A group of managers recently visited some factories in Poland with founder Kamprad. He wanted to know, “how can we get these mugs from a dollar to 20 cents?” They said it was impossible. So he said, “Well what if we order 10 times as many of them—what then?”
And that’s how Ikea drives prices down. It also means that there is less and less variation in the range. If you want ten mugs for the price of one, there’s more pressure for Ikea to sell the same products all over the world.
Kurs is a small bedroom table with a drawer; it was a bestseller in the rest of the world but not in the US. Carstedt stood in one of the stores watching American consumers to understand why. They said the drawer was too shallow and that they didn’t like the plastic inside.
It took two years to change the product into a deeper drawer with better sides because Ikea Sweden had to find an affordable way to design it, which led to sourcing some suppliers in the US. “The plastic was probably a better solution but the Americans couldn’t get it. We gradually found ways to be cleverer and still keep the identity of the Ikea product. For four years it was a continuous adaptation process,” reveals Carstedt.
Some of the changes that Ikea America made have since been introduced to Europe, with great success. For example, the Americans like to sink into a large, soft sofa whereas Europeans prefer to sit on the edge. American-influenced softer sofas have become a number one seller in Europe. Similarly, large entertainment units for TV systems were brought back to Europe, as were thicker and heavier bath towels.
Ikea’s system of self service, self assembly and involving consumers in the whole retail process also bewildered Americans. This is a society familiar with slick customer service and customer focus. As for the store layout, American customers felt as if they were caught in a trap when shopping at Ikea. One of the most frequently asked questions was how to get out.
For the first time, Ikea produced a three step plan, explaining how to shop at its stores and installed much quicker check-outs because Americans didn’t expect to queue as long as Europeans.
Ikea also introduced lots of water fountains throughout the store because Americans like drinking water while they shop. There had been a similar issue in Spain where special ventilated smoking areas had to be introduced in the room sets in Madrid and Barcelona, because the Spanish like smoking.
However, the Swedish retailer refused to adapt most vital things. For instance, it was suggested that Americans wouldn’t assemble furniture themselves. Rather than yield its flat packs, Ikea provided better instructions and offered a self-assembly service.
But Carstedt believes the most important achievement was keeping and developing the Ikea corporate culture in North America. This was done primarily by importing experienced long-time Ikea ambassadors into key management positions; all now hold high positions in the Ikea group worldwide.
It worked. Ikea now has 24 stores in America, with four on the horizon (most are scattered around the perimeter of the country). Ikea America also sells its products online and employs 13,000 co-workers. The US is Ikea’s third biggest country in terms of sales (11 percent). In the short-term, Ikea’s future expansion will be the fastest in the US.
Lost in Translation
The example of the US is not the first time that Ikea struggled to put a Swedish accent on another country’s way of living. Its first attempt to woo Japanese home dwellers of the joys of flat pack in 1974 failed. Ikea withdrew hastily saying that the Japanese customer was not yet ready for flat pack living and especially not convinced of assembling their own furniture.
This time round, thirty years later, Ikea is hopeful that it can seduce the Japanese, who have been battered by more than a decade of recession and are less convinced that they must pay high prices to obtain high-quality goods. Ikea is set to open two shops just outside Tokyo in late 2005, with plans to open eight to 12 more (half in greater Tokyo and half in the Kansai region, which includes Osaka and Kobe) and provide employment for between 6,000 to 8,000 people.
While Ikea’s multitude of storage solutions will suit the urban, cramped apartments in Japan; the Swedish retailer will also have to shrink its furnishings to fit the smaller Japanese household. However, it will not be tweaking its designs, saying that Japanese style is quite similar to Scandinavian.
Ikea’s biggest barrier this time around is the same as it was thirty years ago. Japan’s notoriously fussy customers will not be open to the idea of building furniture themselves. For this reason, Ikea Japan will be providing an assembly service as well as home delivery. The signs look good—the Ikea catalog has become the latest craze in Japan with consumers actually swapping bootleg copies.
In general, Asia is going to be key for Ikea. China is an important new market because home buying and home decoration has only very recently become a cultural currency. Sales at Ikea’s two Chinese stores in Shanghai and Beijing rose by 50 percent last year, since its arrival in 1998.
Changes in China’s government housing policy in 1998 means that the state no longer has to provide accommodation to its people through an employee’s “work unit.” The private housing market is booming. The volume of home mortgages provided by the state’s commercial banks jumped by 145 percent in 1999.
With a population of 1.25 billion, China has more consumers than the US and Europe combined. However, Ikea is perceived as expensive in China—a store for the middle class. Since its launch, Ikea has endeavored to cut prices by using more and more local suppliers. Its prices have dropped by ten percent since launch and Chinese sales rose accordingly by 35 percent in 2003.
Globally, Ikea expects to source about 23 percent of its products from China in 2005. Despite this, Ikea has made little attempt to adjust its range to local tastes. In a range of around 7,000 to 8,000 articles, only three have been added for the Chinese market—chop sticks, a wok with a lid, and a cleaver. However, there are some other tweaks to the Swedish template. As many Chinese apartments have balconies, there is a special balcony section in the stores. Ikea also offers an assembly service for Chinese shoppers.
In Shanghai, Wang Jian Shuo runs a weblog, which among other things delves into his likes and dislikes of Ikea. He writes how, in 1999, as a newly graduated student he spent his first month’s salary on a Billy bookcase. His assessment of the furniture retailer sums up the appeal of Ikea, “Ikea seems to know my life better than any other furniture brand.” Despite refusing to adapt its global model, Ikea’s Swedish formula seems to be seducing consumers across the world.