Executive Summary

Ikea must assess its external and competitive environment, determine the key opportunities and threats which face it, and align its strengths and weaknesses to best counter the weak consumer market, and thus generate the strong growth it needs to remain a strong brand and presence in its chosen markets (Johnson, Scholes and Whittington, 2005)

Changing Headquarters
Until September 2001, the company was headquartered in Denmark but due to problems such as poor flight connections, a decision was made to relocate Group management, finance and treasury departments to Leiden in the Netherlands and the rest of the headquarter departments to Sweden. The move to the Netherlands was justified as Ikeas parent company already has its registered office in the Netherlands due to favourable government policies that benefited the company over and above any other country in Europe, and Sweden is where the company originated. Sweden also plays a significant role in Ikeas marketing strategy. Ikeas strategy has built its reputation through in-house design of inexpensive furniture, and has included the formation of distribution and manufacturing operations to complement the retail business. This shift in the companys strategy has, for the most part, proved highly successful and profitable, and has enabled the company to better align itself to the issues in its key markets in mainland Europe and Scandinavia. (Global Market Information Database, 2004)

Marketing Strategies
Ikeas success is based on principal marketing strategies that remain the same throughout the world, which include a catalogue that is printed in 17 languages, for 28 countries, and the use of the colours of the Swedish flag blue and yellow in the Ikea logo. This is combined with an emphasis on customer freedom and choice with regard to buying and taking home products, and low prices intended to create a sale mentality amongst customers. This aggressive price strategy coupled, with a wide product range catering for every potential lifestyle and life stage of a consumer, can best summarise the companys recipe for success. The fact that Ikea targets all age groups and households makes it an attractive proposition to a wide spectrum of most countries consumers, especially amongst depressed retail markets, such as Europe at the moment.

External Operations
Unlike most other international retailers, the company does not involve itself in many joint ventures or partnerships, and as of February 2004, Ikea was involved in three agreements. In February 2004, Ikea announced the signing of an agreement with Telecoms giant Nortel Networks to deploy interactive voice response technology for its customer service centres in

Germany and Switzerland. Ikea deployed Nortel Networkss Voice Processing Series Information Server (VPS/is), a multimedia, self-service platform that automates the transaction processing traditionally conducted by contact centre agents. The agreement has improved the efficiency of Ikeas services in these countries, which was becoming a key issue for the company. In July 2001, Ikea announced the signing of an agreement with Musicmusicmusic inc., a leading music content provider, for the introduction of Industrial Sounds Services (ISS) into the new Ikea store in Toronto. The service consists of a 12-zone system strategically situated throughout the various departments and offices of the building, with its aim being to ensure that the store keeps and motivates customers, as well as encourages staff. Ikea also currently has a SEK3 million agreement with Nocom AB for the provision of server access products and services for Ikeas standard platform. The agreement also covers maintenance and support and applies to its use in the Ikea organisation globally, enabling the company to rapidly grow and develop its online offering in order to counter one of the key issues in its competitive environment: the move towards online retail

SWOT Analysis
Ikeas main strengths are a strong international brand recognition built upon a unique philosophy and low product prices, combined with solid sales performance since 1997. The company also maintains total control of its design, pricing and supply of product ranges globally, and thus has a product portfolio that caters for most consumer lifestyles and budgets. The firms main weakness is the fact that it is very much reliant on Europe, with 82% of stores located in this region, and it has encountered difficulty in meeting customer expectations of service as well as price, especially so in the UK where large queues at the tills at weekends are a common feature. However, Ikea is countering its main weakness with its key opportunity, which is expansion into emerging markets in Asia and Eastern Europe. The development of premium lines, whether within existing stores or through new high street fascias complementing the out-of-town stores, and an increase of sales via the development of e-commerce sites in each country, are both improving customer service, and reducing the volume demand on existing stores. Unfortunately, these extra developments are driving the threat of a possible over saturation of the market, increased by the fact that competitors are following suit, by introducing similar product ranges at low prices. This is compounded by the negative impact on sales of continued depressed economic conditions in its core European market as well as the adverse effect of a weak dollar on sales in the US, and the political and economic instability of the Chinese and Russian markets, in which the company plans to invest heavily in the short-mid term, also presents a potential threat. (Johnson, Scholes and Whittington, 2005)

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Conclusion

A steady development of the Ikea retail business appears to be the focus for the company in the near future, with strategies unlikely to include aggressive expansion into new areas, but rather building and developing in old. (Ikea United Kingdom, 2005) However, some changes may be seen with the development of e-commerce, which in the long term, this may have detrimental effects on the revenue of bricks and mortar Ikea stores, but positive effects on turnover for the company as a whole, and thus is the main example of how the company is aligning itself to address the key threat to its traditional stores. Consumers may find Internet shopping preferable, as the Ikea reputation means that they are already assured of the quality and craftsmanship of Ikea products, which is opposed to the present belief of Ikea that customers should be able to feel and check the quality of products before purchase. Ikea has also adopted an aggressive expansion-based strategy over the last few years, although the weakness of the external consumer market means that sales growth over the next few years should remain relatively modest. An upturn in economic conditions in Europe and the US, and the continued development of business in China, Japan and Russia should lead to acceleration in growth from 2006, with year on year growth predicted to reach double figures. (Ikea United Kingdom, 2005) The development of e-commerce, making shopping at Ikea more accessible, may also have a positive impact on sales, although no progress has been visible on this front of late, and as such Ikea has been very guarded over its profit levels. However, profit margins may fall in the short term as result of the expansion into existing and new emerging markets, with the company facing high set up costs and low spending power, as well as several other external issues in developing markets. The company has already faced a number of bureaucratic obstacles in Russia and further hurdles cannot be ruled out, with similar problems potentially arising in China.

Bibliography
1. Global Market Information Database (2004) Ikea International A/S. 2. Ikea United Kingdom (2005) www.ikea.co.uk Accessed 23 Nov 2005 3. Johnson, Scholes and Whittington (2005) Exploring Corporate Strategy: Text and Cases, 7th Edition. Prentice Hall
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