SWOT analysis of IKEA. IKEA (Ingvar Kamprad Elmtaryd Agunnaryd) is a Swedish multinational furniture manufacturing Conglomerate Company. Ingvar Kamprad laid the foundation of the company on July 28, 1943, when he was only 17 years old teenager. In 2008, IKEA became the largest furniture retail company across the world. Kitchen and home appliances and accessories, homeware, readymade furniture, food items, and many other home goods are some of the main products of the company.
According to a report published by Forbes, IKEA has got approximately more than 422 retail stores in over 50 countries across the world by the end of 2020. The company has employed approximately 208000 people worldwide to run various operations at its stores.
According to a report published by statista.com, the annual revenue of IKEA in 2019 was 41.3 billion Euros, out of which the net global income of the company in 2019 was 1.82 billion Euros. The growth of IKEA has been increasing for the past few years consistently since 2019. But things are different in 2020 due to the worldwide pandemic.
In the swot analysis of IKEA, we’ll study various internal and external factors that have been the reason for the success of the company. How the company should capitalize on its strengths to overcome weaknesses and exploit opportunities. For external factors, checkout pestle analysis of IKEA Here’s the swot analysis of IKEA,
Strengths of IKEA
The creative designs of IKEA’s furniture are popular among people worldwide. Whenever people go to the store for furniture shopping, then IKEA’s products are the priority because their unique designs attract attention easily. The luxurious and subtle designs of IKEA’s furniture are easily transportable. You can easily assemble them at home after buying them from the store and transporting it to your place.
The market research of IKEA about customers’ psychology is remarkable. They know exactly what customers want about their home furniture and appliances, that’s why the company has been in the market for a very long time. It’s also the reason that the company keeps on updating the designs of its products according to the needs and wants of customers.
According to an estimate conducted by Forbes, approximately more than 957 million people have visited the stores of IKEA in 2018, and roundabout over 2.5 billion have visited the online retail store of the company. These statistical figures show that the company is very popular among people, and that’s why millions of people visit brand stores across the world, both online and offline.
One of the most important qualities of IKEA is to maintain the operational cost and other variable costs down so that the company would be able to offer low prices to its customers. The company continuously searches for unique manufacturing methods to keep the operational cost down. That’s why the company can provide unique designs at an affordable price range.
According to an estimate conducted by Forbes, IKEA has approximately 422 retail location points in over 50 countries across the world. The brand also has got 38 distribution points in approximately 18 countries, 19 new retail stores in 11 countries, and 41 shopping malls in roundabout 15 countries worldwide.
The worldwide retail stores and distribution points show the influence of the brand in the global market. The economies of scale help the company to reduce the operational cost and achieve a competitive edge in the market.
Vast Product Portfolio
According to an estimate, IKEA offers approximately more than 9500 products like furniture, accessories, and appliances across the world. The company also offers food products, shopping malls, and many other varieties of products and services to its customers. The product portfolio of IKEA is rich with variety, design, quality, and unique products. It has helped the company to create its brand identity in the market over the years.
Strong Brand Value
According to an estimate made by Forbes, the brand value of IKEA is approximately 1530 billion US dollars and the Interbrand value of the company is 1746 billion US dollars. The strong financial position and highly loyal customers increase the overall strength of the company.
Good Relationship with Suppliers
The reason IKEA has a strong relationship with customers is that the company purchases raw material in a mass quantity. The suppliers prefer clients like IKEA is because mass orders help them to reduce the inventory management cost. The brand has to maintain inventory is because the company has to sell products to millions of customers worldwide.
Weaknesses of IKEA
Poor quality of Products
There have been incidents showing that the quality of IKEA’s furniture turned to be very poor. People reported that their furniture broke down within a few days of purchasing it. Since furniture is something that we use all the time in our daily lives. Therefore, its quality matters a lot.
Since IKEA offers luxurious design furniture at a low price, many people claim that the company isn’t maintaining the quality by offering products at such a cheap price.
Although the company claims that the assembling of furniture at home is easier, many people have said otherwise. Many people have also reported that when it comes to assembling the furniture after receiving the product. Some of the pieces like nuts, bolts, and screws of different parts of furniture are missing. Therefore, it becomes difficult to join different pieces together without the missing nuts and bolts.
Shipment & Distribution Problems
We know that IKEA is a global multinational company and operating its business in more than 50 countries. The furniture is a heavy and big item and it requires a huge place to maintain the inventory. When it comes to transporting huge items in different parts of the world, it’s equally different and the company has faced shipping and distribution issues.
Negative Image in Press
The press has presented a bad image of IKEA in the media over the years. Like several employees of the company have reported that the working hours are long and workplace conditions are poor. Many experts have criticized the advertising campaigns of the company in non-western countries. Many incidents happened with IKEA products. Such news and reports circulate in the media and they have made people to distrust the company’s products.
Many people have also claimed that IKEA follows market trends. The design that is already running in the market, the company follows the same design and makes it a little different. It means that the company doesn’t offer anything unique to the customers.
Weaker in the Asian Market
According to an estimate, IKEA sells approximately more than 80% of its products in the European market. The company derived roundabout 5% of its total sale from the Asian and Australian markets in 2018. It shows the weak position of the brand in the Asian market. It has great growth potential, the company must focus on it.
Opportunities available to IKEA
Online Shopping and Delivery System
Although the company has an online furniture retail store and millions of people have the visited store in recent years. The company should put all of its focus on the online store to capitalize on the opportunity of online shopping trends. The shipping and delivery system of IKEA is weak. If the brand manages to improve it and provides a safe delivery to its customers, then it would help the company to increase the sale and profitability.
Expanding the Portfolio
As some of you may know that IKEA is in the food industry, grocery market, and fashion industry as well along with the furniture business as well. It’s a great step for the brand. If the company keeps on expanding by capitalizing on more and more opportunities, it would increase the growth rate of the company.
Some of the new markets in developing countries like Mexico, Brazil, Malaysia, and other Asian countries have great potential. If IKEA expands its business operations into those markets, it would help the company to cement its roots in those countries.
Green Business Model
The trend for environmentally friendly products has grown a lot in recent years. If the company could manage to come up with a raw material without affecting the environment, it would help the company to attract an eco-friendly customer market. It would be a huge plus point for the company.
Threats IKEA have to face
Highly competitive market
The furniture market is becoming very competitive. The big retail companies like Walmart also offers low price furniture to the customers. The customer database of Walmart is also very big. If competitors keep on entering the furniture market, it would be very harmful to the market share of the brand.
As we know that skilled professionals are a great valuable asset to any business and company. The employees of IKEA have complained of being mistreated and not being paid for overtime by the company. It resulted in the form of a lawsuit and the company settled for millions of dollars.
Factors like dissatisfied employees, negative image of the company in the media, bad reviews, and angry customers would join hands and file a class-action lawsuit against IKEA. If it happens, then it would be very bad for the company and it would cost the brand a lot. Therefore, the company needs to be aware of potential threats and act accordingly.
Lack of Sustainability Issues
When it comes to the greens business model and eco-friendly products, then many green critics claim that the company is not sustainable in the future. That’s why the company is losing new customers every year. Even the business of IKEA relies on cutting off the trees. The company won’t be able to manufacture its products without trees.
After a careful study of the swot analysis of IKEA, we have concluded that IKEA is indeed a market leader and has a strong financial position. But threats like a potential lawsuit, dissatisfied employees, and inconsistent with the environment are very dangerous, the management of the brand should keep such issues in mind.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.