford IKEA today. They cared a lot about accessibility. They’ve got to reach and interact with people where they are. And the last is sustainability, and they felt really, really strongly about this. And I think much in line with what you see with a number of other countries in Europe, that they cared a lot about the sustainability of the products and wanted to make a positive impact for people, society and the planet. And they’re taking on all three of these aspirations at once.

BRIAN KENNY: You have written many cases, I’m sure that parallel this, what are some other firms that have faced similar challenges and maybe figured out a way to deal with the same sets of challenges?

JUAN ALCACER: The challenge of going overseas, we didn’t write cases about multinationals for many years. They always have this tension between coordination in headquarters and adaptability in each one of the subsidiaries. So IKEA was very good at playing that game for many, many years. In a way they were going to countries that were somehow similar to Sweden. Now that they are venturing to countries that are farther away in many dimensions, not only physically, but also in terms of economic distribution, in terms of taste. They are seeing this tension to be amplified. We have seen that in many companies, Procter and Gamble has been doing that for years and years, Unilever has been doing that for years and years. IKEA has done it for 75 years. They went overseas very early on. But now the challenge is a little bit higher. The other challenge is that Cynthia also mentioned, which is basically adapting to new technologies and new demographics. Every retailer is facing that. Any supermarket, any chain that has been selling in brick and mortar is facing those challenges. So, what is interesting about IKEA is that they are facing these all at the same time and they’re facing this during the process of transition from the leader that created the company to a new set of managers that are more professional and are not part of the family.

BRIAN KENNY: You mentioned technology. I’m just curious, the role that the internet plays in this, because now everybody can see, you know, through YouTube and other things, what the experience is like from one place to the other, and how important is consistency across all those geographies, versus a little bit of localization to make it feel a little bit more like this is the China version of IKEA versus the European version of IKEA. Cynthia, do you have thoughts on that?

CYNTHIA MONTGOMERY: That’s the real challenge here in the sense that, how do you take this whole model that has been developed over so many years? And it’s very, very hard to imitate, which has given them a lot of strength over the years, but when the environment changes, instead of responding in a piecemeal way to all kinds of external stimuli, it’s how do you take this whole model and evolve it in some coherent way that stays true to the iconic sense of who IKEA is? I really see it fundamentally, as an existential question for IKEA.

BRIAN KENNY: Such a great point. Look, I want to thank both of you. This has been a really interesting discussion about a brand that we all know and have experienced many times firsthand. I have one more question for each of you before we part ways. And that would be if there’s one thing you want people to take away from this case, what would it be? Juan, let’s start with you.

JUAN ALCACER: What I would like listeners to take from this, is we have this mentality of growth, growth, growth, and expanding and doing different things, and when you look at IKEA, you have to wonder, is it better that IKEA stays doing what they do well, or do they have to keep growing and entering all these markets and adapt to overseas. We have this basic assumption that growth at any cost should be the goal. I would like the listeners, when they look at the case and think about the cases, to question that very basic assumption.

BRIAN KENNY: Cynthia?

CYNTHIA MONTGOMERY: One of the things about IKEA that I think it’s really, really important to know is that they really brought something different to the world and they did it in a very compelling way. So at the heart, to do something that’s distinctive, that adds value. It comes through really strong in the IKEA story. At the same time, when the environment changes, how do you evolve, is really challenging. And so the fact that they’re being so open in how they’re confronting this, I think there’s a lot to learn there. It’s a challenge. I think it’s really important to remember what’s at the heart of this company, is that they’re really bringing something that’s very unique and they need to continue to do that.

BRIAN KENNY: Juan Alcacer, Cynthia Montgomery, thank you so much for joining me. The case is called, “What IKEA do we want?” Thanks again.

JUAN ALCACER: Thank you.

HANNAH BATES: You just heard Harvard Business School professors Juan Alcacer and Cynthia Montgomery in conversation with Brian Kenny on Cold Call .  We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review. If you want more podcasts, articles, case studies, books, and videos like this, find it all at HBR dot org. This episode was produced by Anne Saini, and me, Hannah Bates. Ian Fox is our editor. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.

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Ingvar Kamprad and IKEA

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IKEA’s Localization Strategy: A Masterclass in Global Expansion

• January 12, 2024

Table of Contents

The ikea localization strategy, ikea’s localization strategy: a delicate balance of standardization and adaptation, ikea’s localization strategy in china: adapting to local preferences, ikea’s localization strategy in india: embracing local customs and tastes, ikea’s localization strategy in japan: the importance of understanding local preferences, key takeaways from ikea’s localization strategy, accelingo: your partners in localization success.

In a world where companies are increasingly competing globally, the ability to tailor products and services to local markets is crucial for success . Thanks to their localization strategy, IKEA, the Swedish furniture giant, has mastered this art, becoming a household name in over 50 countries and amassing a staggering $42 billion in annual revenue.

IKEA’s international expansion success can be attributed to its unique localization strategy, which strikes a delicate balance between standardization and adaptation. The company maintains a core set of principles and values that resonate across cultures , but it also makes strategic adjustments to cater to local preferences and market conditions.

This localization approach has allowed IKEA to successfully navigate the diverse and ever-changing landscape of international business. From adapting its product designs to fit smaller Asian homes to partnering with local assembly services in China, IKEA has consistently demonstrated its ability to connect with consumers on a global scale .

In the realm of international business, localization is the art of adapting products, services, and marketing strategies to suit the specific needs and preferences of a target market. This involves a delicate balance between standardization, which ensures consistency and brand recognition, and adaptation, which enables a deeper connection with local consumers . IKEA, the Swedish furniture giant, has masterfully navigated this balance, becoming a global success story with over 450 stores in 52 countries, according to Statista .

Standardization versus Adaptation: Striking the Right Chord

Standardization, often associated with economies of scale, involves creating a consistent product or service offering across all markets. This approach can streamline operations, reduce costs, and enhance brand recognition. However, a purely standardized approach can fail to resonate with local preferences and cultural nuances , leading to missed opportunities and potential brand alienation.

Adaptation, on the other hand, involves tailoring products, services, and marketing messages to specific market contexts. This approach can foster deeper connections with local consumers, address cultural sensitivities, and enhance brand relevance. However, over-adaptation can lead to brand dilution , fragmentation of the global brand identity , and increased costs from localized production and marketing efforts.

IKEA’s Middle Ground: A Strategic Approach to Localization

IKEA has successfully navigated this standardization-adaptation dichotomy, adopting a hybrid approach that strikes a delicate balance between the two strategies. The company maintains a core set of design principles and values that underpin its global identity, such as its commitment to affordable, stylish furniture that can be assembled by consumers . However, IKEA also makes strategic adaptations to cater to local preferences and market conditions.

Examples of IKEA’s Localized Approach

IKEA’s localization efforts are evident in its product designs, store locations, and marketing strategies across different markets. In China, where many consumers prefer to have furniture assembled professionally, IKEA partnered with local assembly services to enhance customer convenience. In India, IKEA adapted its product range to include items more suited to local tastes and dietary habits , such as smaller furniture pieces and vegetarian dishes in the company’s restaurants. And in Japan, where smaller living spaces are common, IKEA introduced smaller-sized furniture designs that better fit the constraints of Japanese homes.

The Importance of Cultural Understanding

IKEA’s success in localization is deeply rooted in its commitment to understanding local cultures and customs. The company conducts extensive market research and cultural sensitivity training for its employees to ensure that its products, services, and marketing efforts align with local expectations. This deep cultural understanding has enabled IKEA to forge meaningful connections with consumers across the globe.

The Value of Localization for Businesses

IKEA’s localization strategy serves as a valuable case study for businesses seeking to expand internationally . By striking an effective balance between standardization and adaptation, companies can enhance their brand relevance, increase customer satisfaction, and gain a competitive edge in global markets .

IKEA’s entry into the Chinese market in 1998 marked a significant milestone in the company’s global expansion journey. However, the company’s initial attempts to replicate its successful Swedish model in China met with challenges due to cultural differences and consumer preferences .

Cultural Barriers to Overcome

One of the primary challenges IKEA faced in China was the cultural norm of having furniture professionally assembled. In Swedish culture, self-assembly is seen as a badge of honor, symbolizing resourcefulness and DIY capabilities. However, in China, furniture assembly is considered a time-consuming and undesirable task , often assigned to hired professionals.

This cultural difference posed a significant obstacle to IKEA’s core business model, which relies on customers assembling their own furniture. IKEA’s initial efforts to introduce self-assembly instructions in Chinese were met with resistance, as many consumers were hesitant to tackle the task themselves .

Partnering with Local Expertise

To address this cultural barrier and enhance customer convenience, IKEA made a strategic decision to partner with local furniture assembly services in China . This move proved to be a game-changer, allowing IKEA to tap into the existing expertise of local professionals while still maintaining its commitment to affordable furniture.

The partnership with local assembly services not only addressed customer preferences but also created new employment opportunities and strengthened IKEA’s ties with the Chinese community. As a result of this adaptation, IKEA’s sales in China skyrocketed, reaching $1.6 billion in 2019 .

Other Localized Adaptations in China

IKEA’s localization efforts in China extended beyond furniture assembly. The company carefully tailored its store locations to suit Chinese shopping habits , opting for central locations near public transportation hubs to cater to busy urbanites.

IKEA also adapted its product range to meet the specific needs of Chinese consumers. The company introduced smaller-sized furniture designs to fit the limited living spaces of many Chinese households, and it also expanded its selection of home appliances to include items more suited to local cooking and dining preferences .

The Success of IKEA’s Localization Strategy in China

IKEA’s success in China is a testament to the power of localization in global business . By understanding and adapting to local preferences, the company has successfully established itself as a leading furniture retailer in China, with over 36 stores and a strong online presence, as per IKEA .

IKEA’s experience in China highlights the importance of cultural sensitivity and adaptation in international business. By making strategic changes to its products, services, and marketing strategies, IKEA has successfully connected with Chinese consumers , demonstrating that localization is not just a matter of complying with local regulations but also about forging meaningful connections with local communities.

IKEA’s expansion into India in 2018 marked a significant milestone in the company’s global journey, opening doors to one of the world’s most populous and rapidly growing markets . However, the Indian market presented its unique set of challenges, including cultural nuances, regulatory hurdles, and a diverse consumer base.

Navigating Cultural Nuances and Regulatory Hurdles

India’s complex cultural landscape presented IKEA with a unique set of challenges. The country is home to a diverse range of religions, customs, and traditions , which IKEA needed to carefully consider in its product offerings and marketing strategies.

Additionally, the Indian market was characterized by complex regulatory frameworks and logistical challenges, requiring IKEA to adapt its operations to comply with local standards and ensure efficient supply chains.

Adapting to Indian Consumer Preferences

To succeed in India, IKEA recognized the importance of tailoring its products, marketing, and customer experience to resonate with local sensibilities. The company conducted extensive market research to understand Indian consumer preferences, cultural norms, and dietary habits.

Tailoring Products and Menus to Local Tastes

One of the most notable adaptations IKEA made in India was the expansion of its product range to cater to local tastes and preferences. The company introduced smaller-sized furniture pieces to suit the compact living spaces of many Indian homes , and it also incorporated elements of Indian design and craftsmanship into its products.

In addition to product adaptations, IKEA also made significant changes to its food offerings in India. The company’s restaurants in India feature a menu that includes a wide variety of vegetarian and vegan options , reflecting the dietary preferences of a large portion of the Indian population.

Pricing Strategy for Affordable Furniture

IKEA’s commitment to affordability, a core tenet of its business model, was particularly important in India, where price sensitivity is a prevalent consumer trait . The company carefully considered pricing strategies to ensure its products remained accessible to a broad range of Indian consumers.

Localization Efforts in Marketing and Customer Experience

IKEA’s localization efforts extended beyond product design and menus; the company also adapted its marketing strategies and customer service approach to Indian sensibilities . The company employed local marketing campaigns that resonated with Indian cultural references and values, and it also trained its employees to provide culturally sensitive customer service.

The Success of IKEA’s Localization Strategy in India

IKEA’s efforts to embrace local customs and tastes have been met with remarkable success in India. The company’s stores have been warmly welcomed by Indian consumers , and its sales have grown steadily since its entry into the market. In 2020, IKEA opened its second store in India, and plans for further expansion are underway according to INGKA .

IKEA’s experience in India serves as a compelling example of the power of localization in international business. The company’s ability to adapt its products, services, and marketing strategies to align with local preferences has been instrumental in its success in this challenging yet promising market.

IKEA’s journey into the Japanese market in 1974 marked a pivotal moment in the company’s global expansion strategy. However, the company’s initial foray into Japan was met with challenges , highlighting the importance of understanding and adapting to local preferences in international business.

Initial Setback and the Over-Reliance on Standardization

IKEA’s initial attempt to replicate its successful Swedish model in Japan failed to resonate with local consumers. The company’s standardized product designs, often characterized by larger sizes, were incompatible with the compact living spaces of many Japanese homes . Additionally, IKEA’s marketing campaigns, which emphasized self-assembly, conflicted with Japanese cultural norms of craftsmanship and professional convenience.

As a result of these missteps, IKEA’s sales in Japan were initially sluggish , and the company was forced to withdraw from the market in 1986 .

Learning from Failures and Embracing Local Preferences

After withdrawing from Japan, IKEA took a step back to reassess its approach and make necessary adjustments. The company conducted extensive market research to understand Japanese consumer preferences , cultural nuances, and design sensibilities.

Strategic Comeback with Localized Adaptations

In 2006, IKEA made a strategic comeback to Japan, this time with a localized approach that emphasized adaptation to local preferences. The company introduced smaller-sized furniture designs, tailored to the limited living spaces of Japanese households . Additionally, IKEA partnered with local assembly services to offer convenient and professional furniture assembly services, aligning with Japanese preferences.

Localized Marketing Campaigns and Cultural Sensitivity

IKEA’s marketing campaigns in Japan also underwent a transformation, incorporating local cultural references and values. The company used traditional Japanese art and design elements in its store décor and marketing materials , creating a more immersive and culturally appropriate experience for Japanese consumers.

Continuous Research and Adaptation

IKEA’s experience in Japan highlights the importance of continuous research and adaptation in the face of cultural and market shifts. The company recognized that globalization does not mean homogenization ; rather, it requires a deep understanding of local preferences and a willingness to adapt to the specific needs of each market.

The Success of Adaptation: IKEA’s Thriving Presence in Japan

IKEA’s localized approach has been instrumental in its success in Japan. The company has established a strong presence in the market, with over 10 stores and a growing customer base . IKEA’s sales in Japan have consistently increased since its comeback , demonstrating the power of localization in connecting with local consumers.

IKEA’s experience in Japan serves as a valuable lesson for businesses seeking to expand internationally. By understanding and adapting to local preferences, companies can successfully navigate the complexities of global markets and build strong relationships with consumers across borders.

IKEA’s remarkable success in expanding its global footprint can be attributed to its unwavering commitment to localization , a process of adapting products, services, and marketing strategies to suit the specific needs and preferences of a target market.

Accelingo is a leading translation and localization agency with a proven track record of helping businesses thrive in the global marketplace. With over a decade of experience and a team of highly skilled linguists and cultural experts, Accelingo provides comprehensive localization services that enable companies to seamlessly adapt their products, services, and marketing strategies to local markets.

Accelingo’s Localization Expertise

On top of our language translation services , at Accelingo we offer a wide range of localization services , including:

• Expert translation: Accelingo’s team of native speakers delivers accurate and culturally sensitive translations across a diverse range of industries and languages.
• Cultural adaptation: Accelingo goes beyond mere translation to ensure that content resonates with local audiences, considering cultural nuances, sensitivities, and market trends.
• Localization strategy development: Accelingo helps businesses develop comprehensive localization strategies that align with their overall business goals and marketing objectives.

As you embark on your global expansion journey, let IKEA’s localization playbook serve as your guide. By embracing a deep understanding of local cultures, continuous adaptation, and a balanced approach to standardization and localization, you can unlock the key to success in the ever-evolving global marketplace . At Accelingo, we’re ready to partner with you every step of the way, from market research and strategy development to expert translation and cultural adaptation . Contact us today for a free consultation and let’s transform your global ambitions into reality.

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How IKEA became a household name with digitalization, consistency, and experience

Table of contents, in the beginning....

Just about 80 years after it was founded, IKEA has become one of the world’s top furniture companies. Today, it’s known as a place where shopping is truly an experience, not just a chore. Between the popular food courts and handsomely designed showrooms, IKEA is simply a fun place to spend an afternoon — and be productive at the same time. 

Of course, the company wouldn’t still be in business if it wasn’t able to provide great products as well. Throughout the years, IKEA has carved out a name for itself as a company that provides unique and high-quality furniture at a great price — some assembly required. As a result, it’s particularly popular among young and thrifty shoppers. 

Here’s what the company’s numbers look like at a glance:

• In 2020, IKEA’s brand value was $17.97 billion
• By 2020, it had opened 445 stores worldwide
• It was the leading retail furniture company in Europe by turnover in 2019 ( €16.9 billion generated )
• Nearly 220,000 employees in 2020
• Over 800 million customers visited an IKEA in the US despite the pandemic
• Stores in over 50 global markets

In this strategy study, we’re going to explain how IKEA became not only one of the world’s leading retail furniture brands, but a global cultural icon. From rural Sweden to the global marketplace, this is the story of IKEA’s rise.

The vast majority of people alive today have never lived in a world without IKEA. In fact, many of us have fond childhood memories of walking through one of its stores with our parents and enjoying some tasty Swedish meatballs before heading home.  

But IKEA didn’t appear spontaneously. It was brought into existence thanks to the hard labor and ingenuity of one man: Ingvar Kamprad. To understand IKEA’s success, we need to understand the man behind it.

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The founder's first steps

Ingvar Kamprad was born in 1926 in Angunarryd, a small town in the Småland province of southern Sweden. Heir to a poor family of farmers, Ingvar was surrounded by financial insecurity and quickly learned the value of money and hard work. 

From an early age, Kamprad exhibited an entrepreneurial spirit. By the time he turned six, he had already started his first business selling matches, buying them on the cheap in Stockholm and selling them at a profit in his hometown. Two years later, he moved into the vehicle business, selling bicycles to his neighbors. As he grew older, his enterprises moved into various different products, ranging from Christmas tree decorations to fish to seeds and beyond. 

When Kamprad turned 17, his father made good on a promise to provide him with money if he succeeded in his schoolwork. He used that money to found what we now know as IKEA.

Kamprad founded IKEA while sitting at his uncle Ernst’s kitchen table in 1943, deriving the name from his own (Ingvar Kamprad), his family farm’s (Elmtaryd), and his hometown’s (Angunarryd). 

At the start, IKEA was not a furniture business. Instead, Kamprad sold small household goods, such as pens and wallets, which customers ordered through a mail-in catalog and would receive via milk truck delivery. This catalog was an essential feature of Kamprad’s business, as his rural location made it difficult to conduct business any other way. 

It wouldn’t be until 1948, five years later, that Kamprad would get into the furniture business and begin shaping IKEA into what we know it as today.

Necessity breeds innovation

Although many people imagine that businesses always start out with their unique selling propositions fully formed, this could not be further from the truth. IKEA is a perfect example of a company that grew into its own, finding its way not through some clear vision at the outset but through many small “aha” moments that shaped it into its current form. In fact, many of the features that we recognize IKEA by today came completely in response to difficulties — they were creative solutions to the problems Kamprad faced. 

Right out of the gates, IKEA made a name for itself as a retailer with extremely low prices.  In 1951, it launched its first catalog, which offered low-cost, chic, and stylish furniture with the convenience of mail-order shopping.

As appealing as budget-friendly options may be, they also raised concerns: customers simply couldn’t believe that quality furniture could be had at such a bargain. As a result, they began to worry about IKEA’s quality. 

To solve this, Kamprad came up with a solution: set up a showroom. Now, customers could come into his store, look at the furniture themselves, and walk away with it. Problem solved. 

But this wasn’t the end of IKEA’s pricing struggles. Although the consumers had been pacified, the producers were still unhappy — but for an entirely different reason. In 1955, the producers that IKEA used started boycotting the business, claiming the prices were too low.  Instead of viewing this as an insurmountable problem, Kamprad took it as an opportunity to bring manufacturing in-house.

The last major innovation came as a bit of a happy accident one year later in 1956. One day, as Kamprad watched an employee load up a customer’s table into their car, he noticed something interesting: the employee had removed the table’s legs to help it fit. 

Then it hit him: if Kamprad sold his furniture disassembled, he could fit more of it into a single truckload, thus saving money on shipping costs. Instead of trying to fit fully-assembled tables together, leaving tons of empty space in the truck, he could pack everything flat. 

This “aha” moment gave IKEA what is perhaps its most recognizable feature — it became a retailer of furniture that required assembly at home, thus making it cheaper, easier to carry out of the store, more efficient for delivery, and rather fun to set up.  Although flatpack furniture already existed, it wasn’t yet popular in Sweden. This observation showed Kamprad an untapped market opportunity. 

By the time IKEA had pivoted to flat-packing, it had achieved several milestones: it now manufactured all its own products, it ran its own showrooms, and it provided high-quality, low-cost products that appealed to young people. At this point, IKEA had stepped into its modern skin.

Key takeaway #1: limitations boost creativity

IKEA didn’t emerge from Kamprad’s kitchen as a fully-formed entity. Quite the opposite: the first thirteen years of operations were an experimental period during which Kamprad sought out solutions to the problems that confronted him.

IKEA’s development wasn’t visionary but reactionary. Although Kamprad always envisioned IKEA as a company that sold high-quality, low-priced products with mass appeal, it was the sum of Kamprad’s clever solutions over time, such as shipping disassembled furniture to save on packing space, that shaped IKEA into what it is today. 

All great businesses are essentially solutions to difficult problems. When faced with a seemingly intractable issue, business leaders should view it as an opportunity for growth, not as a disruption to their normal operations. For all you know, that nagging problem could be what turns you into the world’s next IKEA.

IKEA goes global

From the beginning, international expansion has been a cornerstone of IKEA’s growth strategy. And if you think about it for a minute, it makes a lot of sense: Sweden is a small country with a population of only 10 million. That imposes a pretty low ceiling as far as business growth is concerned. 

Ingvar Kamprad knew that if he wanted to grow his company, he would need to go beyond Sweden’s borders. But unlike many other brands (Walmart and Home Depot, to name a few), he actually succeeded in his internationalization project. In 2018, IKEA had company-owned stores in 24 countries and franchises in many more. Currently, there are over 50 IKEA locations around the world, and the company is continuing to expand. 

Let’s take a look at what made IKEA’s globalization so successful.

Patience is a virtue: starting local

At the start, IKEA threaded lightly. Although international expansion was clearly a goal from the start, as indicated by Kamprad’s maxim “it is our duty to expand,” IKEA didn’t come out with guns blazing. Its first expansion efforts were within markets it already fully understood: its neighboring Scandinavian countries. 

The first international IKEA branches were in Norway (1963) and Denmark (1969). Just going by the dates alone, it’s clear that this was by no means a rapid expansion. Kamprad took things slow, making sure to firmly establish his business in the local market. 

By 1973, Kamprad was positioned well: he had opened up stores in all three Scandinavian countries, and he had captured 15% of the Swedish market share. He was ready for his next step. 

Going continental

In 1973, Kamprad decided to take IKEA beyond the borders of snowy Scandinavia and into the broader international market. 

At the time, the German-speaking countries had the largest furniture markets. And beyond that, they were fragmented: 67% of furniture companies had fewer than three employees and were in expensive locations, meaning that there was a gap in the market for non-boutique, affordable furniture. Kamprad believed that “if it works in Switzerland, it’ll work anywhere,” and chose the quiet country as his next stop on the continent.

Kamprad selected a small suburb outside of Zurich, called Spreitenbach, as his entry point. This small area accounted for 20% of the consumer purchasing power, so was a logical choice. To promote the new store, he circulated 500,000 catalogs filled with off-beat advertising. Within a year, he had 650,000 visitors. The store was a smashing success. 

A year later, Kamprad opened a store in Munich, West Germany, that attracted 37,000 visitors in just the first three days. Over the next five years, IKEA conquered a 50% share in the German cash-and-carry market. To this day, IKEAs biggest market is Germany, where it has 53 stores. 

Although there was opposition from more traditional furniture retailers (and even some court-mandated penalties), by this point it was becoming clear to everyone in the industry that IKEA had something special. The model was here to stay, and competitors needed to start taking notes. 

Learning from your mistakes: IKEA's "secret' formula

From 1973 onwards, IKEA began to expand at a much more rapid pace. But it hit a snag: in 1974, IKEA entered the Japanese market. Although it stayed around for 12 years before closing down, the entry was ultimately a failure. 

What went wrong? At the time, IKEA thought it could export its current business model wholesale without making any changes to fit the culture it was expanding into. Japan had a very service-oriented culture, and the people didn’t take well to the do-it-yourself attitude that IKEA was offering. But IKEA was also not a fit with the Japanese market on a much more literal level: its products simply weren’t compatible with the size of the average Japanese home. 

Luckily, IKEA was able to learn from its mistakes. After its Japanese fiasco, the company began tailoring its expansions to the market much more thoroughly. In its 1985 US expansion, for example, it ensured that its products matched up with the sizes that Americans would expect. In its recent 2018 entry into the Indian market, it made sure to set up customer service booths, where employees can help customers build their products — an important feature given that India, like Japan, does not have a strong DIY culture. 

In an almost literary redemption story, IKEA re-entered the Japanese market in 2006. Its newer stores implemented features that meshed better with Japanese culture, such as assembly assistance, delivery, and of course: products that were hand-selected to fit Japanese homes.

By all measures, IKEA’s return to Japan was a success (as of 2020, there were nine stores across the country) and gives clear proof that not only has the company learned from its mistakes, but it has developed a truly mature expansion strategy. 

Key takeaway #2: learn from your mistakes and the customer is always right

Some of IKEA’s initial expansion efforts failed because the company was a bit stubborn — Kamprad believed that what worked in Europe should translate directly into every market.

This was a huge mistake. Within twelve years, IKEA’s first expansion into a non-European market had failed. But this failure wasn’t without its lessons. 

Japan taught Kamprad that his products needed to fit the customer, not the other way around. While he didn’t upend IKEA entirely to fit into new markets, he did make small but necessary changes that would help the stores integrate better into different cultures. 

On a conceptual level, business leaders should realize that every mistake is a learning opportunity. Although Japan started out as a failure, without this mistake under Kamprad’s belt, he likely wouldn’t have been able to catch his missteps, and he may never have learned how to successfully expand into foreign markets. 

On a more concrete level, the key takeaway here is that the same market entry strategy won’t work across the board. 

Ikea growth strategy

There are a lot of reasons why IKEA was able to make the global impact that it has — a talented founder at the helm, a successful market entry strategy, and an ingenious business model are just a few. 

But there’s something else that has helped IKEA climb the ranks and become one of Sweden’s largest cultural and business exports: differentiation. IKEA’s differentiation strategy can be divided into three prongs: 

• Swedish Design and Influence
• Cost leadership
• Unique experience

The sum of these three parts is a company that offers a unique and appealing product at a low cost and with a unique shopping and assembly experience. Let’s take a look at how IKEA was able to build a name for itself and stand out from the crowd. 

Swedish design

Today, Swedish design has become synonymous with sleek, minimalist, and aesthetically appealing furniture and interiors. Of course, IKEA didn’t invent the style itself —  its pioneers were the likes of Bruno Mathsson and Astrid Sampe. But even though Ingvar Kamprad wasn’t the mastermind behind Swedish design, it’s undeniable that his company helped bring the style to a worldwide audience. 

However, like most parts of IKEA’s development, its design language didn’t come out of the womb fully formed. In the early days, IKEA’s furniture offerings were fairly conventional — a far cry from the eccentric shapes and unusual colors it would later employ. At that time, IKEA differentiated itself primarily from a cost leadership and convenience standpoint. 

That said, even in 1954, the beginnings of IKEA’s signature designs were taking form. That year, the Lovet table,  one of IKEA’s most well-known designs, was introduced. The wood table was crafted to look like a leaf, giving it an eye-catching and aesthetically pleasing appeal. It also happened to be the first of IKEA’s flatpack offerings. 

By the 1970s, IKEA had truly entered its own, offering furniture that looked unlike almost anything on the market — at least at the same price point. Many of the pieces released during that time are still popular today, such as the classic Poäng chair. 

Swedish flair

But looking at the design of the furniture itself doesn’t tell the whole story. IKEA built up a brand aesthetic that exudes Swedishness in everything from the names to its logo, which uses the Swedish flag’s colors. 

Take IKEA’s product names as an example. Although the company learned that it needs to alter its catalog a bit for every new market it enters, one thing stays the same in every country: the names. Outside of Scandinavia, practically no one can pronounce them, but that’s part of their appeal — strange and alien-looking names like Poäng, Ektorp, and Famnig are intriguing and stand out from competitor offerings. 

There’s a good reason for those exotic names. Apparently, Kamprad struggled with dyslexia and decided to name the furniture after Swedish towns and villages, humans, and other applicable Swedish names. 

Ektorp sofa is named after a village just outside Stockholm

IKEA’s shift to Swedish branding evolved as it expanded into foreign markets. This makes sense — the exotic appeal of the Swedish language doesn’t have the same effect in Sweden. This development can be seen especially clearly in its logo design.

Originally, the IKEA logo was quite bland. In 1951, it was nothing but a reddish stamp with the name “ikea” stamped in the middle:

In 1967, IKEA’s logo almost entered its final form: a circumscribed name in capital letters with a rectangle surrounding it. 

Finally, in 1983, as IKEA was making significant advantages in its globalization effort and close to opening its first US store, it hit on the right design: the familiar gold and yellow logo.

If you’ve ever seen a Swedish flag, it’s clear where the logo takes its inspiration from. With this move, IKEA made it clear that it was a Swedish company, and that foreign flair helped differentiate it.

But there were still a few final touches that needed to be added. In 1985, when IKEA opened its first US store, it also launched the iconic Swedish meatballs, aka Kottbullär. Although the IKEA restaurant had been a feature of the store from the beginning (Kamprad firmly believed that “it’s tough to do business with hungry stomachs”), it was at this point that the menu took an even more decidedly Swedish turn. 

Swedish food became so important to IKEA’s brand image that nowadays, the last thing you see as you exit the store are bottles of lingonberry jam and Kottbullär available for purchase. 

Cost leadership and the "IKEA effect"

From the very start, IKEA was envisioned as a brand that would provide budget-friendly products to the masses. Although those products changed over time from small household goods to furniture, the mission statement stayed the same. 

In the end, IKEA succeeded in its mission. Today, IKEA is the go-to brand for young people in need of cheap furniture for their first houses and apartments — and frugal people of all ages aren’t shy to walk through IKEA’s doors either. 

Flat-pack and modularity

So, how exactly was IKEA able to keep its costs so low? For the most part, it comes down to IKEA’s reliance on self-assembled and flat-packed products. In the early days, IKEA sold fully-assembled furniture. It wasn’t until 1954 that Kamprad got the idea to pivot to flat-packed goods. 

This change provided several advantages. Obviously, it made shipping and transportation costs lower — with flat-packed goods, more products can be loaded up into a single delivery truck. Along the same lines, it also saved money on the manufacturing end because IKEA could essentially “outsource” the assembly work to its customers. 

But there was another advantage that came from this move: modularity. By requiring customers to assemble their products, IKEA can manufacture modular pieces that fit several different furniture items. This means that production lines can be streamlined and made more efficient. 

Similarly, by removing the assembly from the picture, IKEA also needs to hire fewer service employees, which saves on employee compensation costs. Although IKEA has begun adding more service centers in markets that don’t have a mature DIY culture, these costs are minimal compared to the expense of fully-fledged service initiatives.

The IKEA effect

This unique business model has a surprising and somewhat paradoxical side effect, commonly referred to as the “IKEA Effect,” which allows IKEA to make its products appear more valuable than they are. 

The principle behind the IKEA Effect is simple: people value things that they build themselves more than things that are built for them. There is a certain satisfaction that comes from spending an hour building your own sofa that simply can’t be had if you buy one pre-assembled. Doing the work yourself gives you a better appreciation of the value, and since people tend to think quite highly of their own craftsmanship, they will tend to view the furniture as well-made. 

This helps IKEA with a cost leadership sleight of hand: by asking customers to assemble their own furniture, they can keep their own costs low, while simultaneously making their customers view their products as higher-quality and more valuable.

A variety of strong and consistent production relationships

While many low-price retailers attempt to keep production costs low by pitting suppliers against each other and selecting the most competitive price offerings, IKEA takes the opposite approach. Instead of fostering competition among the suppliers it works with, it opts for collaboration. 

IKEA keeps production costs low by signing long-term contracts with its suppliers. The result is that IKEA is able to keep its costs low consistently, instead of constantly scrambling to find the lowest cost supplier. 

The strategy appears to work. IKEA has more than 1,800 suppliers in 50 countries , and it consistently has more than 95% of its inventory in stock. 

Additionally, IKEA does its best to source its wood close to its suppliers in order to keep transportation costs down. For example, in 2018, IKEA bought 25,000 acres of timberland in the US to provide raw materials to its suppliers. This also helps with the company’s sustainability initiatives. 

A unique and cost-saving experience

Although IKEA originally started as a primarily mail-order retailer, the showroom experience has become an integral part of the company’s branding and operations. It’s a devilishly clever strategy because, like the IKEA effect, it keeps business-side costs low while simultaneously providing a high-quality shopping experience to customers. 

If you’ve ever been to an IKEA, you’ll recognize one thing immediately: these stores are big. They are essentially repackaged warehouses. Within the store, customers are presented with realistic representations of how each furniture item might be used in a contemporary living situation. The displays are not sterile lineups — they feel alive, livable, and customers can easily see the functionality of each item.

To make the shopping experience even more pleasant, IKEA provides play areas for children and eating areas for hungry shoppers. The end result is a store that feels homey and comfortable despite the industrial scale. 

Although this may all seem entirely in service of the customer, it also confers several cost-saving benefits to IKEA. 

For one, IKEA specifically places its stores in more domestic areas, where real estate prices are lower and the stores can be more expensive. This saves the company from having to spend top dollar for competitive retail space in a large city. 

Secondly, by making stores so large, they can effectively function as both a warehouse and a showroom. As a result, IKEA can combine warehouse and showroom expenses into one, keeping total costs low. Of course, the fact that IKEA products are flat-packed also means that more products can be stored per warehouse, further reducing storage expenses.

Thirdly, the huge amount of space allows IKEA to present many different design possibilities to customers without the need for large numbers of staff to constantly rearrange furniture for shoppers.  

Overall, the end result is that the unique IKEA showrooms provide customers with an enjoyable shopping experience, all while allowing the company to save on real estate, warehousing, and staffing expenses. 

Key takeaway #3: valuable doesn't mean expensive 

When we think of something valuable, we tend to think of something expensive: gold watches, luxury cars, rare jewelry. But not all value can be measured in dollar bills: to a parent, their child’s drawing could be more valuable than the Mona Lisa. 

IKEA was able to leverage this phenomenon by offering what is essentially “low-cost value” — the type of value that money can’t buy. Thanks to the IKEA effect, customers often find IKEA products to be more valuable to them than other, higher-priced products. Add on a unique experience, filled with memories of eating Swedish meatballs with your family, and you have a value that money can’t touch. 

After all, it’s a part of their vision “To create a better everyday life for the many people.”

Business leaders should follow in IKEA’s footsteps and look for new ways to increase their products’ or services’ worth without raising costs. Sometimes, small changes can lead to big results. 

Understanding IKEA's positioning 

From its humble beginnings in small-town Sweden to its current seat as a major player in the global retail market, IKEA has been nothing short of a Cinderella story. But no business can rest on its laurels — the market is constantly changing, and a single bad move could throw away 80 years of success in a flash. 

That said, the future does look bright for IKEA — even during the pandemic, the company was able to generate almost the same amount of revenue as the previous year ( €39.6 billion in FY2020 and €41.3 billion in FY2019). But a few figures don’t tell the full story. To get a better view, let’s dive into a SWOT analysis. 

Market understanding

If there is one thing that IKEA does well, it’s understanding its market and leveraging that understanding to better position itself. From the start, IKEA has had the goal of becoming a company that sold low-priced products that would appeal to mass-market consumers. Today, IKEA has become practically the world leader in budget furniture — it is the first place that the average Joe will go when searching for new furnishings. It is particularly popular amongst young people furnishing their first apartments and houses. 

Throughout its development, IKEA had ample opportunity to stray from this initial vision, but it never has. As a result, it’s carved out an important part of the market that it can expect to hold onto for years to come. 

Affordability 

IKEA doesn’t merely understand what its target market is, it’s able to corner that market. Through the various cost leadership strategies we discussed in Chapter #3, IKEA is able to consistently price its products cheaper than its competitors. In turn, this has made IKEA the go-to brand for budget-friendly furniture. 

Quality and value

Although IKEA surely isn’t top-of-the-line, its products retain a respectable level of quality despite being priced so low. This is largely thanks to IKEA’s strong relationships with its suppliers and the culture of collaboration it fosters with them. 

Any quality deficits that IKEA products may have been made up for by the IKEA Effect, which causes self-assembled products to take on a higher apparent value in the eyes of the builder. 

Unique brand experience

From the unique furniture designs to the use of Swedish names to the beloved in-store restaurants and beyond, IKEA has crafted a brand experience that is unlike any other. In fact, what IKEA has created is so special that in some countries, it’s known as a fun place to go and get a bite to eat than as a place to buy furniture. When you’re able to turn a boring old furniture store into a cool place to hang out with your friends, you know you’ve done something right. 

Brand recognition

Across the world, people instantly recognize the IKEA name and its bold yellow-and-blue logo. Without a doubt, IKEA is a household name, and that level of recognition is rare. To put things into more quantifiable terms, in 2020, the IKEA brand was worth almost $18 billion . This level of brand recognition means that IKEA is ingrained in the global culture as the first stop for affordable furniture. 

Optimized and efficient supply chain 

Unlike many companies vying for cost leadership, IKEA refuses to force its suppliers to compete with each other. Instead, it opts for a more collaborative approach, which leads to strong relationships and consistently low pricing in the long term. Additionally, having control of some of the raw material supply chain helps keep IKEA in a strong position.

Weaknesses 

Lower quality than competitors .

IKEA’s products could accurately be described as “good but not great.” Although the company makes products that are at an acceptable and functional standard, they can’t compete with high-end furniture manufacturers and dealers.

However, this weakness is mitigated by the fact that IKEA isn’t trying to compete with luxury furniture providers. Instead, they have focused on cornering the budget market. 

Reliance on third-party manufacturers

Although IKEA has developed strong relationships with its suppliers, the fact that more than 50% of its products are manufactured by third-parties leaves IKEA in a position of serious reliance on other companies. Its long-term and collaborative arrangements help reduce this risk, but it is still a less favorable position to be in than producing everything in house. 

Bad press and dangerous products

Since 2011, five children have been killed by an IKEA product, the Malm dresser, toppling over onto them. The company has agreed to pay settlements of around $50 million to several families of the victims.  

Unsurprisingly, this has led to a public relations nightmare, which could seriously damage IKEA’s reputation. The company has also received bad press for treating its workers poorly .

Few assembled furniture offerings

IKEA is a company that focuses on providing its customer base with cheap, unassembled furniture. While this works well to corner its core market, it does leave other potential markets, like budget pre-assembled furniture, almost completely untapped. 

Managing timberland could distract from the core mission

By leasing its own forest land, IKEA is able to further ensconce itself in its supply chain, which leads to more control, lower prices, and better sustainability initiatives. However, managing and operating timberland is a costly and time-consuming effort, which could ultimately leave IKEA scattered and less focused on its core purpose. 

Opportunities

Gain a greater hold over the developing market.

Currently, IKEA is overwhelmingly focused on the developed world. In fact, 90% of its sales are from OECD countries , and 70% are in Europe alone. This leaves large swaths of the developing world practically untouched and represents a sizeable growth opportunity. 

IKEA is cognizant of this and has made moves into the Indian and Chinese markets. If the company continues to direct energy and resources in this direction, it could see a strong ROI.

Make use of e-commerce

Historically, IKEA’s strategy has focused on the in-store experience, which has been a key component of its success. However, as e-commerce becomes a greater part of everyday life, IKEA will need to find a way to effectively digitize and create a similarly enticing brand experience in the digital world. 

IKEA has begun making changes to better position itself in the developing e-commerce landscape. For example, many of its stores now double as fulfillment centers, and the company has made many behind-the-scenes changes to ensure online orders are fulfilled faster. 

Increase particleboard usage

Particleboard is a material that is made by gluing together wood particles. Essentially, particleboard is made from wood, but it is not wood. 

Surprisingly, a single log of wood yields more particleboard than wood, and it’s also lighter. Combined, this means that particleboard makes more efficient use of raw materials and transportation, given that its lower weight allows more particleboard items to be shipped per load. Overall, particleboard is 20% cheaper than wood. 

Currently, IKEA produces 45% of its products with particleboard and 55% with wood. If it raised the percentage of particleboard products, it could save significantly.

Earlier, we mentioned that IKEA has been at the butt of several lawsuits relating to the death of children that its products purportedly caused. Although the settlement amounts are drops in a bucket for a company of IKEA’s size, they do represent a threat if they increase in number or if the bad PR severely damages the company’s reputation. 

Possible recessions

Analysts have been predicting a recession in the American and European markets for years now. Unfortunately, this is also where the bulk of IKEA’s sales and customers come from. Although IKEA is diversifying into other markets, a severe recession in its core markets could theoretically represent an existential threat to the company. 

Following standards in developing markets

IKEA has made it clear that it places an emphasis on sustainability and market expansion. However, in some developing nations, local laws are antithetical to the standards IKEA holds for itself. This leaves the company in a dilemma: it must either adapt to the lower sustainability standards of these countries or delay its market expansion. Slowing down on either one of these could threaten IKEA’s current branding and positioning. 

Key takeaway #4: Ecommerce and the developing world present the largest opportunities 

It should come as no surprise that two areas that are growing rapidly, the developing world and e-commerce, represent some of the biggest growth opportunities for IKEA. Indeed, despite IKEA’s position as a global leader in the furniture space, failure to invest in these areas could spell trouble for the brand. 

Steps towards sustainability

As we stand face to face with an unprecedented climate crisis, businesses are seeking new avenues for sustainable growth. IKEA has fully embraced this new business paradigm and is making great strides in its effort to reduce its carbon footprint and become an all-around eco-friendly company. 

However, IKEA thinks that being sustainable means more than caring for the environment. It’s for this reason that it refers to its sustainability strategy as “People and Planet Positive.” In this strategy, IKEA notes three broad areas that it wants to improve on: 

Healthy and sustainable living

• Circular and climate positive
• Fair & equal

Let’s take a look at some of the changes IKEA is implementing to meet this goal. 

The first prong of IKEA’s sustainability plan is quite simple: to inspire others to live more happy and fulfilling lives. Overall, this is the vaguest part of its plan, and IKEA itself doesn’t seem to be entirely clear about what its own goals are. For example, IKEA states that  “We will, together with others, define what sustainable consumption means for IKEA.”

On a more concrete note, IKEA has been a leader in removing toxic materials from its supply chain. It has been ahead of the curve, removing problematic substances from its products even before they were officially banned.

Circular and climate positive 

IKEA is hoping to go one step beyond becoming a carbon-negative business and actually become a climate-positive business — that means that it’s attempting to not only stop hurting the environment but to benefit it as well. 

To this end, IKEA has made a shift towards more sustainable sources of its raw materials. For example, all its cotton, fish, and seafood currently come from sustainable sources. The company is also trying to source 100% of its wood from sustainable sources. Additionally, it will also promote the reuse of its products to extend their lifetime. 

By 2030, IKEA aims to be a completely circular business. 

Fair and equal

IKEA has received bad press over the years for the way that it treats its workers. Although it is vague about how it hopes to improve, IKEA notes several areas that it is attempting to make changes to. Some of these include gender equality, children’s rights, diversity encouragement, and providing stable and secure employment. 

Key takeaway #5: make the world better

IKEA, like all businesses, is up against an unprecedented climate crisis. Beyond that, there are serious social issues that IKEA can sometimes indirectly contribute to. As the world changes, it’s important to remember to change with it — don’t stubbornly take new paradigms as a chance to prove your original view was correct but as an opportunity to find new solutions that ultimately make the world a better place. 

IKEA in the Digital Age

From the start, IKEA has placed a significant focus on showrooms and the in-person experience — in some places, IKEA has become more known for its food than its furniture. But as more and more people move away from brick-and-mortar stores in favor of the e-commerce giants like Amazon, IKEA is put in a tough position. 

Its solution? Find ways to move into the modern age without sacrificing the original IKEA vision. Here are a few ways that the company is doing that. 

Stores double as fulfillment centers

Earlier, we discussed how IKEA is able to maintain cost leadership thanks to its dual-purpose showroom warehouses. Now, these facilities are taking on a third purpose as a fulfillment center. 

Although IKEA has had some degree of e-commerce for quite some time now, the increased popularity of e-commerce along with COVID, which forced IKEA to temporarily close 75% of its stores, has made the company fast track its online experience. These new moonlighting fulfillment centers have played a crucial role in handling the onslaught of online orders.

Teaching an old dog new tricks: integration

IKEA has been making an effort to not only improve its e-commerce presence but to better integrate technology into the shopping experience as a whole. One of the latest additions is “Shop & Go,” a feature in the IKEA mobile app. This lets you scan and pay for items while you shop so that you don’t have to wait in line for checkout.

Ethical data sourcing

Like all modern companies, IKEA’s digital strategy will rely in part on customer data. However, after gaining the market’s trust over approximately 80 years, it doesn’t want to throw that away. For this reason, it introduced the “Customer Data Promise,” which says that people need to come first in all data analytics and data-driven processes.

Although IKEA hasn’t gone too far down the rabbit hole, the company has started implementing XR to help customers visualize objects in their own homes.

Placing furniture in your home with the help of XR!

Key takeaway #6: keep up with the times

IKEA is a company steeped in tradition — 80 years worth. Perhaps more importantly, during that time, the business has focused almost exclusively on brick-and-mortar selling. Unfortunately, relying entirely on the old way of doing things simply isn’t tenable in this market. Business leaders need to learn to pivot as new technology emerges and integrate it into their strategy.

Finding the right employees and customers

Whether it’s employees or customers, all companies are run by and revolve around people. Finding the right people, however, is what makes or breaks a company. 

Between hiring strong candidates and reaching its target buyer persona, IKEA has succeeded in getting its products in front of the right people. 

IKEA's target buyer personas

Part of IKEA’s success lies in its ability to understand its target market. By getting fully acquainted with its ideal buyer persona, it can make better strategic decisions on all levels. 

So, who is IKEA’s core target market? Well, there are a few. 

To start, IKEA tries to corner young urbanites between the ages of 25 and 35, primarily those that have graduated high school, and are either single and living with a significant other or are married. 

There’s a good reason for this too: nearly 60% of American city dwellers plan to move in the next year. And that means they’ll likely need to buy furniture. 

Additionally, IKEA tends to target renters, not homeowners, as this demographic is more likely trying their best to budget and save up for their future goals, like buying a house, getting married, etc. 

Beyond that, IKEA also tries to get the attention of married couples with children, which is evidenced by the fact that they include playpens for children in the stores. Plus, situating the stores outside cities can make them more appealing to suburbanites. 

IKEA's hiring process

Worldwide, IKEA has over 220,000 employees . To get to that level, IKEA has developed a unique hiring process.

Primarily, IKEA seeks to hire people who are interested in home furnishings, are friendly, and care about providing good customer experiences. It hires primarily during the months between April and August and provides relocation assistance for successful applicants. 

Most of its candidates come from online sources, such as Indeed. However, IKEA has also branched out and partnered with some social media sites and universities to find new candidates. Plus, it has a strong internal referral program. 

In interviews, IKEA hopes to find candidates with some connection to the store, such as having visited one of their outlets or their website. 

IKEA has a strong internship program in logistics, marketing, communications, and interior design. Interns are not only paid but receive college credit as well. 

However, unlike many employers, IKEA doesn’t require that employees hold a formal degree except for specialist positions. That said, experience is still largely required — IKEA does expect some of its employees, such as interior design managers, to be well-versed in home design and retail trends. For other positions, just an interest is enough. 

Key takeaway #7: surround yourself with the right company 

Wise people have said that you’re only as good as the people you surround yourself with. IKEA has taken that to heart. 

For any business to succeed, it’s important to have a robust hiring process that attracts the right candidates and places them in suitable positions. On the consumer side, businesses need to be clear on what type of customers they hope to attract so that they can target their marketing efforts towards them. 

Final thoughts and key takeaways

Over the past 80 years, IKEA has grown from a small mail-order catalog in rural Sweden into one of the world’s largest furniture retailers. In the process, it has become nothing short of a global staple and a cultural icon. 

Recap: growth by the numbers

The ultimate list of strategic takeaways, strategy must be built on market insights.

While Kamprad did have a strong vision of where the company is heading, his strategic steps were based on market evaluation and identified market needs. 

He built the product strategy around the wishes and behaviors of IKEA customers. For example, disassembled furniture was created from observing customers how they struggled with getting furniture into their cars. 

Place customer experience at the heart of your strategy

Unique, home-like layout, delicious meatballs, and play area are only the start of the IKEA experience. 

Customers continue to value IKEA products due to building them at home, associating higher value to them. With this approach, IKEA continues its cost-leadership strategy while ensuring loyalty and high quality of its products. 

Innovation as a part of the strategy

IKEA’s been around for more than 80 years. Sticking to the traditional business model would only take them so far and it’s safe to say that they’d definitely not emerge as market leaders without any innovation and adaptation. 

With their vision in mind, they’ve managed to transform from brick and mortar stores to e-commerce and pick-up points. To support the transformation, they leaned into the latest technology and managed to strategically expand into the digital world.

Sustainable practices for a better world

With great power comes great responsibility… And big brands like IKEA understand the environmental and societal power they have. They have already banned toxic materials from their production, they are striving to become a climate-positive business and to positively impact the whole value chain.  

In the end, it seems that IKEA’s success largely comes from its ability to balance maintaining its core vision with changing to adjust to new market landscapes. At the start, Kamprad envisioned a store that sold products at budget prices for the masses to enjoy. Now, Kamprad has achieved that, but it took several changes along the way, such as pivoting from small goods to furniture, from fully-assembled furniture to flat-pack furniture, and more recently, from brick-and-mortar to e-commerce. 

Following in IKEA’s footsteps, business leaders should fully understand the need to keep your vision intact while still staying flexible enough that you can adjust your strategy to the changing waters of the market.

Table of Contents

Ikea target audience, ikea marketing channels, ikea marketing strategy, ikea marketing strategy 2024: a case study.

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Ikea serves the unique functional needs of each target audience, with special attention to 16-34-year-old adults. It has solutions for:

• Single people not living at home
• Newly married couples
• Families with the youngest child under six
• Older married couples with dependent children
• No children families
• Labor force
• Professionals 

Thus, it uses the following types of product positioning :

• Mono-segment positioning. It appeals to the needs and wants of a single customer segment that is cost-conscious and prefers value for money.
• Adaptive positioning. It believes in periodically repositioning products and services to adapt to changes in customer preferences. Its Swedish furniture chain considers the dynamic nature of customer preferences. For instance, its latest products reflect increasing minimalism on the global scale. 

Ikea utilizes the power of the following marketing channels: 

• Mobile Application
• WebEngage: Email, SMS, and Whatsapp Marketing
• Social Media
• Telecalling
• Commercials

The Ikea marketing strategy contributes majorly to its success because it's original, imaginative, and distinctive while maintaining a transparent value proposition.

A Creative, Consistent Brand Theme

From the Swedish national colors on its buildings to rich meatballs in its store cafeterias, Ikea's marketing strategy reflects its cultural heritage proudly. It infuses all elements of their identity with a sense of self-assuredness that maintains their identity in the market of stiff competition. 

Emphasizing Affordability and Sustainability 

Understanding that a simple tiered strategy won't encourage repeat business, Ikea extends customization, flexibility, and mix-and-match furniture modules. It effectively combines the elements of affordability and sustainability in its marketing strategy to ensure success.

While the furniture options don't pledge a lifelong guarantee, the products are built to last. Even its reusable shopping bags reflect its commitment to sustainability.

Sponsorship and Influencers 

IKEA-sponsored comedic series Easy to Assemble. Its innovative content marketing was way different from a furniture product demo. Incorporating sponsored digital marketing campaigns and social media influencers have boosted the Ikea marketing strategy. 

Ikea’s Easy to Assemble Series

Exceptional In-store Experience

Ikea brilliantly displays products employing the best lighting systems to generate more sales. It strategically arranges best-matched items in mock rooms to encourage impulse purchases and inspire decor. The company also extends excellent customer service to provide a memorable experience and incite customers to come back for more.

Ikea’s Store Decor for Inspiration

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Website and Mobile Application Marketing

Ikea ensures an optimal mobile website's speed, button displays and gesture controls on its website and mobile app to retain and attract individuals to the site. It carefully invests in its UI/UX , enquiry-based chatbot, and regular updates on new offers, discounts, and promotions. 

One of the most successful marketing moves includes downloading its 3D modeling app to envision a dream home. It's one of its most successful marketing moves that allows IKEA to upsell its low-demand items by creating a desire in its customers to revamp the room.

Ikea’s Website With Engaging Content

Ikea's SEO (Search Engine Optimization)

Ikea's marketing strategy aims at enhancing the site's visibility for relevant searches to attract the attention of new and existing customers. It includes the right product-specific keywords and Google advertisements to further augment its organic ranking .  

Ikea Ranking for Bookcases on Google’s First Page

Ikea's SMM (Social Media Marketing)

Ikea's handles are very active on digital marketing platforms like Facebook, Instagram , Twitter, and Youtube . Their digital presence is impressive, with more than 30 Million likes on Facebook, 1 Million followers on Instagram, 5.3k followers on Twitter, and 41.2k subscribers on YouTube.

Ikea’s Instagram Profile

Its Instagram bio links to its website. The website also has links to its various social media posts. Its 'view shop' and 'call' options for product catalog and direct assistance, respectively, are a testament to a well-crafted Ikea marketing strategy.   

Ikea’s Youtube Advertisements 

IKEA also conducts free online workshops that lure lots of enthusiastic customers, resulting in gaining leads.

Ikea’s Online Workshop Ad

Content Marketing

Ikea relies on its content marketing strategy to create a distinguished presence amongst furniture brands. Its commercials, print ads, social media, and website stands out with attention-grabbing content. It combines innovation and humor to present the brand's core values and inspire people. 

Ikea’s Captivating Commercial 

Ikea Marketing Strategy bears testimony to a well-thought and structured marketing venture. Sign-up for our Digital Marketing Specialist and learn more about marketing case studies published by Harvard Business. You will be taught by experts from facebook and Purdue University. Sign-up for the course TODAY!

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IKEA Globalization Strategy Benefits and Limits Case Study

Ikea globalization strategy: essay introduction, ikea globalization strategy: discussion, ikea globalization strategy: conclusion, works cited.

IKEA is a furniture company operating on a global scale. With stores all around the world, it had to adapt its strategy to the countries where the European approach proved unsuccessful. Nevertheless, IKEA is an example of a highly profitable global company. This paper will cover the benefits of globalization that IKEA experienced, the importance of cross-cultural understanding, and the limits of the global market.

IKEA is a tremendously successful company. In part, it owes its success to perceiving the whole world as its market. With 230 stores in 33 countries, it has shown that global strategies can lead to success. Its strategy focused on providing a finely designed product at the lowest possible cost. IKEA stores share their style all over the world, making the brand recognizable and reliable. By expanding its market without lowering the quality of the product, it was able to establish one of the most recognizable and profitable furniture brands in history (Steenkamp 51). IKEA prides itself on its cost-cutting policy, and with a global strategy, it requires globalization of production. By creating production sites in the countries it operates in, IKEA cuts the costs of delivery and manufacturing that would otherwise become unfeasible when working on a global scale (Olhager et al. 146; Burt et al. 16).

However, IKEA was not able to keep its stores and catalog identical in all countries. Without understanding the specific needs of the country, a global company is at risk of losing a lot of customers. Before expanding into the United States, IKEA did not consider the differences between the US and European markets (Mellahi and Frynas 4). As the case study points out “Sofas weren’t big enough, wardrobe drawers were not deep enough, glasses were too small, curtains too short, and U.S. size appliances didn’t fit in the kitchens.” This expansion could have been disastrous had the company not addressed this problem by redesigning its products to be more appropriate for the market. Now it is a popular brand in the United States, and the early mistakes are long forgotten.

To not repeat the same error twice, IKEA made an effort to customize its stores in China to the needs of Chinese customers. For example, a balcony section of the store was introduced. Chinese apartments often have balconies, so it was a smart decision to capitalize on this regional difference (Prange 81). This change in strategy shows some of the limits of the global approach. One strategy cannot apply to all countries due to their regional differences. A global company has to consider the needs of its customers on a more local level. This move will make the business more profitable in return. However, it does not prevent the global approach from being viable. These limits only suggest that the strategy should include more thorough research of the market before expanding. After the research is done, the company can choose how to appropriately segment the market (Schlegelmilch 70).

Globalization can be used to create a successful business. IKEA utilized this to cut costs on production, expand into 33 countries, and become a brand known worldwide. The story of its rise was not without obstacles. Its difficulties in expanding beyond Europe have shown that there are limits to utilizing the same strategy everywhere. However, with a few adjustments based on regional preferences, the company became a success outside of Europe.

Burt, Steve et al. “International Retailing as Embedded Business Models.” Journal of Economic Geography , vol. 16, no. 3, 2015, pp. 715-747, Web.

Mellahi, Kamel, and Jedrzej George Frynas. Global Strategic Management . Oxford University Press, 2015.

Olhager, Jan et al. “Design of Global Production and Distribution Networks.” International Journal of Physical Distribution & Logistics Management , vol. 45, no. 1/2, 2015, pp. 138-158, Web.

Prange, Christiane. Market Entry in China . Springer International Publishing, 2016.

Schlegelmilch, Bodo B. Global Marketing Strategy . Springer, 2016.

Steenkamp, Jan-Benedict. Global Brand Strategy . Palgrave Macmillan UK, 2017.

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IvyPanda . "IKEA Globalization Strategy Benefits and Limits Case Study." October 30, 2023. https://ivypanda.com/essays/ikea-companys-globalization-benefits-and-limits/.

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State of Grocery Europe 2024: Signs of Hope

For the European grocery industry, 2023 was a challenging year. Inflation led consumers to tighten their belts, leading to a drop in volume and significant downtrading. As a result, industry growth was significantly below food price inflation. Food price inflation in Europe was 12.8 percent in 2023, 1 Based on Eurostat data, January 2024. while grocery sales grew at a rate of only 8.6 percent. 2 Based on Europanel data. Discounters and private labels benefited from this market environment and were yet again the winners of the year.

In 2024, we expect macroeconomic uncertainty to persist, but at the same time, our research indicates the first small signs of recovery. The pressure on margins, costs, and prices remains a key concern for grocery retail CEOs, but leaders are less pessimistic than they were in previous years. In addition, thanks to initial signs of economic recovery and wage increases in many countries, consumer confidence is returning. Still, our consumer research shows that recovery of consumer behavior is very polarized for 2024. While most consumer segments are still price sensitive and trading down, some segments show an increased appetite for uptrading and innovations.

2023: Again all about price

Grocery sales in Europe 3 Includes Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Portugal, Spain, Sweden, and the United Kingdom. grew by 8.6 percent in 2023. This growth was a result of 12.8 percent food price inflation, a downtrading effect of 1.8 percent, and a 2.0 percent volume decline. This implies that grocery sales in real terms (that is, adjusted for inflation) declined again in 2023 and are now 4.5 percent below 2019 levels. This decrease from 2019 is driven by a small volume increase of 0.3 percent and a decline of the price per item in real terms by 4.8 percent.

About the authors

While inflation eased significantly over the course of 2023, it was still the dominant factor affecting the industry. Overall inflation came down from a historic high of 10 percent in October 2022 to a stable 3 percent at the end of 2023. European food price inflation was even higher, reaching a 19.0 percent peak in March 2023 and an average of 12.8 percent for the full year. Producer prices in the European Union started to decline in early 2023, following agricultural prices with a delay of six months. Food prices for consumers saw minimal decline at the time, in part because grocery retailers’ price contracts with suppliers remain in effect and labor costs increased significantly. 4 Eurostat, January 2024.

Real wages were compressed during 2022 and most of 2023. This has put severe pressure on many household budgets and curbed consumer purchasing power. Wage increases of 6.3 percent in the EU-27 in the second half of 2023 brought some relief for consumers, but not all countries returned to 2019 wage levels in real terms. For instance, real wages are still below 2019 levels in France, Germany, Italy, and the Netherlands. On average, real wages in the EU-27 were 1.2 percentage points below 2019 levels at the end of 2023. 5 Economist Intelligence Unit (EIU), January 2024.

As a result, consumers traded down significantly in 2023, and private labels and discounters benefited. The private label share increased substantially by 1.8 percentage points, to 38.0 percent of sales in 2023 from 36.2 in 2022. Discounters gained another 0.8 percentage points in market share on average, and at least 1.0 percentage point in Belgium, Germany, Poland, Sweden, and the United Kingdom. The overall market share of supermarkets remained stable at 37.2 percent in Europe. Supermarkets in Italy, the Netherlands, Portugal, and Spain found strategies to succeed despite high price pressure and even achieved market share increases of 0.5 to 0.8 percentage points. Online sales remained stable at 6 percent of total grocery sales, with significant differences among countries. France had the highest online gain with 0.5 percentage points, while the online channel lost market share in Sweden (–1.2 percentage points), the United Kingdom (–0.7), and Italy (–0.5), as well as in Belgium, the Netherlands, and Portugal (–0.2). 6 Europanel, March 2024.

With inflation easing toward the end of the year, the development of the grocery market also improved. Downtrading and declines in volume slowed from quarter to quarter and came close to zero in the fourth quarter of 2023 (Exhibit 1).

2024: Signs of hope?

Our data shows signs of hope for 2024. While the first few months of 2024 may still be challenging as the economy contends with the aftereffects of high inflation, the fundamentals are slowly improving. Overall inflation is expected to stabilize around 2 percent, with food inflation slightly below in the short to medium term. Real wages are expected to grow. Grocery volume stopped decreasing toward the end of 2023 and even started to increase in some markets. In addition, in our survey, consumers tell us that they plan to trade down less than they did in 2023, and a few consumer groups even intend to start trading up again (Exhibit 2). If this trend holds, we expect grocery volume in Europe to return to growth in the second half of 2024.

Our data also shows large differences among countries and consumer segments. In some countries, including Germany, consumers report a strong intention to reduce downtrading and to start trading up again selectively. In other markets, consumers are still less optimistic about the future (for example, in Italy and Switzerland). We therefore expect market performance in Europe in 2024 to be quite heterogenous, with significant differences between countries. We expect the same to be true for consumer segments. For example, low-income households are still trading down, while high-income households intend to trade up again on specific occasions or in selected categories.

Grocery CEOs remain concerned—although less so than last year. Seventy-six percent of European grocery retail CEOs in our survey remain concerned about challenging market conditions (Exhibit 3). Thirty-six percent expect market conditions to become worse than in the prior year (down from 44 percent in 2023 and 60 percent in 2022), while 40 percent expect them to remain the same (up from 33 percent in 2023). CEOs are particularly concerned about prices and inflation. That said, CEOs in Central and Eastern Europe are somewhat less pessimistic than their peers in Western Europe. Only 29 percent of Central and Eastern European CEOs expect market conditions to become worse, compared with 50 percent in Western Europe.

The 2024 grocery CEO agenda remains similar to last year’s. Increased margin pressure and downtrading take the top two positions again, well ahead of other priorities (Exhibit 4). However, four priorities gained between seven and 12 ranks compared to last year: talent, food to go, government regulations, and loyalty programs.

Based on our CEO and consumer surveys and further research, we identified eight trends that we believe will shape the grocery industry in 2024. Some of the trends build on last year’s, while others are new and will shape the strategies required to win in the grocery industry in the coming years (see “ Key Trends ”).

1. Cost and margin pressure

The profitability of grocers declined further in 2023, and the pressure will not go away in 2024.

Margins decreased for both grocery retailers and consumer packaged goods (CPG) companies between 2019 and 2022. While grocery retailers lost 0.4 percentage points of EBITDA margin in that period, CPG companies lost 1.3 p­oints. However, 2023 followed a different trajectory. Retailers were losing another 0.3 percentage points because of additional cost increases, while CPG ­companies gained back 0.8 percentage points as they passed their cost increases on to retailers (Exhibit 5).

In 2024, grocery retailers will continue to feel margin pressure. The main driver in 2024 is rising rent and labor costs. According to our CEO survey, cost and margin pressure is a top three priority for 70 percent of CEOs (compared with 67 percent last year).

To improve their margins, retailers are expected to intensify supplier negotiations, buying-alliance activity, and consolidation efforts in 2024. In 2023, we saw intense supplier negotiations during which some leading products were temporarily not available in stores. This year we expect to see even more intense negotiations. Buying alliances are gaining strength, and selected new ones are emerging—such as the recently announced partnership between Auchan and Intermarché. “This will be a real game changer,” Auchan CEO Yves Claude told us during an interview (see “ A growth journey toward green and local” ). Meanwhile, M&A activity is expected to stay high as retailers seek economies of scale, building on the 2023 record of 21 transactions in Europe, 7 GlobalData, March 2024, data available for past ten years for Europe. including Reitan’s acquisition of the majority of the ALDI store network in Denmark.

Back to all trends

2. The return of polarization

Most consumer groups still intend to trade down in 2024, while high-income households are starting to trade back up.

More than 45 percent of respondents to our European consumer survey said they are still looking for ways to save money when shopping in 2024. Still, this number is lower than it was last year, while it continues to be similar across income groups (Exhibit 6). While downtrading is still highly prevalent across low-income households, we saw initial signs in 2023 that high-income households are uptrading again. The net intent of high-income households to buy more high-quality or organic products further increased at the beginning of 2024 and is now clearly positive. We therefore expect to see downtrading and uptrading at the same time, depending on the consumer group and the geography. The consumer survey results vary greatly across countries, leading us to expect significant differences in market development across Europe.

Private label growth continues and is expected to persist, even if the economy improves. Both private labels and discounters experienced strong growth across Europe, gaining 1.8 and 2.9 percentage points, respectively, and consumers continue to have positive experiences with private label offerings. According to our consumer survey, 83 percent of consumers rate private label products of equal or better quality than branded options. Therefore, we do not expect shoppers to switch back even if the market environment improves.

The quest for health and longevity is the only premiumization trend that has not been negatively affected by inflation. The intent of shoppers to buy healthier products has remained constantly high for several years. According to our consumer survey, consumers also prioritize products perceived as “good for myself” over those “good for the planet.” Functional food claims such as “boosting energy” and “supporting health” continue to gain traction.

3. Food to go: A wrestling match for share of stomach

As consumers spend more time on the move, the food-to-go market is surging.

The food-to-go market declined during the COVID-19 pandemic, but it has recovered and continues to grow. Food to go encompasses various channels: prepackaged ready-to-eat meals, ready-to-heat convenience meals, counters and kiosks, restaurant takeaways, and meal delivery. The growth of these channels is driven by the return of workers to offices and consumers’ increasingly busy lifestyles. According to our CEO survey, food to go is one of the top five trends for 2024; CEOs expect food to go to drive traffic, raise margins, and generate cross-selling opportunities.

In Paris, half the population now lives alone, so they prefer packaged meals and smaller portions. Our new concept stores will help us gauge the demand for ready meals. Yves Claude, CEO, Auchan Retail

Foodservice providers such as restaurants, takeaway players, and meal delivery services are gaining share from grocery retailers. Despite the inflationary environment and consumers trading down, the foodservice industry outpaced the grocery retail industry by nearly three percentage points. While foodservice grew at 11.5 percent, 8 Eurostat foodservice turnover. grocery achieved a growth rate of only 8.6 percent last year. France and Italy now have higher foodservice volume compared with prepandemic levels, while Germany and Spain are still below those levels. 9 Eurostat, February 2024; McKinsey, growth in sales value adjusted for change in Harmonised Index of Consumer Prices for catering. Going forward, food to go is expected to grow at roughly 8 percent per year over the next five years in Europe, 10 GlobalData: Away-from-home food in retail channel 2023, sample of 23 European countries. while the grocery retail market is expected to grow at roughly 3 percent.

Grocery retailers are expanding their food-to-go offerings to capture this growth. Grocers are expanding their offerings of traditional ready-to-eat, ready-to-heat, and ready-to-cook products. They are also increasingly experimenting with foodservice offers such as hot food to go, cafeterias, and seated restaurants, either through third-party concepts or by offering them directly.

4. Sustainability: Progress made, still a long way to go

A step change for sustainability in grocery requires bold actions from retailers; our 2024 consumer research does not show increasing pull from consumers.

In fact, the share of consumers who want to buy products that are more sustainable in the next 12 months decreased by one percentage point from 2023. Also, the intent to buy more alternative-protein products remains stable at the low levels of 2023. Only members of Generation Z and millennials signal a high intent to buy more environmentally friendly products in 2024.

The window of opportunity to reach 2025 sustainability targets is closing. All of the top ten European grocery retailers have set sustainability goals for 2025, covering a variety of sustainability dimensions (Exhibit 7). 11 The top ten European grocers are Schwarz Group, ALDI Süd, Ahold Delhaize, Tesco, Edeka, Rewe, Leclerc, Carrefour, Sainsbury, and Casino; Euromonitor, accessed February 2024. Many of the dimensions still have sizable gaps to close to reach these targets. We therefore expect to see accelerated sustainability efforts across the industry in 2024. For targets on Scopes 1–3, 12 Scope 1 is direct emissions generated by an organization. Scope 2 is emissions generated by production of purchased energy. Scope 3 is indirect emissions from up and down the value chain. working toward these presents a dual opportunity to reduce carbon emissions and capture cost savings; we have found that, depending on the category, up to 40 percent of emissions can be reduced in a way that also reduces cost.

So far, none of the top ten European grocers are reporting any progress on Scope 3 emission reductions. 13 Scope 3 refers to all greenhouse gas emissions that happen in the value chain before or after grocery retailers (that is, suppliers and consumers). This is mainly because measuring these emissions accurately is very difficult. However, pioneering retailers have started to build Scope 3 accounting capabilities that use actual emissions by product and supplier instead of global averages across all suppliers. This shift will enable grocers to measure and reduce their Scope 3 emissions more effectively. For example, by understanding the real emissions associated with each supplier, grocery retailers can switch to suppliers with lower emissions or agree with suppliers on concrete reduction targets.

Regenerative agriculture 14 Regenerative agriculture includes farming and grazing practices that improve soil health, crop resilience, nutrient density, water management, and biodiversity, as well as the livelihoods of farmers. could become the new ‘organic.’ Most of grocery retailers’ greenhouse gas emissions are driven by agriculture. About 50 percent are driven by dairy and meat alone. Regenerative agricultural practices are therefore the key to meet the net-zero ambitions proclaimed by many retailers. Introducing regenerative agricultural labels in their assortment as an alternative to organic labels can be a big opportunity for retailers to differentiate their offerings while working toward their sustainability targets.

5. Online: Liberation from offline

Online grocery is returning to growth, and it is increasingly evolving into an independent, profitable format with its own differentiated value proposition.

Online grocery lost market share in 2023, but consumers are starting to return as spending power recovers. The net intent of consumers to buy more food online has returned to positive, increasing by eight percentage points in the first quarter of 2024. We expect e-grocery to grow faster than the overall grocery market over the next years. Meal delivery from restaurants might grow even faster than e-grocery (Exhibit 8). Pure players in particular show extraordinary growth rates as they expand into new regions. For instance, Picnic grew at more than 30 percent per annum over the past five years, 15 Picnic company accounts, February 2024. driven by rapid expansion.

Pure players are starting to reach profitability. For instance, Rohlik is profitable. 16 Zosia Wanat, “Brunch with the founder of Rohlik — a profitable disruptor of a trillion-dollar grocery industry,” Sifted, December 12, 2023. Picnic claims to be “operationally profitable in mature markets,” 17 “Online supermarket Picnic gets €355 million capital injection from shareholders,” NL Times , January 9, 2024. and Ocado returned to profitability in 2023. Moreover, leading meal delivery players have also reached breakeven (DoorDash and Deliveroo over the course of 2023), thanks to a successful shift of priorities from growth to rightsizing. 18 Company financials; Corporate Performance Analytics by McKinsey, March 2024.

Increasingly, consumers expect different value propositions from online and offline channels. It is becoming progressively clear that the two channels satisfy different shopping needs. For example, 37 percent of consumers in our UK survey (two percentage points higher than 2023) always shop at a different banner online than offline because they exhibit different needs by channel. In addition, UK consumers see promotions as more important than price for offline store selection, while for online, price is more important than promotions.

6. Retail media: Click here to boost the bottom line

Retail media (RM) undoubtedly remains a substantial profit driver for grocery retailers, with 20 of Europe’s top 30 grocery retailers now active in the market.

Grocers view RM as a fundamental driver of profitability. In Europe, the RM market was worth €11 billion in 2023 and is expected to grow at a rate of 15 percent annually in the coming years. With EBIT margins reaching 65 to 70 percent within three years of launching, RM presents an attractive opportunity for grocery retailers. 19 IAB Europe, Statista, January 2024. In our survey, grocery retail CEOs confirmed this opportunity, naming RM as one of the top five opportunities for the year ahead.

2024 will be marked by a bold expansion of retailers’ RM footprint. The name of the game for RM is scale—only the largest players are expected to remain relevant for CPG advertisers in the long run, especially in light of Amazon’s large share in the market (Exhibit 9). This will prompt smaller players to consolidate and form partnerships to maintain relevance in the RM world. Alliances, such as the Unlimitail partnership between Carrefour and Publicis, and the growth of ad network aggregators such as Amazon Ads are expected to shape the market this year.

Standardization, impact measurement, and ad diversification are critical for engaging CPGs on RM. Regulatory changes have increased the difficulty of targeted digital marketing, boosting the appeal of RM for CPG companies to engage with consumers at the point of purchase. Transparency and standardization of impact metrics, such as return on ad spending, are essential for RM success, and CPG companies rank these as the top barrier to further investing in RM. 20 Retail Media Standards Survey 2023, IAB Europe, 2023. To address this, Ahold Delhaize, for example, has launched a self-service platform for suppliers to manage and track the impact of RM campaigns. Moreover, retailers are expected to expand their offerings beyond classic paid search and website banners to include video, connected TV, shoppable (video) content, and innovative in-store activations in order to stay relevant to CPG advertisers.

7. Conversational commerce: The next wave of analytics

Advanced analytics and traditional AI still account for most of the impact, but conversational commerce enabled by generative AI has the potential to reimagine how we shop.

Retailers have started to experiment with generative AI but have yet to unlock real value. From the total advanced analytics and AI impact pool in grocery retail, an estimated 10 to 20 percent of value potential stems from generative AI. In grocery, six revenue-enhancing and efficiency-driving use cases are expected to drive value: hyper-personalized content, smart search, copilots for category management (for example, supplier negotiations), copilots for support functions (such as software development), content creation, and conversational commerce (Exhibit 10). By engaging shoppers with a human-like chatbot as a personal shopping assistant, conversational commerce can significantly improve the on- and offline shopping experience. For instance, US-based Walmart launched its Text to Shop proposition last year, allowing consumers to shop for groceries by texting. They can also get inspiration for recipes, make restocking suggestions, and schedule delivery or pickup times.

Advanced analytics and traditional AI are still the largest sources of technology-driven value creation in retail. Eighty to 90 percent of future value creation for grocers is driven by advanced analytics and traditional AI. For grocers, assortment, pricing, and promotion optimization are the largest opportunity areas. Rigorously leveraging advanced analytics and traditional AI across the organization has the potential to improve EBIT margins in retail by up to one percentage point. Most large retailers in Europe have adopted a range of advanced analytics use cases by now and started to capture a significant share of that potential. The remaining opportunity resides in expanding to further use cases, increasing adoption of use cases, and using the new capabilities to localize and personalize the offering for each store and consumer.

8. Talent: Making retail a career again

Grocers across Europe face an unprecedented number of job vacancies, and the average employee tenure is shrinking.

Vacancy and fluctuation rates are high. In the third quarter of 2023, 2.2 percent of all retail jobs were vacant, a 29.4 percent increase from 1.7 percent prior to the pandemic. 21 Eurostat EU-27 countries. While retailers work hard to fill open positions, they are also confronted with high turnover rates—especially in frontline positions. In addition, there is a shortage of skilled talent, particularly in supply chain activities, as well as for jobs that require digital and technological know-how. The aging of the population further exacerbates the situation. The number of citizens of working age in the EU-27 will decline by approximately one million people per year going forward. Hiring and developing talent is one of the top three priorities of European grocery retail CEOs, according to our survey. Yet only 21 percent of retail employers in Germany say they have a professional retention program in place, and even fewer—11 percent—say they have the tools in place to survey employee satisfaction regularly. 22 Study: Talents4Retail 2023/24 , EHI Retail Institute, January 2024.

As automation and digitalization progress, the roles and job profiles of retail employees will change significantly over the next decade. Social, emotional, cognitive, and technological skills will become more important as the need for physical activity decreases. Our analysis shows that by 2030, the time workers spend using social or emotional abilities will increase by 32 percent, and the time they spend leveraging technical skills will increase by 64 percent. Physical and manual activity, on the other hand, will decline by 17 percent as a result of technological advancements.

Attractive grocery employers offer careers, not just jobs, in combination with the right work–life balance. Forty percent of retail employees in Germany and 33 percent of retail employees in the Netherlands are considering changing their jobs. 23 McKinsey HR-Monitor Germany 2024; Distrifood 2023. Respondents cited unmet needs of applicants, compensation, and working times among the top five factors in ongoing retail vacancies in Germany. Flexible work arrangements and a multitude of career paths gain in importance. Yet only 16 percent of retail employers in Germany say they offer work–life benefits to frontline retail employees, and more than 50 percent of retail employers in Germany say they do not offer individual career opportunities to their employees. In the United Kingdom, the retail sector ranks in the bottom third in terms of offering career progression opportunities compared with other sectors. Meanwhile, retailers such as Walmart have started acting on these developments by offering different types of career paths and trainings depending on employee preferences.

Implications for grocers

The state of grocery continues to present challenges, but—supported by stronger consumer sentiment—there are opportunities for executives to build new sources of competitive advantage. We see three strategic priorities for grocery retailers that will help them strengthen their assortments, increase profitability, and leverage the momentum for RM networks.

Future-proofing the assortment

Confronted with polarized consumer behavior, grocers seek to balance affordability with value-adding products while rationalizing the assortment to optimize costs. To defend their market share, supermarkets and hypermarkets will want to keep strengthening their private label offerings. At the same time, growing demand for healthy products and for food-to-go, ready-to-eat, and ready-to-heat options provides further opportunities for uptrading consumers. Retailers that can differentiate assortment by store depending on local needs will be best positioned to win in this market environment—especially given that different countries, regions, and neighborhoods will show varied recoveries in 2024.

Driving nontrivial efficiency savings

As margin and cost pressure remains high, grocery retailers need to take rigorous mitigating actions to achieve cost savings. With low-hanging fruit already captured, cross-functional and nontrivial cost positions need to be addressed in 2024—for example, operating model redesign, end-to-end supply chain optimization from supplier to store, rent renegotiation, or design-to-value for private label assortment.

Monetizing retail media

When it comes to building and scaling a RM business that drives profits in 2024 and beyond, grocers have no time to lose. To go from good to great in RM, players need to think like ad agencies and secure the right leadership commitment, business autonomy, and resources dedicated to RM business development. Grocery retailers enjoy a privileged position in today’s media landscape. However, to remain relevant to advertisers over time, RM players should consider improving their impact measurements, as well as continuously enhancing and renewing their advertising offerings.

Christel Delberghe is director general of EuroCommerce, where Anton Delbarre is chief economist. Dirk Vissers is consumer insights director for Europanel. Daniel Läubli and Franck Laizet are senior partners in McKinsey’s Zurich office, where Alexandre Kleis is an associate partner, and Rickard Vallöf is a partner in the Gothenburg office.

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