Pestle analysis of IKEA. Ingvar Kamprad Elmtaryd Agunnaryd or IKEA is a Swedish furniture multinational global company. IKEA started its journey on July 28, 1943, when a 17 years old young entrepreneur boy Ingvar Kamprad laid its foundation. IKEA achieved the status of the world’s largest and renowned furniture manufacturing brand in 2008.
According to a study conducted by Forbes; IKEA is operating is its worldwide business empire in more than 50 countries worldwide. The company has roundabout over 422 location points in 2020. According to an estimate, 208000 people are working for the company across the world and managing various daily business operations.
Some of the prominent products of IKEA are accessories, kitchen items, house appliances, ready-made furniture, and many other products.
According to an estimate conducted by statista.com, the annual income of IKEA was 41.3 billion Euros by the end of 2019. Out of which the net profit by excluding all the fixed and variable expenses was 1.82 billion Euros. Except for the covid-19 pandemic year of 2020, the growth and financial performance of the company have been good for the past few years.
Today we’ll study pestle analysis of IKEA that how macro-environmental factors impact the performance of the company. The pestle analysis would focus on the external and uncontrollable factors. For the internal factors, check out my other article swot analysis of IKEA. Here’s the pestle analysis of IKEA as follows;
Prison Labor Camps in 70s & 80s
There are rumors that the founder of IKEA, Ingvar Kamprad, used to have ties with Nazi Germans and he was sympathetic toward them. The brand accepted the fact back in 2012 that IKEA was employing prison labor camps in East Germany in the 70s and 80s. The political affiliation and controversies of the founding fathers of IKEA present a bad history of the company.
Although, the current management of the company has apologized to the public on behalf of their founders. But whatever happened in the past, it can’t be undone now. At least IKEA isn’t stubborn and has realized the mistakes of its founders.
Indian & Chinese Asian Market
We have seen in recent years that the Indian and Chinese governments have shown flexibility towards foreign brands. That’s why foreign brands are showing interest in Asia’s largest developing and developed economies like India and China.
IKEA, on the other hand, came to India in 2018 and started opening its stores and manufacturing furniture for the local market. IKEA is already operating its business operations in China since 1998. What the company should do is to expand its business empire and attract more market share.
The controversy of Taiwan & China
China and Taiwan have strong ties with each other. Even the Chinese government claims Taiwan as a part of China. IKEA received a lot of criticism from the Chinese media when the company mentioned in the packaging that Taiwan was a separate country. The controversy created a lot of backfire for the company.
The stable political environment plays a very important role in the effective supply chain and distribution system to work. The political system and legal system of the country work in collaboration with each other.
As we know that IKEA is running its business globally approximately in more than 50 countries. That’s why the brand is under the regulation of many countries. The worldwide economic condition is also a very important deciding factor for growth and profitability.
For instance, economic recession, interest rate, and inflation rate impact the purchasing power of the consumer. When people have less buying power, they would spend less. Consequently, the sale of the brand would drop and it would reduce the overall profit.
Covid-19 & Post Pandemic World
The pandemic of covid-19 is a recent example of a global economic crisis. The shutdown and lockdown are necessary to stop the spread of the virus. But it impacts very badly the businesses and economic conditions of the economy of any country. Now the question is what the world would be like after the pandemic. The Economists are predicting a multi-year economic global recession.
The exchange rate of US dollars is also a very powerful factor to the Euro and foreign currencies. Since IKEA is a Swedish company and it has a deal with the dollar in the international market. Even a small percentage of increase and decrease of dollars in the exchange market makes a huge difference in the overall profitability of the company.
Competitive Edge of Low Price
The good thing about IKEA is that the company offers the latest designs and trending products at a low price. IKEA has always been the choice of price-conscious customers.
Checkout this article: Pestle analysis of IKEA Furniture Company
As many of aware of the fact that homosexuality is legal in Russia. But the majority of the public doesn’t consider it right. When IKEA presented a picture of a lesbian couple in its catalog in Russia, it attracted a lot of criticism. It’s because such advertisement sends a bad image of the country abroad. Although the company removed the picture later; but it also received criticism from the progressive countries.
IKEA presented a female picture in its product catalog in Saudi Arabia; it attracted a lot of backfires. As we know that females don’t have permission to make a public appearance in SA. When the company removed the picture, the western media was severe to the company.
IKEA should follow the trending products and services relevant to the country where it’s operating its business. It’s because countries across the world have different cultures and their trends vary from one another. Therefore, the marketing campaigns of IKEA should follow the social trends of different countries and design the advertisement accordingly.
Unaware of the Customers
If we look at the Russian lesbian couple controversy or female picture in the advertisement in Saudi Arabia; it makes us realize that the company doesn’t follow the local trends. If the company has followed the local norms and trends, such controversies wouldn’t have happened.
If you check out the reviews of IKEA on Google, then you’ll come across a lot of complaints. A plethora of people have given 1 star to the company which is the lowest level. The company should rectify its mistakes and work on customers’ complaints.
Horrible Delivery System
The furniture delivery system for IKEA is very bad. Whenever the company delivers the final product to the customers, there’s always something missing. You can’t assemble the furniture without the missing screws and bolts.
Use of Digital Media
As we know that IKEA has hundreds of brick stores in different countries across the world. They have the importance of providing a real life experience. The company is doing it, we accept the fact. Nowadays, we live in a world of social media and the internet. The company should focus on digital media to reach more customers. Although the company has a website and social media account, its access is very limited.
The pandemic of covid-19 has pushed the e-commerce retail business and online shopping to a great extent. The good news is that the company has got an e-commerce store and it has millions of followers. Now the company needs to improve its e-commerce platforms and delivery system. It’s because many people have experienced a bad delivery service for the company. If the company improves it, it would be a huge plus point for the company.
Satisfied customers are also a great asset to the company. It would provide referrals, word of mouth marketing, and he would be a repetitive customer. If IKEA works on increasing the number of customers, they would provide the company 5 stars and good reviews. It would also increase the brand loyalty of the company.
Several former employees of IKEA has complained and filed a lawsuit against the company of poor working condition. The brand has to settle for millions of dollars over the years. The management should learn from its mistakes to avoid such lawsuits.
Poor Product Quality
The quality of IKEA’s product is very bad. Many people have experienced the breaking down of their furniture within a few days of purchasing it. It resulted in harming people. The company shouldn’t take such complaints lightly. The endangerment of customers’ lives is a very serious and dangerous lawsuit.
Renewable Energy Initiative
The trend of eco-friendly products and services can decide the success and failure of any brand nowadays. According to an estimate, IKEA has spent approximately 1 billion US dollars in the renewable energy sector for poor countries. The company is committed to utilizing fully renewable energy for all of its stores. The brand is also fully committed to shifting its focus towards sustainable raw material, away from cotton and woods.
After a detailed study of the pestle analysis of IKEA, we have concluded that the legal issues are the most dangerous out of all. The company should focus on manufacturing quality products, improving the delivery system, and answering the complaints of dissatisfied customers.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.