IKEA SWOT Analysis [2021]: What Are Its Biggest Threats?

IKEA is a Swedish multinational company that deals in ready-to-assemble furniture, appliances, home accessories, and lighting products. It was founded in Sweden in 1943 as a small family business by Ingvar Kamprad to sell his father’s invention: the flat-pack desk.

The business has since grown into one of the most successful corporations in the world. It has over 300 stores worldwide operating out of more than 55 countries.

IKEA’s strengths include its low prices and wide selection of goods available for purchase, making it an attractive destination for budget shoppers looking to furnish their homes affordably while also providing a unique experience.

However, like any other business, IKEA has its share of strengths, weaknesses, opportunities, and threats facing it. Discussed below are each of t factors and how the company can navigate to emerge stronger.

IKEA’s Strengths

1. Affordability

 

One reason for IKEA’s success is affordability. Their furniture prices and home products are lower than other companies with similar products. Home furnishings sold by IKEA cost less than many competing brands but receive high consumer ratings for quality and durability.

This characteristic gives them a competitive advantage over other stores whose price points tend to be higher.

Affordable prices allow people to meet their furniture needs that they may not otherwise be able to get anywhere else or at other retailer companies competing with IKEA.

2. Uniqueness

One strategy that has worked for IKEA is the ability to renew its products without changing its core values. The uniqueness of IKEA lies in its ability to be a visionary organization, using creativity and innovation.

IKEA doesn’t just design any type of furniture. They specialize in products that are functional, affordable, of good quality, and are easily disassembled and reassembled. It’s through increased productivity that IKEA remains at the top by keeping its dominance over competitors.

3. Leading Brand

IKEA is a leading brand in the furniture industry. In 2020, the company was ranked as the most valuable furniture retail brand at almost 48.1 billion U.S. Dollars. It has successfully created an image for itself as one of the best companies to buy furniture from. The secret behind IKEA’s success lies with its loyal customers, who continue to give positive reviews about the company.

There are over 600 million visitors every year at its stores worldwide. They come from different social classes, nationalities, ethnic groups, and ages. All of them have shown great respect for this retail giant.

4. Strong Financial Position

According to a survey released in June 2021, IKEA holds position eight on the list of most valuable retailers worldwide. IKEA’s strong financial position is a competitive advantage that provides it with flexibility in its operations. And allows the company to expand into new markets.

The company has generated huge cash flows over the last decades, which have translated into high profits and low debt levels. In addition, IKEA’s large amount of internally generated cash allows it to further expand its share of the market through aggressive acquisitions and investments. Thus IKEA can sustainably increase its sales and profit margins over the long term due to this competitive advantage.

Weaknesses of the Company

1. Low-Quality Products

Some of IKEA’s products are of low quality though at a cheap price. With their reputation, it’s a huge turnoff for customers who would otherwise associate the brand name with high-quality products. There’re even reports of furniture breaking down soon after being purchased from their stores.

The company’s desire to keep the costs of production low has negatively affected the final output and quality. As a result, it has have lost customers who the negative reviews of their products have put off.

2. Bad Publicity

The furniture giant has had some bad publicity lately. Some years back, the company’s reputation was dented by negative press coverage.  And while it might seem that most businesses would avoid such a situation, this shows the power of bad publicity.

With such a massive presence globally, there’s a high demand for the main raw material used in their furniture – wood. To meet demand, IKEA has become a huge consumer of wood – affecting large tracts of forest cover. This has not gone well with conservationists, who see the company as a threat to the environment in their daily operations.

3. Limited Physical Outlets

Despite IKEA’s numerous outlets across the world, their reach is still limited. In most cases, you’ll find their stores in major cities or towns in various countries, which is a disadvantage to those who live far from these cities or towns. Such people may not be able to travel over long distances, thereby missing out.

Their low presence in the Asian market is another source of concern. Having concentrated in North America and Europe, they’ve left a considerable gap in other areas. With the Asian continent leading in terms of population, that’s a huge market to ignore.

4. Challenges in Shipping

It seems that IKEA’s not only infamous for poor product design but also terrible delivery. There have been instances where customers have waited for days on end to receive their goods. This is despite being given several assurances that they’ve already left the stores. Such unreliability has, in a way, affected the image of the company to some extent.

Another challenge is logistical – encountered by customers through receiving incomplete goods. There have been instances where customers have complained of receiving disassembled furniture without fastening screws. In such cases, the customer is forced to wait for the missing pieces, which is inconvenient.

Opportunities for Future Growth

1. Expansion

By the year 2020, IKEA was operating around 445 stores around the world. This has helped the furniture giant stamp its footprint in the market. However, their presence is only felt and seen in North America and Europe. Other parts of the world have very few IKEA stores, if any.

Out of 195 countries globally, IKEA operates from 55 countries – missing on more than half of them! There’s a massive market in South America, Africa, China, India, Asian countries, just to name a few.

Targeting low and middle-income earners in such countries would generate additional revenue, which would look good on its balance sheet.

2. Selling Goods Online

IKEA can take advantage of its “build-it-yourself” concept and sell it online. It’s true that they already do this. But selling things on the internet allows them to save a lot on building materials for a store. Of course, there would still be some other costs (like designing the site itself). But it would be much cheaper than having stores across cities worldwide.

However, this has its disadvantages. IKEA will have to make sure that the actual product doesn’t look different from its website. Customers might complain if something is wrong with their order or if they received something that looks completely different than what was shown on the website. Selling goods online would mean higher profit margins and better cash flow.

3. Diversification by Adding Other Products to Their Portfolio

Even though IKEA’s business model is designed to offer quality and affordable products, there’s still an opportunity for growth. Having established a good customer base in low-level earners, the company can start targeting the upper class. Coming up with elegant designs that appeal to high-end consumers would open a new market altogether.

The company can also take advantage of the popularity of its brand name to venture into other products. Since they are already dealing in household items, they may introduce other household goods that appeal to their customers like electronics, fitness equipment, etc. Doing this would translate into more sales on top of making them a one-stop retail store.

4. Technological Innovation

In the modern world, consumers are becoming more tech-savvy and quite demanding. With the current market dynamics and stiff competition, technological innovation is one thing IKEA can’t afford to overlook.

If implemented right, technology would help boost productivity resulting in more sales. It would also help in retaining customers who would appreciate the efforts to make their purchasing experience great.

The use of technology would also help in minimizing wastage by streamlining operations. This would, in turn, help in reducing costs, thereby boosting the profit margins.

Through technology, the company would be in a better position to forge ahead without the risk of losing business to its competitors.

Threats to the Company’s Existence

1. Increased Competition

A key threat to IKEA in the foreseeable future is increasing competition from other furniture retailers. The marketplace is becoming increasingly crowded with similar companies, all of which have noticed what IKEA has done and are attempting to emulate their success by developing new products and services.

All these competitors are coming with one goal in mind – to capture the market share away from arguably the most popular Swedish company on earth. Multiple threats could potentially confront IKEA.

This includes large-scale retail competitors such as Wal-Mart Stores Inc and Target Corporation or medium-sized furniture chains like Crate & Barrel (C&B) or Williams-Sonoma Inc. To survive the competition, the company needs to have sound business strategies to stay ahead of the pack.

2. Inflation

When inflation hits, it lowers the purchasing power of money. It has a significant impact on IKEA’s business. With the increase in costs, pricing would be affected, potentially leading to a loss in market share for the company.

Without any increase in earnings, the customers’ ability to buy from the company is reduced. If the customer cannot spend as they did before, the overall sales fall. This means that production costs may remain high, which in turn affects the profit margins.

The employees would be affected by the inflation, meaning that they would demand pay rises. When that happens, the cost of doing business rises, leading to an increase in the price of the goods.

3. Threats of Potential Lawsuits

Many countries have established laws that require warnings on products to reduce the number of injuries and deaths. Such was the case when Sweden mandated safety markings in 1935. To comply with Swedish law, IKEA began placing warning instructions for consumers on its products in 1956. However, this was done inconsistently across different types of goods.

Without diligence in production, packaging, and shipment, goods sold by IKEA can cause injuries resulting in a lawsuit. This would portray the company in bad light leading to loss of business.

In addition, dealing with a lawsuit is a costly affair. Fees demanded by lawyers and the final compensation to the victims may be in the range of millions of dollars. The company would be better off putting in measures to avoid such scenarios.

4. Lack of a Sustainable Source of Raw Materials

IKEA is a company whose existence has been built on the sales of low-cost furniture. It has established itself as one of the world’s leading furniture retailers by offering affordable and functional products. However, IKEA’s success may not continue to grow indefinitely because several threats may jeopardize its existence in the future.

These threats are linked to how and where they source wood being their primary raw material for their furniture. With the rise in global warming and climate change, IKEA will likely be the target of environmental conservationists and activists. If that happens, it will significantly reduce their production and sales, affecting their profits.

How to Improve the Company Based on the SWOT Analysis

IKEA is well-known globally for its unique, quality, and affordable furniture. The biggest threats against IKEA are its competitors with better prices who can offer cheaper replicas of IKEA furniture such as LACK or MODUL.

To protect their present market share, they must create product differences between themselves and their competitors.

The company should consider expanding into emerging economies and third-world countries. This will give the company a massive boost in revenue and will also assist in adding new consumers to the company’s customer base.

Frequently Asked Questions

Question: What is Ikea’s business model?

Answer: IKEA’s business concept is to provide users with well-designed, functional home furniture at a low price so that as many people as possible can afford that.

Question: Why is IKEA so successful?

Answer: IKEA’s success is primarily attributed to its unique selling point and business model. It has created a unified lifestyle focused on low-cost furniture and home fittings. They somehow convinced the large customer base spread across the world to embrace cheap furniture while reducing costs. This made it easy to appeal to a more extensive customer base, which results in high sales.

Question: How does IKEA get you to buy more?

Answer: The Gruen Transfer is a strategy used by IKEA to keep customers hooked and always looking for more. It describes when one gets into a store and is lost in the fantastic experience set up intentionally. This makes them lose the purpose that took them to the shop initially, and they can easily find themselves buying what they had not planned to from the store.

Conclusion

IKEA is still a global force in the retail furniture market. There are numerous opportunities the company can take advantage of to solidify its market share. IKEA plans to open more stores outside of North America, but there’s still a vastly untapped market within emerging economies.

The company should not limit itself to the five largest countries (China, India, Russia, USA & Brazil). Instead, it should look into other lower-income countries such as Mexico, which has a purchasing power index at $3,928 compared to China with $7,009.

Embracing new technology, selling their products online, and diversification would also spur the company to new heights in revenue generation.

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