Look around the average college grad's first apartment, and you'll probably find it: a distinctive bookcase, an end table, maybe a bed. It has clean lines and blonde wood, and if you ask the owner where he bought it, he'll recall a scene in a giant furniture store. There he stood, perhaps with a bellyful of Swedish meatballs, thinking, "Man, this is cheap." Then he grabbed the flat box, lugged it to his car, took it home, and assembled the contents, a process that took two hours and required the use of no fewer than three expletives. This is the formula made famous by Ikea, the Swedish furniture company that's been helping young people furnish apartments and starter homes for more than 50 years.
Ikea has been winning fans in the U.S. since 1985, albeit slowly: In all that time, it's opened just 15 American stores. Ikea's is a peculiar growth strategy-glaciers have moved more quickly. But this privately held business has an old European way about it, more thoughtful and traditional than aggressive and adventurous. Ikea will never be a fast-growing empire like Gap-but then, at a time when Gap is struggling with too many stores, Ikea seems to be riding out the recession quite nicely. "They are a very judicious company," says Kurt Barnard, president of Barnard's Retail Consulting Group and Trend Report in Upper Montclair, New Jersey. "They don't act spontaneously or fly by the seat of their pants."
Ikea's roots lie in 1930s Sweden. That's where Ingvar Kamprad, the five-year-old son of local farmers, began peddling matches and Christmas cards. By age 17, Kamprad had moved on to belts, watches, and writing instruments. As recounted in Leading by Design: The Ikea Story, Kamprad became obsessed with finding the right merchandise from suppliers, negotiating a good wholesale price, and calculating the optimal selling price. By 1951 he was operating a mail order furniture catalog under the name Ikea. The catalog business grew, but it had limited potential: Customers were leery of buying furniture sight unseen. So in 1953 Kamprad opened a showroom in the village of Älmhult, where customers could examine his wares before placing an order (deliveries were still mainly by mail). The store looked nothing like a modern-day Ikea outlet, but there was one similarity: food. From the outset, Kamprad believed in serving rolls and coffee to shoppers so they wouldn't leave the store because of hunger. "No good business is done on an empty stomach," he said. But food alone couldn't overcome the downsides of the mail-order model. So in the late 1950s, Ikea shifted to selling unassembled "knock-down" furniture directly from the store. The new cash-and-carry model freed Ikea and its customers from having to arrange delivery-a big logistical challenge in the furniture industry-and allowed the store to keep a large inventory of legless tables and flat-boxed, unassembled bookshelves, which stacked easily. By the 1960s, Ikea had opened its first suburban location. Despite the changing concept, the core mission remained the same: selling stylish furniture at low prices, which Ikea maintained by using its size to exert bargaining power over suppliers.
With that formula in place, this risk-averse company took a big plunge, opening shops outside of Sweden for the first time. Furniture retailing isn't an obvious industry for international expansion, says Christopher Bartlett, a Harvard Business School professor who's studied Ikea. Customers' tastes in furniture vary across different regions, and local firms can usually better match products with customer preferences. Plus, the size and weight of the merchandise make shipping costly. But Kamprad decided to plow ahead. "He was driven by a vision that he could bring well-designed furniture to people of modest means, and he pursued that vision with a passion," Bartlett says. After expanding further into Europe, the chain opened its first U.S. store in 1985, near Philadelphia. Americans were delighted by the low prices; within a few weeks, the shelves were bare. Soon customers were driving to the store from as far away as Boston. Locations quickly went up in Baltimore and just outside New York City in Elizabeth, New Jersey, and Hicksville, Long Island.
To please Americans, Ikea had to make some adjustments. The best example came in the bed department. American notions of bed sizes-twin, queen, king-aren't a global standard, and Ikea was selling smaller, European-size beds that wouldn't accommodate the bedding Americans already owned. The company also sold European-size linens and mattresses at its stores, but customers would be locked into buying from Ikea for as long as they owned the bed-not a popular concept. Ikea eventually switched to the U.S. sizes, and sales increased.
But some of the company's hallmarks remained constant. Its furniture is distinctly Scandinavian, with sleek lines, tailored upholstery, and lots of light-colored wood. Many American homes, in contrast, featured Barcaloungers, overstuffed couches, and dark-stained country furniture. Ikea didn't totally cave in to Americans' design preferences; instead, the chain made smaller compromises and banked on the notion that its younger, well-educated consumers would migrate toward Ikea's more sophisticated designs. Over time, they have. Ten years ago Ikea couldn't get Americans to buy furniture in its lightest-colored woods, such as birch or beech. Today birch and beech are its most popular lines.
Ikea's expansion strategy has remained just as conservative. Given their crowded parking lots, Ikea stores would seem ripe for cloning in every big U.S. market. But the company has moved slowly, keeping locations confined to a handful of East and West Coast cities, with Chicago and Houston the only exceptions. "There are a lot of areas in the U.S. we know we can be successful in," says Kent Nordin, U.S. marketing and sales manager, citing Atlanta and Florida as examples. "As tempting as it would seem, it doesn't make sense to jump in there and open stores, and have long and expensive distribution lines-that's how you kill yourself."
So Ikea's plan is to add stores in markets where it has a presence already, instead of breaking ground in new cities. The strategy makes sense on a number of levels. Having several locations around a single city minimizes warehousing costs, and it brings economies of scale to advertising: A single ad in The New York Times, for instance, can drive sales to both the New Jersey and Long Island locations. And while there would seem to be a limit to the number of supersize Ikea stores a market can support, the company says many of its outlets are still too crowded at peak times.
Caution isn't the only brake on Ikea's expansion. In several cities, it's been hit with opposition. In 1999, for instance, the company announced plans to build a store in New Rochelle, a suburb just north of New York City. This third New York-area outlet would have completed a ring of the city and given affluent Westchester County residents easy access. Then the locals started complaining.
"We were not anti-Ikea," says Laura Lovejoy, a former advertising executive who helped lead community opposition in New Rochelle. Her group objected not to the company but to the location it chose for its outlet-smack in the middle of a residential neighborhood. The store would have displaced homes, businesses, and churches, she says. There was no good access from the local interstate. Faced with protests, Ikea withdrew its plans for a New Rochelle store in early 2001.
Big-box retailers face other hurdles. While Ikea has been restrained in its expansion, companies such as Wal-Mart and Home Depot have saturated so many of their markets that some experts see a new innovation coming-one that Ikea might try, too. "There are not a lot of places you can put an Ikea store and make it profitable," says Carl Steidtmann, chief economist at Deloitte Research. "It takes an enormous volume." In fact, according to Bertil Torekull, author of Leading by Design, two thirds of Ikea's U.S. locations were losing money in 1993, and by 1996 only half were profitable. If huge outlets aren't feasible in some markets, Ikea could try to tweak the concept and create smaller stores-a move Home Depot and Wal-Mart are currently attempting. But changing the formula entails big risks. Says Steidtmann: Once you downsize the store, "it's a very different business."
But none of that seems destined to happen very quickly-which is just the way the founder wants it. In Leading by Design, Kamprad says: "We want to grow at our own pace so that we keep up, not just with what is new but also develop what we already have." For now, Ikea's managers are pleased with their success. Sales in the U.S. accounted for 13 percent of Ikea's $9.6 billion in 2001 worldwide sales, and 8,000 of the company's 65,000 workers are in North America. "This market used to be called the graveyard of European retailers. We're one of the few that's managed to adapt and survive," Nordin says. And while there will never be an Ikea in every town, the company does envision a larger future than its recent past suggests. Says Nordin: "Our dream would be to open 50 North American stores in the next 10 years."
