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Ikea's New Game Plan


The Corporation: RETAIL

IKEA'S NEW GAME PLAN

The Swedish furnisher has sagged in export markets. But it's plumping up to expand

He wears work shirts and totes his business papers in a plastic bag. He bounces around Europe checking on stores, quizzing startled sales clerks on product details, and passing out memos written on paper napkins. Although he's 71, the founder of Ikea, Sweden's $5.8 billion home-furnishings giant, has no intention of slowing down. Ingvar Kamprad, who still controls the company, wants to bring his retailing innovations and affordable furniture to customers as long as he can. "People have very thin wallets. We should take care of their interests," he says.

These days, Kamprad is brimming with a new sense of mission. Forty years after pioneering Ikea's distinctive assemble-it-yourself furniture, he has launched his company on a big expansion into new products and markets. This fall, Ikea is rolling out a major new line of children's furniture and toys. Not content with his traditional Western European base, Kamprad is opening up eight new stores--from Shanghai to Warsaw to Schaumberg, Ill. Kamprad envisions an Ikea that grabs customers in childhood and holds on to them for life.

Since Ikea's founder is getting on, an inevitable question looms: What will happen after Kamprad? After all, he has involved himself in every detail of Ikea's growth and expansion, down to the recipe for Swedish meatballs served at every outlet's restaurant. Says Christopher A. Bartlett, a Harvard business school professor who has studied the company: "Kamprad is not only Ikea's chief strategy officer. He also embodies the company's values and vision."

Given the challenges that Ikea faces, Kamprad's eventual retirement is an even more pressing issue. The company is fighting rivals on its European home turf and in the U.S., where it has struggled since 1985 to set up a viable business. From the start, the company has run into problems--after it failed to tailor products to U.S. tastes. Now, competitors such as Wal-Mart Stores and Target Stores are grabbing market share from Ikea.

GUT FEELING. Kamprad is pushing ahead with the same zeal that has long propelled his business. Never using market studies, Kamprad relies on his instincts to expand. In the past two decades, it has grown more than tenfold, to 139 outlets in 28 countries. In a recent bet based on gut feelings, Kamprad decided to go ahead with Ikea's China venture after managers spent little more than two weeks in Shanghai and Beijing.

As he hustles to expand his empire, Kamprad is also acting to protect it from his own family. He decided long ago that none of his sons--Peter, 32, Jonas, 31, or Mathias, 28--would ever control the company. Although all three work as Ikea managers, Kamprad was worried that they might squabble over control of the company, thus destroying it.

So Kamprad transferred 100% of his Ikea equity to a Dutch-based charitable foundation as an irrevocable gift in 1984. The move was aimed at blocking his sons from inheriting the company. "My family [will] never [have] the chance to sell or destroy the company," Kamprad says firmly. If it weren't for its complex structure, Ikea could probably fetch at least $6.1 billion, or 18 times last year's aftertax earnings of $340 million, analysts figure.

Kamprad looked carefully inside the company for his successor. He settled on Anders Moberg, a genial Swede who dropped out of college to join Ikea's mail-order department in 1970. Moberg became president in 1986 and now runs Ikea's day-to-day operations. But Kamprad's evangelical approach to business means that, in practice, he watches every step Moberg makes. "I put my fingers in too much," Kamprad admits. Deadpans the 47-year-old Moberg: "Nobody can replace Mr. Kamprad."

Moberg doesn't seem to mind the meddling. But he worries about the future. "What's good for yesterday won't necessarily be good for tomorrow," he frets. Two years ago, he warned employees that Ikea was "in crisis." He explains: "I wanted to wake the organization up."

Moberg's effort to shake Ikea out of complacency seems to be working. For the year ended Aug. 31, 1997, Ikea's sales jumped 21%. Although its furniture, toys, and housewares are priced 20% to 30% below rivals', analysts estimate that Ikea's sales per square foot are three times the industry average. Ikea's estimated 8%-to-10% pretax margin is twice as high.

But Kamprad and Moberg are keeping the pressure on Ikea's 35,000 employees. Kamprad shows up without warning at Ikea's design center in Almhult, Sweden, to check on the new children's line. Kamprad dreamed up the concept in 1994, explaining it to managers in a handwritten memo. An Ikea team recruited psychologists to help create 600 new products, from egg-shaped cribs to fabric dolls. "It is Ikea's most important project in modern times," Kamprad says.

PENNY-PINCHER. The rollout has run into glitches, though. Ikea has recalled some 140,000 stuffed animals because they failed safety tests. Moberg admits quality control fell short. "We're examining our way of doing things," he says. Even so, furniture consultants such as C. Britt Beemer, chairman of America's Research Group, predict Ikea will score with its new line because few of its competitors specialize in children's furniture.

From his earliest years in business, Kamprad has modeled the company to fit the spartan values of his village of Agunnaryd, Sweden, as well as mirror his brand of offbeat innovation. At 17, Kamprad began selling magazines from his family's farm, called Elmtaryd. He set up Ikea--an acronym for Ingvar Kamprad Elmtaryd Agunnaryd--in 1943. When he moved into furniture in the 1950s, Kamprad upset his rivals with unorthodox practices. Calling his nonhierarchical worldview "the Ikea way," he believes Ikea helps "democratization" around the world by selling well-designed furniture at low prices. He's a notorious penny-pincher, forbidding Ikea executives to fly first class and sharing hotel rooms with his sons to save money on business trips.

Kamprad's frugal values, while extreme to some, are a plus in a world of cutthroat competition. In another bid to beat its rivals, Ikea is investing heavily in new stores. Apart from its new push in Central Europe and Asia, Ikea is spending $50 million on a new Schaumberg (Ill.) superstore, the first in a chain of much larger outlets. Since Ikea's history in America has been woeful, that's a major bet on a turnaround. "We have had so many fiascoes," Kamprad says with a sigh. When the first Ikea store opened in Philadelphia in 1985, it sold European-size curtains that did not fit American windows. "Americans just wouldn't lower their ceilings to fit our curtains," Kamprad jokes.

Then, in 1990, Ikea snapped up five stores owned by Stor Furnishings International in California, just as the economy plunged into recession. When the new stores went into the red, "it sobered everybody up," says Josephine Rydberg-Dumant, head of Ikea catalog services, who was responsible for launching the outlets. Notes Isaac Lagnado, principal at Tactical Retail Solutions Inc. in New York: "Ikea came in with a certain arrogance."

NO DEBT. The company is humbler now. In the past two years, Ikea has shaken up its North American operation, shuttering two of its 21 stores and slashing office staff. These days, Ikea designs about one-third of its products especially for the U.S. Sofas are firmer and kitchen cabinets are deeper to match American appliances. Last year, the North American unit turned a profit on $859 million in sales, says the division's president, Jan Kjellman, but he won't disclose earnings. But, Kjellman adds, "I am not satisfied." So he is boosting spending on advertising to fight competition from Ethan Allen Interiors Inc. and Pier 1 Imports Inc.

Can Ikea handle all this at once? Remarkably, experts say, Kamprad has bootstrapped Ikea's expansion so far with almost no debt. With its strong cash flow, Ikea should be able to finance its expansion, analysts figure. But as it grows, Moberg admits Ikea must improve service in existing stores, where customers complain about long lines and a dearth of sales help.

The crowds at Ikea warehouse stores show that the Swedish retailer's prices and products still attract shoppers. But Kamprad confesses: "The problem for me is how long I stay in our organization." Like many an entrepreneurial startup that struggles to succeed beyond the founder, Sweden's furniture giant is sure to miss Kamprad's dominating presence when he finally retires.By Julia Flynn in Almhult, Sweden, with Lori Bongiorno in New York and bureau reportsReturn to top


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