Porter’s Five Forces Analysis of IKEA
Key Facts
| Name | IKEA |
| Industry | Retail and Wholesale |
| Founded | 1943 |
| Headquarters | Almhult, Sweden |
| CEOs | JesperBrodin |
| Revenues | €41.90 billion (2021) |
| Profit | €1.58 billion ( 2021) |
| Competitors | Walmart,Amazon, Wayfair |
Company Overview
In 1943, Ingvar Kamprad, while barely 17 years old, founded IKEA in Sweden. IKEA operates 458 stores across 61 markets. Nearly 70% of the stores are located in Europe, with Germany accounting for 15% of sales and outside Europe the United States for 14%. Last year\19 additional shops inaugurated, the company also opened its first location in India in Hyderabad. In 2018, 2.5 billion people accessed Ikea.com and 957 million people went to IKEA shops. Approximately 9,500 different products are available to IKEA customers. Under the IKEA Brand, numerous businesses with various owners run their operations, all with the shared goal of improving peoples’ daily lives. IKEA operates its retail operations using a franchise system, and franchisees are allowed to promote and sell the IKEA product line.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a popular framework for examining business strategies in light of the industry in order to lessen rivalry and increase profits. It was developed in 1979 at Harvard Business School by Professor Michael E. Porter.
IKEA Rivalry among Existing Competitor
IKEA has three main business divisions: supply, range, and franchise. The IKEA Franchise Segment owns the IKEA Concept and is the global IKEA franchisor (which includes the IKEA Brand). The IKEA Concept is continually improved, and it is successfully implemented in both new and existing markets. The IKEA Range sector is in charge of designing and creating the whole IKEA product line, which includes food, packaging, and home furnishings. The supply division is in charge of locating and supplying IKEA goods to IKEA franchisees. IKEA Industry, a strategic manufacturing partner, also creates IKEA home furnishings. It manufactures about 11% of the whole IKEA product line, with a focus on wood-based furniture.40 production units are used to carry out its operations. IKEA is growing into 17 new markets and opening an average of 50 new sites per year between FY19 and the end of FY23 (including test locations). By the end of FY21, IKEA franchisees ran 458 conventional IKEA shops in 61 markets, in addition to a number of test sites. Although the pandemic had an impact on expansion plans and store openings in new markets, IKEA built a variety of traditional stores, novel smaller layouts, e-commerce sites, and test locations in FY21. Slovenia and Mexico were the two new markets IKEA entered in FY21. The largest accomplishment will be IKEA Chile’s debut in Santiago, which will introduce IKEA to the many people in South America, next year. IKEA franchisees in FY22. IKEA franchisees will expand into three additional new markets in FY22: Oman, the Philippines, and Puerto Rico. IKEA’s revenue increased steadily over the past 20 years, rising from 17.50 billion euros in 2006 to 41.90 billion euros in 2021 at a compound annual growth rate of 5.61%.
WalmartInc. is a retailer and a wholesaler that was established in 1962. Its three business segments are Sam’s Club, Walmart International, and Walmart United States. Consumer items are marketed by Wal-Mart, Walmart Neighborhood Market brands, walmart.com, and other e-commerce companies operating within the Walmart US sector. The Walmart International division is in charge of supercenters, supermarkets, hypermarkets, warehouse clubs, and cash & carry businesses abroad. Sam’s Club has two business segments: membership-only warehouse clubs and samsclubs.com. Samuel Moore and James Lawrence Walton founded the company in 1945, and it is headquartered in Bentonville, Arkansas, in the United States.Walmart Inc. is a retailer and a wholesaler that was established in 1962. Its three business segments are Sam’s Club, Walmart International, and Walmart United States. Consumer items are marketed by Wal-Mart, Walmart Neighborhood Market brands, walmart.com, and other e-commerce companies operating within the Walmart US sector. The Walmart International division is in charge of supercenters, supermarkets, hypermarkets, warehouse clubs, and cash & carry businesses abroad. Sam’s Club has two business segments: membership-only warehouse clubs and samsclubs.com. Samuel Moore and James Lawrence Walton founded the company in 1945, and it is headquartered in Bentonville, Arkansas, in the United States.Around 230 million customers visited Walmart each week in 2022, and its warehouse business, Sam’s club, made 2.2 billion dollars in revenue from membership fees. Its recent exponential growth in internet sales will bring in about 73 million dollars in 2022. With a compound annual growth rate of 3.74%, its revenue increased from $308.95 billion in 2006 to $576.76 billion in 2022.
Amazon Founded in 1994, Amazon operates three business segments: North America, International, and Amazon Web Services. It engages in the online retail shopping industry (AWS). The North America sector includes subscriptions and retail sales of consumer goods made through websites with a North American concentration, like www.amazon.com and www.amazon.ca. Through websites with a worldwide focus, the International sector provides subscriptions and retail sales of consumer goods. The Amazon Web Services division sells computation, storage, databases, other AWS services on a global scale to start-ups, large businesses, governmental organizations, and academic institutions. In recent decades With a compound annual growth rate of 26.66%, which is the greatest among its rivals, its revenue has increased from just $10.71 billion in 2006 to $469.82 billion in 2021.
Wayfair established in May 2002 An online home products firm with headquarters in Boston reported net sales of $13.7 billion in 2021, a modest decline from the $14.1 billion figure from the previous year. The company’s best revenue year to date was in 2020. The company’s sales increased dramatically over the preceding 10 years, from $601 million to $13.7 billion. Its compound annual growth rate is 21.25%, which is higher than that of its rivals in this particular specialized market.
IKEA Threat of New Entrants
Time to become establish: The main obstacle for new entrants is having to fight for the same supply and distribution channels that the market’s established companies employ. IKEA has a competitive edge since they have previously developed well-recognized channels for display and delivery. The IKEA Delft shop is one of many properties, workplaces, and distribution centres owned by Inter IKEA around the globe. A new distribution centre was constructed in Malaysia to better serve the South-East Asian markets, and in the upcoming years, it is anticipated that 17 other markets will be opened as well as an average of 50 additional locations (including test sites).Additionally, the Inter IKEA Group-owned IKEA Industry is already fueled by renewable energy, giving it a competitive edge. IKEA was also listed in the supply chain magazine’s top 10 list of the most advanced automated warehouse systems.
Economies of Scale: It will be difficult for new competitors to match the aggressive pricing levels provided by established firms, as they have attained a level of output and sales that has decreased their cost of production per unit. The IKEA Group has 40 furniture production facilities and firms that produce the furniture’s component pieces, giving it a competitive advantage. Additionally, the company has recently redesigned various products to counteract price inflation, including employing hollow gaps in some hardwood furniture pieces to reduce material prices. In an effort to reduce costs and guarantee supply reliability, IKEA is also exerting more direct control over crucial supply chain components like plastics manufacture.
Online Sales segment: When the COVID-19 pandemic hit the world three years ago, the online mode of sale grew to be one of the most important segments for the retail industry. If we examine the US e-commerce market, US-made furniture costing $43 billion in total was shipped in 2019. Since 2015, the whole e-commerce share of the American furniture wholesale market has been rising, and as of 2019, it had surpassed all previous records with 22.8 percent. In contrast to past ideas about direct-to-customer sales, this. Because of the newly created market niche, physical retail chains for furniture and household appliances may experience competition in the years to come.However, IKEA has been in the very analogue business of selling its special brand of household items to consumers for for 80 years. However, Barbara Martin Coppol, a former employee of Google, Samsung, and Texas Instruments, was appointed by IKEA Retail (Ingka Group) three years ago to lead the business through a digital transformation and assist it enter the next stage of its history. IKEA increased its sales from ecommerce by 31% over the past three years by embracing digital, and this year, its online channels welcomed more than 5 billion visitors.
IKEA Bargaining Power of Suppliers
It is believed that the negotiation power of IKEA’s suppliers is moderate. IKEA has a wide and diverse supplier base because they source from 55 key markets across the world. Due to the diversity of its suppliers, which reduces its dependency on any one of them, IKEA is able to negotiate favorable terms with them. IKEA’s size, strength, and significant purchasing power enable them to bargain favorable prices with suppliers. But IKEA also has strict guidelines for suppliers, such as adhering to social and environmental standards, which some suppliers can find difficult to meet. IKEA has relationships with its suppliers that have lasted an average of 11 years, which allows it to launch about 2000 new products each year.
IKEA Bargaining Power of Buyers
As one of the oldest and most recognizable manufacturers of furniture and home appliances, IKEA has a significant impact on its customers and sets trends. Customers continue to have faith in IKEA, as seen by the company’s steady revenue growth over the previous three decades. The business has created new materials that use the most modern methods for handling, managing, and shipping commodities while also being more affordable and environmentally benign. In 2020, IKEA was by far the biggest furniture retailer in Europe, demonstrating the viability of their business strategy.
IKEA Threat of Substitute Products or Services
Brand Loyalty: Despite the fact that significant competitors, such as Wayfair in 2002 and Amazon in 1994, joined the market and provided products through the e-commerce segment, IKEA’s brand image and cost leadership position make its products difficult to replicate. IKEA holds IKEA Proprietary Rights (“IP Rights”), which have a book value of EUR 9.6 billion and include the IKEA trademark, protection rights, intellectual property rights, and rights to the IKEA catalogue. IKEA’s excellent market position is supported by the company’s sales growth rate.
Collaborations: IKEA has advanced by using augmented reality (AR) as a tool for home furnishing through its partnership with APPPLE, bringing it closer to the homes of many people. It has also been able to develop a variety of straightforward storage options for both children and adults through its partnership with LEGO. IKEA has a history of coming up with innovative concepts and one-of-a-kind solutions for its clients that offer it a competitive edge.
Extensive Range of Product:Customers at IKEA have access to as many as 9500 products, and that figure keeps growing by 2000 each year, making it tough for rivals to compete in that broad range and with the distinctiveness of those products.
References
- Forbes, Profile,see link here |IKEA
- Forbes, Profile, see link here |Walmart
- Forbes, Profile, see link here |Wayfair
- Forbes, Profile, see link here |Amazon
- Walmart – Statistics & Facts available at| Statista
- Annual report 2016 to 2021 available at IKEA
- Walmart’s net sales worldwide from fiscal year 2006 to 2022(in billion U.S. dollars) available at Statista
- Annual revenue of the IKEA Group worldwide from 2001 to 2022(in billion euros) available at Statista
- Net revenue of Amazon from 1st quarter 2007 to 3rd quarter 2022(in billion U.S. dollars)available atStatista
- Net revenue of Wayfair worldwide from 2012 to 2021(in million U.S. dollars) available at Wayfair
- Annual net sales revenue of Amazon from 2004 to 2021(in billion U.S. dollars) available at amazon
- Inside IKEA’s Digital Transformation see linke here at HarvardBusinessReview
- IKEA Posts Record Sales Despite Supply-Chain Disruptions|Furniture giant sees strong demand for home products despite economic turbulence see link at TheWallStreetJournal
- New collaboration between IKEA and Apple see link at IKEA
- The Top 10 Automated Warehouses available at||IKEA
- Let’s grow together: become an IKEA supplier available at|IKEA
