Great Ikea!: A Brand for All the People
Ingvar who? Take the first letter of his first name, the first of his last name, the first letter of the region of Sweden he was born in ('E') and the first letter of Almhult, the town he was born in and you get...IKEA, the global powerhouse that he founded from a shed in the bottom of his garden.
Ingvar Kamprad once shaded his way past Bill Gates to become the world’s richest man, allegedly (Kamprad says it’s not true as you can’t include the value of Ikea as part of an assessment of his personal wealth). What intrigues me about Ikea is how its low-cost culture is driven directly by its leader's personal behaviour.
Here are ten myths and stories about Kamprad that circulate within Ikea, from Elen Lewis’s great little book ‘Great Ikea!’. They are relevant because you can see how congruent Kamprad's personal life is with his business strategy and what he expects from the people who work for Ikea.
- He travels on public transport whenever he can and uses his pensioner’s free bus pass in Sweden
- He buys his fruit and vegetables from the market in the afternoon because it’s cheaper
- When he takes a drink from a minibar in a hotel, he visits a supermarket to replace it
- He reuses his teabags
- Sometimes he drives from his home in Switzerland to Sweden, instead of flying, to save money
- He dries out three times a year to keep his drinking under control
- When he eats out in the evening, he likes to spend under £5
- He would rather sleep in his car than stay in a posh hotel. (On a sourcing trip to Poland with Ikea colleagues in two cars, Kamprad vetoed staying at a nearby Marriott, as he said it was too expensive. They all slept in the cars that night instead).
- He pretends he’s shopping with his wife when visiting an Ikea store, asking her questions as if she is there, like "Where is the pen that would make it easier for us to make a note of this product number? We should provide pens here." He also approaches customers in the checkout till and bombards them with questions about whether what they have in their basket was cheap enough in their opinion).
- He carries a plastic spoon in his pocket to stir his coffee with.
That kind of personal thriftiness informs Ikea's overall strategy. These facts from Elen Lewis’s book show the lengths Ikea will go to in order to source cheaply for its customers; and in order to reach new customers. If the transport infrastructure isn’t sound enough to reach suppliers in far-flung places, Ikea builds its own…
Ikea has built a railway in China
Ikea Rail was launched in 2002 to help Ikea physically build rail tracks and trains in China to shuttle its goods across the vast continent.
…a motorway in Russia
It’s not the first time Ikea has built its own infrastructure. When it first pinpointed Russia as a valuable source of timber, the Russian roads weren’t good enough for Ikea to get its products back out. So Ikea built a motorway enabling its trucks to go back and forth with timber. I can’t think of any other retailer that has created its own infrastructure.
…and even houses
Ikea calls its approach to customer-centred products ‘democratic design’. In the late 1990s it experimented with prefab apartments. The pilot programme was called BoKlok, which is Swedish for ‘smart living.’ By 2000, Ikea had built over 1,000 prefab apartments across four Scandinavian countries.
Economies of scale
The scale at which Ikea operates delivers direct benefits to customers. Its enormous scale of manufacture bulldozes down prices. Lack, the name of a best-selling coffee table, is a good example of this. In 1990, Ikea was producing around 242,000 tables and selling them for 25.70 Euros. But, by 2004, Ikea was producing 2 million of the tables and was able to sell them for just 9.90 Euros. Ikea differs from most retailers because it passes its savings onto customers.
…But not all its savings You would think that Ikea’s profits on individual items would be tiny. In fact its profit margins are huge. Between 17-18 per cent of the price of an Ikea product is pure profit, which is staggering considering most rival firms operate on single-figure margins. Even Tesco, theBritish supermarket that has successfully expanded abroad, only operates on margins of around 6 percent.
Source: Elen Lewis’s great little book Great Ikea! A Brand For All The People. Highly recommended. It's not a leadership book, it's a book about the brand, and quite a simple book at that. You can read it in a couple of hours and it provides great insight into the business philosophy of Ingvar Kamprad and his global giant of a brand. Ikea’s combination of getting customers to self-serve and self-assemble, coupled with its aggressively low prices, produced an unusual and highly successful business model.