How IKEA became the world's largest furniture retailer

IKEA has mastered furniture: With an annual revenue of $50 billion, the firm is the world’s largest furniture retailer—better yet, IKEA also sells meatballs.

IKEA’s story began with its founder, Ingvar Kamprad’s father. Kamprad had dyslexia but worked hard to get good grades during his last year at school. His father gave him some money to reward his efforts, which became the firm’s seed money.

Kamprad developed the firm’s name from his initials, his family’s farm (Elmtaryd), and the nearby town (Agunnaryd): IKEA was born in 1943.

Kamprad lived in Småland, a rocky and impoverished part of Sweden. But Smålanders have a reputation for innovation and thrift, which became IKEA’s joint unique sales proposition. Kamprad thought, “It must be possible to offer good design and function at low prices,” and that’s what he did.

Budget limited IKEA’s early offerings. Initially, the firm sold household items, like lamps and picture frames. Five years in, Kamprad introduced low-cost furniture into the mix.

As product offerings expanded, Kamprad’s dyslexia posed an issue. He found product codes confusing; proper names of places he knew were much more accessible. IKEA began using Scandinavian names in a system developed by Kamprad, boosting recognizability.

Kamprad valued two things: cost and accessibility. To strengthen the latter, he began printing the IKEA catalog in 1951, allowing customers to shop from the comfort of their own homes.

Knowing that “IKEA people do not drive flashy cars or stay at luxury hotels,” Kamprad continued to innovate new cost-cutting methods. Mail-ordering furniture is expensive, so he removed the legs from the LÖVET table, single-handedly inventing flat-pack shipping, which is still in use today.

The flat-pack shipping model permitted customers to assemble their own furniture. Kamprad calls this design “democratic,” allowing customers to feel involved.

The move also ignited IKEA’s relationship with sustainability, as fewer packing materials eliminate waste.

While low-cost furniture is the backbone of IKEA’s success today, it also led Kamprad to his first failure: Customers were skeptical of the firm’s offerings, and sales lagged. Luckily, Kamprad had an idea.

In 1958, he opened IKEA’s first brick-and-mortar store in Älmhult, Småland. In it, he designed a showroom so customers could try before buying.

But one problem bred another: Kamprad noticed that most customers left the showroom during lunch to dine in nearby restaurants, which interrupted the purchasing process. He found that “hungry customers buy less.”

So, by the end of 1960, every IKEA was outfitted with a fully equipped restaurant serving Swedish specialties, including their famous meatballs.

Customers flooded IKEA’s showrooms, hungry for delicious meals and low-cost furniture. The firm expanded its locations throughout the 1950s and 1960s, opening stores in Sweden, Denmark, and Norway.

IKEA was among the first major firms to hone globalization. In what the firm calls “The Great Expansion,” it expanded across five continents, opening over twenty massive locations and showrooms.

Throughout the process, ever-thrifty Kamprad sought to create an “eternal life” for the firm. He established a complicated corporate structure with arms in philanthropy, retail, and franchising, all owned by the Stichting INGKA Foundation, a non-profit organization. As a result, IKEA’s revenue can only be reinvested or donated. Kamprad said, “The stock market was not an option for IKEA,” the genius move avoided institutional investors.  

Today, IKEA stands by Kamprad’s statement, “We don't need flashy cars, impressive titles, uniforms, or other status symbols. We rely on our strength and our will!”

The firm is worth over $15 billion, with most of its revenue coming from furniture sales and 5-15% from restaurants.

IKEA, more so than its competitors, knows its target customers, using a bare-bones marketing strategy to cater to them.  They create consistency through store design and product offerings, showcasing convenience over flash.

Here’s what we can learn from IKEA about sustainability, expansion, and fantastic customer experience.

Lessons

Design processes that center customers at all times. IKEA’s goal “is to serve everybody, including people with little money.” The firm’s entire process, from resource sourcing, manufacturing, shipping, and in-store shopping, is designed with customers in mind. IKEA’s customer-minded approach begins with product design; the firm uses a “democratic design approach” that dates back to Kamprad’s flat-shipping model. The idea is scrapped if what they call the ‘IKEA customer’ can’t afford it. However, what’s so interesting about IKEA is how they center customers in-store. The firm was one of the first to leverage showrooms and today, these are still the backbone of its sales process. Every store is designed to appeal to shoppers: Decorated in white, the only colors are on the furniture, drawing the eye to it. Well-renowed neuromarketer Dr. Pradeep says, “Furniture is set up in its natural environment…Every single thing there is contextually in position. The brain perceives, understands, and desires its inherent value.” When customers walk into an IKEA, there’s a clear path to follow. Better yet, plenty of products along that path create more buying opportunities. Even IKEA’s DIY assembly process centers customers: Shoppers are more likely to emotionally invest in furniture if they ‘made’ it themselves, right?

Low prices don’t have to mean poor quality. As Kamprad says, “No effort must be spared to ensure our prices are perceived to be low. There shall always be a substantial price difference compared to our competitors…Every product area must include ‘breath-taking offers.’” Cost-consciousness permeates IKEA’s practices and offerings, aligning with Kamprad’s initial goal. From flat-pack shipping, self-assembly, and locations just outside city limits, IKEA cuts costs wherever necessary, padding their bottom line. More importantly, IKEA offers fewer products than competitors: Customers choose between two or three kitchen tables instead of ten or twenty. This, combined with low prices, delivers higher sales volume for economies of scale, allowing the firm to purchase supplies in bulk. Furthermore, these cuts are made to supply and product design, not the items’ quality. Kamprad knew that customers needed quality furniture that did what they expected. He didn’t reinvent or cheapen the wheel—just repackaged it cheaper and with fewer hands to lower the price. Anders Dahlvig, author of The IKEA Edge, says, “To compete on prices and maintain a profitable business, retailers must be better than the competition at operating efficient stores.” IKEA is just that—better at cutting costs and boosting efficiency. The firm’s practices are responsible for its continued success and longevity in a highly competitive industry.

A long-term perspective on pricing, operations, and corporate structure builds longevity.  Kamprad knew “only a long-term perspective could secure our growth plans.” To that end, he used a lean production and sales model to build his firm’s longevity. Kamprad said, “If we charge too much, we will not be able to offer the lowest prices. If we charge too little, we will not be able to build up resources.” Striking that balance is difficult for many firms, but IKEA does so seamlessly, building resources through equitable prices and efficient processes. IKEA uses pervasive cost-cutting measures like “develop[ing] products more economically, to purchase more efficiently and to be constantly stubborn in cost savings of all kinds” to build longevity. Even the firm’s corporate structure is designed to breed lasting relevance: Kamprad created a non-taxable corporate structure exploiting loopholes in regulation, and all IKEA revenue is reinvested into the company or donated to the firm’s many charitable pursuits. Dahlvig says, “By doing things differently, companies can establish a unique position in the market, one on which they can thrive for a long time.” IKEA does just that—things differently—providing longevity and a robust customer base.

Humility and frugality are profitable traits that appeal to customers. Kamprad said, “People say I am cheap, and I don’t mind if they do.” He was right—Kamprad was known for his frugality. For decades, he famously drove an old Volvo and wore clothes from flea markets wherever he went. His money habits were so tight that it’s rumored he stole restaurant condiment packages despite a net worth in the billions. It wasn’t just about saving money for Kamprad but leading by example. Kamprad “[looked] at the money I'm about to spend on myself and asked if IKEA's customers could afford it.” His target customers didn’t “drive flashy cars,” so neither did he. Kamprad was famously unpretentious, choosing thrift over all else, and his image became enmeshed in his firm’s. As Dahlvig says, “All elements of what today is called the Ikea culture are the values and characteristics of Kamprad himself.” Kamprad understood that customers would surely follow if he practiced what he preached (or sold). This approach breeds likability, boosting sales.

A family culture yields loyalty and good PR. According to Bertil Torekull, co-author of The IKEA Story, “Kamprad quite literally sees his company as a kind of family and himself as the father.” IKEA’s strong family culture begins at hiring: IKEA uses a ‘value-based recruitment’ process for all opportunities, ensuring that employees aren’t just competent but possess IKEA’s primary values. After hiring the ' right people, ' IKEA sticks to its claims of togetherness and improvement. Employee surveys are sent out regularly, and issues are addressed in person—never via email. More so than many other firms, IKEA prioritizes internal promotions “which ensures stability and understanding of the criteria for success.” The firm’s leaders are living examples of IKEA’s culture, illustrating their core values. Promoting internally based on merit, not experience, ensures empathy. Leaders have worked in-store and uniquely understand the challenges faced by lower-level employees. This practice strengthens leadership’s decisions, contributing to IKEA’s family-first culture. This approach stands for itself: 80% of IKEA employees feel included, and even more say they can ‘be themselves’ at work. Customers note this: When they walk into an IKEA location, they pick up on the employee’s sense of togetherness and positive vibes.

Differentiation in retail can be a winning strategy. IKEA understands that differentiation is a key lever to its success. More importantly, differentiation breeds a robust customer base, yielding size and advantages to economies of scale. IKEA exploits both of these, knowing each’s place in their aim of global dominance. Dahlvig says, “To be really successful in global expansion, you need to offer something unique, something the local competition cannot match.” IKEA does just that, offering customers lower prices and friendly staff and restaurant and dining, rental options, and childcare throughout their shopping experience. As Kamprad said, “Daring to be different is one of the most important criteria behind the IKEA success…While other furniture retailers were selling manufacturers’ designs, we started to make our own designs. Whereas others sell their furniture assembled, IKEA lets customers assemble it themselves.” Differentiation seeps through IKEA’s processes: Ask any customer, “Why IKEA?” and they’ll have a clear answer. From operations, manufacturing, sales, and stores, they do things differently than other retailers.

Speeches

• Only People Who Sleep Don't Take Risks (with Mark Thompson)---Interview with IKEA’s founder.
• TEDx Glasglow interviews Jesper Brodin, CEO of Ingka Group (IKEA) and Chair of The B Team at CoP26—TED interviews current CEO.
• Championing People and the Planet with IKEA | Javier Quiñones—U.S. President of IKEA discusses sustainability and people strategy.
• Inside IKEA: Jesper Brodin Interview—CNBC interviews Jesper Brodin, IKEA CEO.
• A Masterclass in Culture with IKEA CEO Jesper Brodin—IKEA CEO discusses firm culture.
• First Move with Julia Chatterley—Podcast interview with U.S. IKEA president.
• IKEA US CEO Shares 2024 Strategy to Blend Retail, Payments and AI for Shopper Appeal—Highlights from an interview with Javier Quiñones

Videos

• How IKEA Evolved Its Strategy While Keeping Its Culture Constant—HBR podcast discusses IKEA’s people strategy.
• The ‘IKEA Effect:’ Behind the Company’s Unique Business Model | WSJ The Economics Of—WSJ examines the firm’s business model.
• How IKEA gets you to impulsively buy more—IKEA’s in-store strategy.
• IKEA Business Model—The firm’s business strategy.
• Lessons from a Practitioner: IKEA’s Holistic Take on Emission Scopes and Total Business Impact—Podcast on IKEA’s sustainability strategy.
• How the 'IKEA effect' can motivate people to work harder—IKEA’s people strategy.
• IKEA Business Case Study: How to Earn 40 Billion$ Every Year by Selling Furniture? (IKEA Effect)---IKEA case study.
• IKEA - Why They're So Successful—Company documentary.
• Why You Spend So Much Money At IKEA—CNBC looks at IKEA’s in-store strategy.
• IKEA: Making a $40 Billion Company Climate Positive—IKEA’s sustainability strategy.
• S3 E1: Ingvar Kamprad - IKEA—Podcasters discuss IKEA’s founding story.

Book Recommendations

• Leading By Design: The IKEA Story—IKEA founder shares the firm’s history.
• The IKEA Edge: Building Global Growth and Social Good at the World's Most Iconic Home Store–The former CEO’s account of IKEA’s impact.
• Strategic Sourcing and Category Management: Lessons Learned at IKEA—Key strategic takeaways.
• Ingvar Kamprad: The Testament of a Furniture Dealer—The firm’s founder’s message.
• The IKEA Edge—Details IKEA’s key business practices and continued relevance.

Further Readings

• IKEA Is A World-Wide Wonder—Key company information and brief history.
• Inside IKEA’s Digital Transformation–IKEA’s digital strategy.
• How IKEA creator Ingvar Kamprad built the world's largest furniture retailer — and a $39 billion fortune—The firm’s founding story
• A Cheap Date, With Child Care by IKEA—IKEA’s expansion and in-store strategy.
• The story behind IKEA's 'quirky' product names—IKEA’s founding story and marketing information.
• Who Owns IKEA?---The firm’s business strategy.
• No assembly required? IKEA to buy services site TaskRabbit—IKEA’s expansion strategy.
• House Perfect—IKEA’s social and cultural influence.
• IKEA Reinvents the Catalog—IKEA’s early sales strategy.
• IKEA is investing $2.8 billion in renewable energy infrastructure—IKEA’s sustainability strategy.
• How IKEA Leveraged The Art Of Listening To Global Dominance—Interview with IKEA U.S. President.
• Exploring store format development and its influence on store image and store clientele – the case of IKEA’s development of an inner-city store format—IKEA’s in-store strategy.
• How does IKEA exist?---Redditors discuss IKEA’s key business strategies.
• IKEA Forever—NYT looks at the brand’s influence.
• How did IKEA Improve Customer Experience by Going Paperless?---The firm’s digital strategy.
• The world’s biggest restaurant—IKEA’s restaurant history.
• What, no meatballs? How IKEA caters to different global tastes—IKEA’s globalization strategy.
• The Experimental Roots of Revolutionary Vision–MIT Sloan discusses the history of IKEA’s strategy.
• IKEA Acquires Geomagical Labs: Top Takeaways For Retailers And Startups—The firm’s acquisition strategy.
• State-of-the-art distribution center for IKEA—IKEA’s distribution strategy.
• IKEA–Forbes company overview.
• IKEA Business Strategy and Competitive Advantage: Capitalising on IKEA Concept—Business strategy.