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Executive Summary

IKEA is a Swedish international conglomerate that specializes in designing ad selling assembled furniture and home accessory, among other useful goods to customers around the world. The company has been one of the leading furniture and home accessory retailers in Europe globally but is currently facing stiff competition from other retail companies such as Amazon, Walmart, Ashley’s Furniture Industries, and Group SEB. Using the PESTLE analysis the report justified that IKEA’s macro-environment has been supported by several opportunities such as advanced technology, a stable economy, and decent political policies. However, significant threats are affecting IKEA as a brand like lawsuits, poor management systems. In line with the competitor analysis, IKEA’s current position has been threatened by stiff competition but its illustrious brand has been the defining factor in determining its sustainability. From the internal analysis, IKEA’s strengths and opportunities are unmatched by start-up companies owing to its size and scope in the global retail market. As a recommendation, IKEA ought to capitalize on the present opportunities and change its recruiting system to be more diverse.

Introduction

The pricing and distribution of IKEA are defined by four strategies: product, strategy, pricing strategy, place and distribution strategy, and promotion and advertising strategy. The assumed situation offers significant opportunities for the company to utilize effective marketing strategies that follow local, regional as well as international retail industry conditions. The firm’s intensive growth strategy linked to its operative competition in the global market influences the definition of its apparent marketing mix (Yu, Wang, Zhong and Huang, 2016). IKEA’s pricing and distribution are linked to its strategic marketing choices as one of the largest retailers in the world. Respectively, the marketing strategy is the key strategic plan for the global growth of IKEA.

To justify how IKEA operates, this report will describe the eternal as well as industry analysis for the depiction of opportunities as well as threats in conjunction with potter’s five forces and PESTLE analysis. The report will then describe IKEA’S competitor analysis to clarity its current position through distribution, financial, pricing strategy comparison with its competitors (Yu, Wang, Zhong and Huang, 2016). Respectively, an internal analysis of the company will be conducted to establish its strengths and weaknesses followed by a summary of the SWOT analysis. The final step of this report will be reflecting on the recommendations obtained from the SWOT analysis to prop the business in establishing and maintaining a strong position in the global market.

External Analysis

An external analysis of IKEA needs to help identify both opportunities and threats (Bank, 2018). The analysis will include specifically political, economic, social, technological, ecological, and legal factors that affect its operations.

Political Factors

IKEA considers political determinants in the retail market, for the most part, accustomed to government policies (Bank, 2018). In the company’s PESTEL analysis model, politically dynamic vested parties are relatively critical. There are two political external factors that IKEA observes both in the local and international environment.

The first is political sustainability in major economies. Before extending its business to the international market, the management ensures that it is familiar with the political situation in a different locale (Williams and Sir, 2017). By virtue that many of its targeted regions had good policies, the company has the opportunity to expand its network to these regions. Analysts suggest that this factor has helped the company to gain universal recognition hence supporting its apparent growth. The political factors and strategies of every nation are pivotal for the organization’s sustainability. In case, a country’s political system is business cordial then it becomes exceptionally simple for IKEA to commence its operations with minimum intricacies.

Economic Factors

A country’s GDP, inflation, per capita income, purchasing power both for the consumer and the supplier has a significant influence on IKEA’s mode of operation. The business is under constant pressure from the economic changes present in the current market. Any change in economic policies directly leads to an alteration in IKEA’s revenues. In line with the PESTLE analysis model, IKEA is influenced by some remote factors (Williams and Sir, 2017). The first is the stability of major global economies. The firm is also susceptible to the economic slowdown. For instance, the Brexit issue which has been, and is still, a matter of consideration, has affected the day-to-day operations of the organization. After Brexit, it will be challenging for the firm to recruit adept labourers from the UK. Besides, the free flow of merchandise, as well as services inside the EU, will halt after Britain exits from the association.

However, the second factor is the continued economic growth of developing nations. This has provided a big market for IKEA to gain more profits (Williams and Sir, 2017). In connection to this, the developing countries where IKEA is extending its business operation have quickly and began setting extraordinary deals for the company.

Social Factors

The social, also known as the sociocultural factor established in IKEA’s business environment instigate consumer perception as well as preferences. In line with the PESTLE analysis, some factors affect the social external factors in IKEA’s macro-environment. The most common social aspect is the increase of cultural diversity in many developing and developed nations (Williams and Sir, 2017). In 2020, analysts were able to determine an increase in cultural diversity to 45% from 20% nearly a decade ago. The increase in cultural diversity has enabled IKEA to open more franchises in different countries to satisfy the increasing demand for consumer products.

Social as well as cultural aspects profoundly impact the apparent business activities of any business. Different regions have distinct societies, in that what is acceptable in one nation could be unethical in another country. Therefore it becomes rather imperative for IKEA to deal with the qualities as well as the culture held by individuals of the region in which it is operating. Ostensibly, the company has been able to observe this protocol hence benefiting from the associated opportunities (Kremer, 2019). For instance, IKEA, in Russia, erased all issues related to homosexuality from their top-selling magazine as the entity is highly disregarded in Russia. Although Russians might be satisfied with IKEA’s move, there are different developed nations where homosexuality is permitted suggesting that IKEA’s intentions are outdated and biased. While it is imperative to deal with the way people live in one country, it is likewise important to defend what is ethical as the firm gets its support from different nations if not from the said country.

Technological Factors

With the current surge of high-tech inventions, it would be essential for IKEA to invest more in technological models that would impact its competitive landscape. This opportunity will allow the firm to exploit new ventures that not only incur profits to the company but also support consumer experiences. Currently, IKEA is updating itself quickly to stay on track with the changing business structure and rapidly evolving innovations. The company is investing heavily in new technologies and acquiring more and more advancements to keep its clients satisfied (Kremer, 2019). So far, IKEA has held its first Tech celebration in Shanghai whereby it showed all the innovation the organization is making and its future tentative plans. IKEA is also working on robotic-controlled furniture with the ability to transform a simple room into a highly sophisticated parlor. IKEA is likewise working on a procedure to utilize self-sufficient vehicles as an augmentation of homes, workplaces as well as local institutions.

Similarly, the usage of mobile devices in the current age, especially in the UK has increased significantly. In 2020, analysts indicated that the number of mobile users stood at 3.6 billion, down from 3.4 billion in 2019 (Williams and Sir, 2017). Furthermore, the number is expected to increase to 4.3 billion in 2023. With a majority of people using mobile gadgets, the chances of online shopping would increase. Since IKEA has an established e-commerce system, the probability of attracting potential clients would also increase allowing the company to increase its revenue.

Fig 1: Number of mobile owners in the UK in 2008 and 2019 to 2020 by demoghraphics

Ecological Factors

The environmental factors associated with IKEA’s business plan relate to environmental concerns. Globally, the issue of environmental conservation is considered a popular principle (Banerjee, 2015). IKEA has been at the forefront of promoting a green environment by offering an environmentally friendly product. This venture has helped the company to increase its marginal returns.

With the increasing global awareness of climate change, it has become a colossal obligation of organizations to produce items and offers relatively feasible services. IKEA’s management has set up strategies that will guarantee its sustainability. Currently, the company has issued a 2030 manageability strategy document which has accentuated utilizing only sustainable as well as reused materials (Bank, 2018). The suggested procedure is a huge test for a business that has more than 400 stores in more than 40 nations, however, the firm is set to realize this objective before 2030.

Fig 2: Biggest IKEA stores in Europe

Legal Factors

Similar to other forms of business, IKEA is subjected to some of the requirements established by laws and regulations of a defined government. In line with the company’s PESTLE analysis model the apparent external factors mostly impose limitations on major retail firms. Since IKEA is operating in numerous nations, the firm needs to adhere to the laws relating to respective nations. Any violation of law can place IKEA in a challenging situation (Kremer, 2019). Another threat under this factor is that a copyright infringement claim has been presented against IKEA by an American furniture brand, EMECO, suggesting that IKEA has replicated the design of its furniture, designed by Norman Foster that it is currently selling. EMECO is presently looking for a compensation plan for its losses and wants IKEA to quit creating the same seat, immediately. Such policies relatively threaten the progressive development of IKEA.

External Analysis Summary

In line with IKEA’s external factors, it is certain that the company has to capitalize on all the opportunities to achieve sustainability. Regardless, the business should focus more on emerging economies considering that the demand for goods and services from retail businesses would increase exponentially (Kremer, 2019). Respectively, the apparent social external factors present significant opportunities for IKEA. The presence of different cultural perspectives can effectively threaten the company’s progress. The technological factors also provide IKEA with opportunities to exploit the global retail market. Since many people are conversant with modern technology, IKEA ought to boost its online platforms as it will increase the company’s revenues.

Industry Analysis

Analyzing the industry that IKEA operates is another essential assessment that is required for an insight into business attractiveness. Therefore, Porter’s five forces will be utilized to examine factors such as threats of new entrants, competitive rivalry, bargaining power, the threat of substitutes, and bargaining power of suppliers.

Competitive Rivalry

The current level of competitive rivalry in the industry of home furnishing is relatively high. Although, the competition for attaining a significant market share is moderate as compared to other industries (Lebherz and Hartmann, 2017). However, IKEA has invested in significant strategic decisions like being aggressive and increasing more stores hence making it successful in determining its rank in the global market as one of the best retailers. Additionally, IKEA’s affordable pricing has enabled the company to gain a significant customer base.

Fig 2: IKEA’s market share from 2010-2017

Threats from Substitute Products

IKEA’s threat to substitute products is also low. There is a mirage of factors that restrain this threat. The first is the company’s brand image. Since its inception, IKEA has established a reliable brand image that has built trust between its clients and the brand. IKEA’s reliable customer service and pricing strategy have also mitigated the threat from substitute products (Mehra, 2020). Nevertheless, the most crucial factor is the availability of diversified items and a wide variety of each product.

                                                Fig 3: IKEA sale’s share by product (2019)

Threats to New Entrants

The threat of start-up companies to enter the retail market at takeover IKEA’s market share is low to moderate. The current percentage of new entrants into the retail business stands and 19%. Despite the ever-increasing number of start-up ventures, the pressure exerted on big companies like IKEA is rather negligible. This is because IKEA had established a renowned brand new companies will need huge investments to rival the brand (Strucińska, 2020). Also, IKEA has one of the biggest as well as efficient distribution networks, with an effective supply chain. For a new entrant to attain these standards, they will have to set aside huge investments to secure ample skilled personnel and human resource to manage them.

Bargaining Power of Suppliers

In IKEA’s case, the bargaining power of its suppliers is relatively considering that, although they are many in the market, their size is small and have a feeble monetary position, hinders them to attain enough clout. IKEA can easily move from one supplier to another but if one of its suppliers loses IKEA’s business, it can be detrimental to the supplier. Subsequently, IKEA has the allowance of setting desirable guidelines of the business transaction and its suppliers are required to adhere (Strucińska, 2020). For instance, IKEA has relayed a set of policies for its suppliers known as IWAY. The suppliers are also liable for conveying the same set of rules to their sub-suppliers. The company conducts around 1000 reviews every year and checks consistently for any sort of irregularities.

Bargaining Power of Buyers

Although IKEA’s bargaining power of its buyers is insignificant, this group has a significant influence hence the reason why the company focuses more on marketing strategies to attract and retain potential clients. In the 21st century, consumers across all industries have become more empowered. Other than the increased competition, the growth in technology has initiated this change (Mehra, 2020). The balance is not shifted in favour of consumers. Although IKEA’s pricing strategy is set to suit the client’s pockets, the firm has also concentrated on e-commerce and digital marketing to enhance the shopping experience. In general, the bargaining power of IKEA’s buyers can be deemed as low-moderate.

Industry Analysis Summary

To summarize, IKEAs experiences in the retail industry, the company experiences a strong rivalry. Regardless, IKEA still leads in the retail business but has to set up measures that will enhance its competitive advantages (Mehra, 2020). In the buyer’s bargaining power, IKEA is experiencing a relatively weak force. The price strategies of the company attract more customers than other retailers. As for the suppliers, the forces exerted on IKEA are also low to moderate. Since the company sets the standards for its suppliers, the company has a strong grip on the retail industry. Similarly, the threat of substitutes is also very low. IKEA’s established brand has made it challenging for start-up companies to compete.

Competitor Analysis (2020)

From the generated data, Amazon has a significant mark share of 37 percent while its closest competitor, Walmart’s has 26%. Globally, IKEA’s market share is also low than its leading competitors but in Europe, the company dominates the others with a 73% market share. Nonetheless, it is a clear indication that IKEA is facing high competition in the retail market (Upson et al., 2012). In line with the sales, Walmart appears to have outdone its competitors earning $559 billion while IKEA, standing at $41.49 billion. Similarly, Walmart also outperformed its IKEA on the net profit of $129 billion while IKEA was $13.79 billion.

Internal Analysis

IKEA’s internal analysis will focus on its strengths and weaknesses as well as determine resources are compared to that of its competitors (Magnusson, 2019). IKEA’s internal analysis will be determined using strength, weaknesses, opportunities, and threat (SWOT) analysis.

Strengths

IKEA’s price strategy has been an effective tool for maintaining its customers. Without this initiative, IKEA would not have attained its current status owing to the competition level in the retail market. By setting low prices on its high-quality products, potential clients have always been lured to purchase items from IKEA (Magnusson, 2019). Another strength is vested in IKEA’s brand recognition. IKEA is the most distinguished brand in furniture brands worldwide. Ikea’s brand attracts more than 600 million clients yearly. Also, shoppers can obtain their desired products in 52 countries.

Weakness

IKEA’s main weakness emanates from its management style. The firm has a distinct recruitment system whereby all young workers should not have worked for any other retail industry, as a way of promoting its brand (Křenková, 2020). The company’s tendency of hiring adept and experienced employees reduces its level of production. In connection this, this system creates a bad rapport among its customers who would assume that IKEA’s management system is biased, hence consider moving to other brands.

Opportunities

IKEA’s main opportunity resonates with its expansion to the international markets both in the developed and developing countries. With 52 destinations across the globe, IKEA has a significant market share which will guarantee its sustainability. Secondly, the introduction of online shopping through the company’s website has improved the shopping system hence satisfying the needs of its customers.

Threats

IKEA’s major threat is lawsuits (Wu, 2020). The company has previously been accused of replicating EMECO’s designs on its seats. This situation created bad press to its consumers who responded with a series of bad reviews and backlashes.

Internal Analysis Summary

IKEA’s growth, as well as expansion, has offered the firm the opportunity to acquire more revenue as well as support from stakeholders. Similarly, the brand has also played a vital role in maintaining its customers. In connection to this, setting good prices has enabled IKEA to be a favourite among its clients (Wu, 2020). However, using a weak management strategy the company faces the threat of losing clients and having an ineffective production system. To increase efficiency, the company has to change its management system by being diversified when recruiting new employees.

Ultimately, the SWOT analysis determines that the company ought to focus more on using its strengths to exploit the apparent opportunities in the retail market (Upson et al., 2012). The company’s weaknesses, as well as strengths, should be its secondary priorities.

Conclusion

In conclusion, the external environment analysis facilitated the identification of IKEA’s opportunities and threats in line with the economic, technological, social, political, legal, and factors that impact its operations. The availability of an effective technological system, good government policies, brand, and a growing economy. These two entities have enabled the company to increase its market share and at the same time satisfying the needs of its clients. IKEA’s competitor analysis helped in defining its current performance situation against its challengers in the global market.

Recommendation

As a recommendation, IKEA should capitalize on its strengths to exploit all vital opportunities in the current global environment.  The strength of its brand should be the key factor in containing the threat of new start-ups. However, IKEA has to consider its weaknesses because it will determine its sustainability in an ever-competitive market. To eradicate all the apparent weaknesses, IKEA has to change its recruitment system to be more accommodating. This process may also help the company to be more innovative in terms of designing its products. As a result the threat of receiving lawsuits would decrease and its brand would be superior among its competitors.