IKEA SWOT Analysis [Update 2022] ❤️

IKEA SWOT Analysis 2022

IKEA SWOT Analysis: This article examines the business model of the world’s largest furniture manufacturer, IKEA using the SWOT Methodology. 

The company was established in 1943 and is renowned for its straightforward but effective strategy of selling furniture using the DIY or Do It Yourself concept, which makes sure that the company maintains a low cost and then passes the savings to customers.

The items offered by IKEA are generally prepared to use and flat-packed, meaning that they are able to be assembled by the customer. 

IKEA SWOT Analysis

IKEA is present on the internet too, and the total revenue from its offline and online businesses exceeds a billion dollars annually. 

The primary strategic factor behind IKEA’s success is its straightforward approach to retailing which has yielded huge dividends to the shareholders and the company (literally and literally).

Company Background

Key Facts
Name IKEA International Group
Founded 1943
Logo IKEA logo
Industries served Retail
Geographic areas served Worldwide
Headquarters Netherlands
Current CEO Mikael Ohlsson
Revenue € 27.628 billion (2012)
Profit € 3.202 billion (2012)
Employees 139,000 (2012)
Main Competitors Argos, Ashley Furniture Home Stores, B&Q, Bob’s Discount, John Lewis, Pier 1 Import, Rooms To Go, and many others.

Strengths In The SWOT Analysis Of IKEA 

❤️ Affordability: One of the reasons for the success of IKEA is its affordability. The prices for furniture and home furnishings are less than those of other companies that offer similar products. Furniture and home furnishings offered by IKEA are less expensive than other brands, but they receive excellent satisfaction ratings from customers for their durability and quality. This gives them an edge over stores whose prices are generally more expensive. Low prices enable people to fulfill their furniture requirements that they would not normally find at other retail firms that compete with IKEA.

❤️ Uniqueness: One of the strategies that have proven successful for IKEA is its ability to update its products, without compromising its fundamental values. The distinctiveness of IKEA is its capacity to be a pioneering company that is driven by creativity and innovation. IKEA isn’t just a manufacturer of furniture of all kinds. They focus on products that are durable, cost-effective, and of high quality, that are easy to disassemble and put back together. It’s because of their increased productivity that IKEA is able to stay in the top position by maintaining its lead over rivals.

❤️ Leading Brand: IKEA is a top name in the furniture market. In the year 2020, the company was ranked as the top important furniture retailer with a value of 48.1 billion U.S. Dollars. IKEA has been able to establish its image to be one of the most reliable firms to purchase furniture from. The reason IKEA is so successful is its loyal customers who continue to leave glowing reviews about the company. Over 600 million customers each year to its stores around the world. They hail from various social classes nations, ethnicities, nationalities, and age groups. Everyone has expressed their admiration for this retailer.

❤️ Strong Financial Position: In a study published in June 2021, IKEA is ranked eighth in the top ten list of the most important retailers in the world. IKEA’s solid financial position provides it with a competitive advantage and gives it the flexibility to manage its business operations. It also lets the company develop into new market segments. The company has generated massive cash flows in the past decades, and these have resulted in high-profit margins and low levels of debt. Furthermore, the huge amount of cash generated internally permits it to increase its share of the market through aggressive acquisitions as well as investment. Therefore, IKEA can continue to grow its profits and sales over time because of this advantage in competition.

Weaknesses In The SWOT Analysis Of IKEA 

❤️ The publicity is negative: The company has been repeatedly criticized for issues such as the treatment of employees in a poor way and questionable practices in advertising or lobbying for government authorities. The negative publicity can affect the brand’s reputation and increase customer loyalty.

❤️ Quality of goods and services: IKEA is unable to make a decision that will allow for constant cost reductions and keep the same high quality of its products. As per UK Customer, Insights research about IKEA by Verdict IKEA’s customers are less pleased with its service and product quality than the typical customer in the UK shopping at other stores. The company’s cost cuts result in lower quality of products that was followed by a higher percentage of items returned and damaged brands.

❤️ The standard products: IKEA’s main competitive advantage comes from its lower costs and is largely the result of standardizing products. Standardized products draw fewer customer segments. Thus, the inability of a company to offer higher quality, custom-designed products permits competitors to compete and increase their standing within it.

Opportunities In The SWOT Analysis Of IKEA 

❤️ Expanding further into emerging markets: Retail markets grew by a minimum of 5% in emerging markets over the past year, creating enormous possibilities for Ikea’s revenues to increase. The company is present in a majority of advanced economies but hasn’t yet entered into emerging economies, with the exception of China. There is a great opportunity for to IKEA in expanding its operations to Brazil, Mexico, Indonesia, and Malaysia to expand its presence within these countries to ensure its future expansion.

❤️ growing web-based revenue: Online retail sales represent 17 percent and 4 percent of retail sales total in the UK as well as the US respectively. Online sales are constantly growing along with the 870 million visits to the website IKEA can profit from this growth and gain from higher sales as well as lower expenses.

❤️ Expanding to the growing market for groceries: The current trend of eating healthier has increased demands for groceries in many countries with developed economies. IKEA could be able to grow its grocery business by introducing additional grocery stores within its existing retail locations. It is currently successfully running its own food stores, therefore this expansion opportunity is very well-suited to the present operations.

Threats In The SWOT Analysis Of IKEA 

❤️ More Competition: One of the biggest threats to IKEA in the near future is the growing competition from other furniture stores. The market is getting increasingly saturated with similar businesses that have seen the success that IKEA has achieved and are seeking to emulate their success by creating innovative products or services. Each of these competitors is working with one aim in mind – to take the market share of perhaps the most well-known Swedish company in the world. Many threats could come at IKEA. This includes big-scale retailers like Wal-Mart Stores Inc and Target Corporation or smaller furniture chains such as Crate & Barrel (C&B) or Williams-Sonoma Inc. To stay ahead of the pack it is essential for the business to be able to execute a solid business strategy in order to keep ahead of the crowd.

❤️ Inflation: In the event of inflation at a high level, it reduces the buying ability of cash. This has a major impact on the business of IKEA. As costs rise the pricing will be affected, leading to a decrease in the market share of IKEA. With no increase in profits, customers have less incentive to purchase from the company decreases. If the client isn’t able to spend the same amount as they did prior to the sales drop overall. That means that the production costs could stay high. That reduces profit margins. The employees will get affected by rising inflation which means that they will require pay increases. In the event of this, the cost of conducting business will increase, which can lead to an increase in the cost of goods.

❤️ The threat of Potential Lawsuits: A number of countries have laws that require warnings on certain products to prevent accidents and deaths. This was the case when Sweden introduced safety warnings in the year 1935. In order to comply with Swedish laws, IKEA began placing warning instructions for customers on its products in the year 1956. But, the instructions were placed in a way that was inconsistent across various types of merchandise. In the absence of diligence in production packaging, distribution, and delivery the goods that are sold by IKEA could cause injury resulting in the filing of a lawsuit. It could portray the company in a negative light, leading to the loss of business. Furthermore, the process of settling litigation is an expensive process. The fees imposed by lawyers and the amount of compensation awarded to the victims could be around a million of dollars. The business is better off taking steps to stay clear of such scenarios.

❤️ Insufficiency of a sustainable source of Raw Materials: IKEA is a business that has its foundation in the sale of inexpensive furniture. It has become one of the most reputable furniture retailers, offering practical and affordable items. But, the company’s popularity might not last indefinitely as several threats could threaten its existence in the near future. The reason for this is how and from where they get their wood, which is their main source of material for furniture. With the increase in the rate of global warming as well as climate change, IKEA will likely be the target of environmentalists and environmentalists. If this occurs, it will dramatically decrease their sales and production which will impact their profit.

Limited SWOT Analysis IKEA

While SWOT analysis is a popular tool for strategic planning, SWOT analysis is used widely as a tool for strategic planning However, the analysis has its fair share of drawbacks.

  • Certain aspects or capabilities of an organization could be both a strength as well as a weak point at the same. This is among the most important limitations in SWOT analyses. For instance, changing environmental regulations could be an opportunity and a threat to the company. However, as well as an opportunity in the sense that it can allow the company to compete on the same level or gain an advantage over its competitors if it can develop its products more quickly than its competitors.
  • SWOT doesn’t provide a way to gain competitive advantages and therefore it shouldn’t be a complete solution.
  • The matrix serves as an idea to begin discussions on how the suggested strategies might be implemented. It also provided an evaluation window, but not an implementation plan based upon IKEA’s strategic competitiveness. IKEA
  • The SWOT model is a static analysis and analysis of the existing conditions and a small number of potential modifications. As the environment, circumstances threats, strategies, and circumstances evolve, the dynamics of a competitive setting will not be apparent in one single matrix.
  • SWOT analysis can cause a company to focus too much on the importance of a single external or internal element in formulating strategies. There are interrelations between the most important external and internal elements that SWOT doesn’t reveal, which could be crucial in determining strategies.

SWOT Analysis Weighted by Weighted of IKEA

Due to the previously identified weaknesses of the SWOT analysis/ matrix, the management of corporations has decided to assign an appropriate amount of weightage for every internal strength and weakness of the business. 

Companies also evaluate the probability of events that will occur in the near future and what the effect can be on the performance of the company.

This technique is referred to as the Weighted SWOT analysis. It’s better than a basic SWOT analysis as using a weighted SWOT analysis IKEA managers are able to concentrate on the most crucial elements and ignore the less crucial ones. 

It also eliminates the problem of a long list which is when organizations make an extensive list, but none of the elements are considered to be important.

Sources

  • IKEA (2013). About IKEA. Available at: http://www.ikea.com/ms/en_GB/about_ikea/index.html
  • The Times 100 (2012). Business Case Studies. Ikea case study. Available at: http://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-planning/strengths.html#axzz2VB9TPpjz
  • Interbrand (2012). Best Global Brands in 2012. Available at: http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx
  • Wikipedia (2013). IKEA. Available at: http://en.wikipedia.org/wiki/IKEA

Frequently asked questions

❤️ Question What is Ikea’s business model?

Answer: The IKEA business model is to provide customers with quality, well-designed furniture at a bargain so that as many as possible can afford this.

❤️ Question: What makes IKEA so popular?

Answer: The success of IKEA is primarily due to its unique selling point and its business model. It has brought together a lifestyle that is focused on cheap furniture and home furnishings. 

They managed to convince the huge client base that spans the globe to accept cheap furniture while cutting costs. This allowed them to draw a wider client base, which results in increased sales.

❤️ Questions: In what way can IKEA encourage you to purchase more?

Answer: Gruen Transfer is a method employed at IKEA to keep their customers interested and constantly looking for more. It is when someone walks into a shop and becomes completely lost in the experience of design. 

The result is that they lose the purpose for which they brought them to the store in the first place and they could easily discover that they are buying things they never planned to buy at the shop.

 Conclusion  

IKEA has a rousing expansion plan to double its revenue up to EUR 50 billion in the year 2020. 

The company has taken the right steps in the direction of achieving its goals that including expansion into new markets as well as optimizing its supply chain in order to cut costs while adhering to its fundamental tenet of producing and selling low-cost high-quality, quality Scandinavian furniture. 

However, as the world economy begins to enter a downturn, IKEA has to devise a new strategy to get through the current turmoil and be more resilient than its competition.

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