Investing Talk #36: IKEA Business

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1. Company Overview

  • IKEA was founded in 1943 by Ingvar Kamprad in Sweden. Wikipedia+2IKEA+2

  • The IKEA business idea: “to offer a wide range of well-designed, functional home-furnishing products at prices so low that as many people as possible will be able to afford them.” IKEA+1

  • Structure: IKEA operates via a franchise system — the brand is owned by Inter IKEA Systems B.V., while a large number of stores are operated by the largest franchisee, INGKA Holding B.V.. Wikipedia+1

  • Scale: As of 2025 there are about 483 IKEA stores in 63 markets. Wikipedia+1

2. Core Business Model & How IKEA Makes Money

Value Proposition

  • Affordable, well-designed, functional home furnishings for many people. IKEA+1

  • Flat-pack, self-assembly furniture: the customer transports and assembles the product, lowering costs. Marketing Scoop+1

Key Revenue Streams

  • Retail sales of furniture, home accessories, décor, and related products. FourWeekMBA+1

  • Additional revenue via food/café in stores, e-commerce, services (delivery, assembly). Corpo Insight+1

  • Franchise fees and royalties from franchisees (in the franchise model). reflections.live+1

Key Cost & Efficiency Levers

  • Global sourcing: Materials and production from many countries give cost advantages. Latterly

  • Flat-pack design & logistics optimisation: Reduces shipping volume, warehouse space, inventory cost. Marketing Scoop

  • Self-service retail model: Customers pick and assemble their purchases, reducing labour and service cost. Marketing Scoop

  • Scale & standardisation: Large production runs, standard product ranges, reuse of design elements to lower per-unit cost. LinkedIn

3. Strategic Positioning & Strengths

  • Strong global brand, known widely for value, design and affordability.

  • Integrated value chain: From design → sourcing → manufacturing → retail, with heavy focus on efficiency. IKEA

  • Franchise model enables expansion with local adaptation, yet retains global scale advantages.

  • Scale advantage in production, logistics, purchasing power, enabling cost leadership.

  • Sustainability & ethical sourcing starting to play a larger role: material sourcing, social entrepreneurship initiatives. IKEA+1

4. Key Risks & Challenges

  • Price pressure / margin compression: The imperative to keep prices low can squeeze margins, especially if costs (raw materials, transport, labour) rise.

  • Supply chain complexity: Sourcing globally, dealing with many suppliers, countries, materials—exposed to disruptions, regulatory changes, cost inflation.

  • Retail model shift: As retail patterns shift (e-commerce, click-and-collect, smaller stores), IKEA must adapt its large-store model and supply/logistics accordingly.

  • Sustainability / ethical sourcing concerns: Materials sourcing, deforestation, labour practices can pose reputational and regulatory risk.

  • Competition & changing consumer behaviour: More players in home furnishing, online-only models, eco-friendly/second-hand furniture trends may challenge IKEA’s model.

  • Store footprint / cost of real estate: Large stores in suburban/retail parks incur costs; adapting to urban formats may require changes.

5. Recent Developments

  • IKEA posted a revenue drop in FY 2024 to ~€45 billion, its first decline since 2020, driven by price reductions though volumes increased. Financial Times

  • IKEA acquired U.S. logistics tech firm Locus to strengthen delivery and online growth. Reuters

  • Expansion into new store formats in urban locations: e.g., a new store in Delhi, India, designed for “One click, 30 minutes away” model. Indiatimes

6. Outlook & What to Watch

  • Expansion of e-commerce and delivery/fulfilment improvements: Adapting to online growth and convenience.

  • Smaller store formats and urban stores: More accessible, less dependent on large out-of-town warehouses.

  • Sustainability journey: Increasing share of recycled/sustainable materials; circular economy models (second-hand, furniture rental).

  • Affordability strategy: Keeping prices low amid cost inflation will be key to retaining value proposition.

  • Global market growth: Especially emerging markets / new geographies.

  • Innovation in products & services: Smart home offerings, new home-living solutions, services around furniture (assembly, trade-ins).

  • Supply chain resilience: Ensuring cost control, material availability, logistics efficiency in a volatile global environment.

7. Summary

IKEA is a globally recognised leader in home furnishings built on a business model of affordability, functional design, efficient global logistics, self-service retail and strong scale advantages. Its success lies in combining good design, cost leadership and massive scale. Going forward, the challenge will be to adapt to changing retail and consumer habits, maintain low-cost structure amid rising input costs, and pursue sustainability while continuing to expand globally.

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