The company’s furniture is omnipotent. Could Ikea be one of the most successful private companies?
Back in the mid-nineties I was working for an interiors magazine and I spent the better part of a year schlepping through houses and apartments in London, Paris, Rome and Manhattan as well as countless country piles. The guilty secret that soon became apparent in all these places was that not one of them was entirely devoid of an IKEA product. Not one, and believe me I started making a point of asking. Those who said no immediately soon changed their mind and remembered that they had some plates, a wastebasket or at least something they’d picked up whilst shopping at IKEA out of curiosity. This is the great thing about this brand, you will find their products in the most modest social housing often as easily as you will in upper west side apartments. I have seen Ikea furniture sit as comfortably alongside Eames and Le Corbusier as I have alongside Pottery Barn. I even own some myself, and I’m very happy with it.
IKEA is a complex business and not an easy one to understand from the outside. It’s not a public company and has no need to follow that path having successfully grown to become the word’s largest furniture retailer without the need for outside investment or IPO. In the simplest terms the business remained under the control of founder Ingvar Kamprad until he retired in 1986. The business has a net shareholder equity valued at around $23bn and ownership of this is controlled under a corporate structure of holding companies. Kamprad created a charitable foundation in 1982, which took ownership of the majority of the business and now controls the holding company, which owns 90% of IKEA Stores.
There is a separate company within the IKEA group, which owns IKEA trademarks and intellectual property, and this is owned by yet another holding company, based in Lichtenstein, which exists to save IKEA companies from high European and US taxes. It’s hard, and a little unfair, to place IKEA in the same tax-avoiding group as Amazon, Starbucks and others given that it uses a large percentage of profits to donate to selected charities. From the outset Kamprad wanted to retain control of his business and deliberately avoided the suggestion or offer of outside investment, preferring to do things his way and without interference.
From small acorns big oak trees grow and if you need proof of this then IKEA is your evidence. Kamprad founded the company modestly in 1943 at the age of 17 with money from his father. The name IKEA is taken from his initials and the first letters of the farm and village where he lived, Elmtaryd and Agunnaryd. He used the money from his father to buy stocks of pens, picture frames and household items, which he sold locally at discount prices. By the end of the Second World War in 1945 Kamprad added a mail order service to the business and delivered the packages himself to the local railway station. Business was good after the war and Sweden was well insulated from the economic hardships of post-war Europe, giving IKEA the perfect environment to capitalize on the modern demand for furnishings.
By 1948 the first range of furniture was introduced and although not yet flat-packed for self-assembly the pricing was keen and suited the mass market. The first retail showroom opened in 1953, some 10 years after Kamprad had started out and it was another 3 years before the company moved into the flat-packed furniture business almost by accident. Local suppliers had been getting agitated by IKEA’s growing control over their own businesses and enforced purchasing agreement terms, the upshot of this was an organised boycott of IKEA by local suppliers which led Kamprad to rethink his supply chain strategy. Company folklore has it that the idea of flat packing came from an employee taking home a table, but being unable to fit the table into a car had removed the legs only to re-attach at the destination. However the idea was formed is irrelevant as flat packed furniture was born and would go on to dominate furniture sales around the globe.
The business really began to grow at a greater pace from the late 1950s onwards and by 1959 IKEA was employing 100 staff. Having been founded 16 years earlier this may not seem like a giant leap forward, but keep in mind that Kamprad had started the business on a modest gift from his father at the age of 17 with no prior experience and was about to ride the crest of a wave that would see households in Europe and America take up the latest craze of home improvement, which still exists today. Kamprad continued to build the company brick by brick, adding products to the range, cafeterias within stores and looking more and more towards eastern Europe for a cheap supply source of quality materials. In 1963 IKEA opened it’s first store in Norway, its first step to internationalization and continued to build larger and larger stores rather than smaller stores in concentration.
Kamprad had long believed that people would be prepared to travel if he could offer the largest choice and range at the best prices, and he was right. By the mid 1970s IKEA had stores across Europe and was about to enter the Australian and North American markets. The range of products continued to expand but many of the original lines still exist today and are still a big part of the catalogue inventory. Kamprad had been canny in hiring great young designers and creating fresh looking modern furniture that appealed to almost everyone yet still remained mainly in the budget end of the market.
Kamprad retired in 1986 after 43 years at the helm and became an advisor to the business. He now lives in Switzerland and although he is one of the world’s wealthiest men he is still known for his philanthropy and careful spending. He’s rumored to drive a 20-year-old Volvo and only ever flies economy. You may not spot him immediately in the towns around Epalinges buying Christmas ornaments and wrapping paper in the January sales and taking the salt and pepper sachets from the local cafes but that is him and he is there. He is not a miser, he simply values money well spent and he has a portfolio of property as well as many of the trappings you may expect from his billionaire status. The IKEA story on the whole is certainly an interesting one and a solid reminder that huge corporations do start from humble beginnings and if you’re lucky will blossom within the lifetime of the founder.
For more info, visit www.ikea.com