How IKEA Became Sweden’s National Brand

In 2017, over 20 million people visited the most popular theme park in the world: Magic Kingdom at Walt Disney World in Florida. Together, Disney parks, including Disneyland Anaheim, Tokyo, Paris, and Hong Kong, attract 150 million annual visitors; more than any other. One could argue, however, and I will, there’s one even more popular: IKEA, with 460 million. Let me explain. We in the biz know there are many definitions of ‘theme park’ - the academic definition, my definition, and when you’re ready to really dive deep in the literature, you turn to the experts: the International Association of Amusement Parks and Attractions, who define theme park” as: “an amusement park that has themed attractions, be it food, costumes, entertainment, retail stores and/or rides”. Check, close enough, check, check, and check. Shopping at IKEA is a full-day activity - you hop in the family van, drive outside the city, drop your kids in the play area, max out your credit cards, and then top it off with some Swedish meatballs. The IKEA brand is as iconic and loved as Disney, Six Flags, and Universal. The only slight problem is with the ’s’ in “rides” - IKEA has just one: the unidirectional pathway which guides you through the store, into the warehouse, and the restaurant. The ride might be called “Käpitalism”. The theme of the park, Sweden. Although, despite its colors, names, and advertised philosophy, IKEA is not, strictly speaking, actually Swedish. Or, technically, a company at all. What are the secrets behind IKEA’s enormous global success? Although not nearly the same company it is today, Ingvar Kamprad founded IKEA in 1943 as a traveling salesman, selling staples like matches, pencils, and watches. Seven years later, he began selling furniture. Seeing the logistical difficulty of shipping large items far away, Ingvar decided to flat-pack the furniture, which also reduced the chance of damage during transport. The company created a catalog that customers could browse through and order with from afar. The first showroom was built in 1953 in the same small town, followed by the first of the company’s iconic giant warehouses in 1965. The business model has more or less remained consistent ever since. Rather than try to compete with department stores in city centers, IKEA has always preferred large multi-story buildings away from the bustle, with only a few exceptions like in cramped Hong Kong. With this far cheaper real estate, the company can build equally giant attached parking lots. The average size of a store is around 35,000 square meters or 370,000 square feet, with over 8,000 unique items. Inside, the experience is unlike any other. Customers are guided through the store by a one-way path, which begins in the showroom, flows into the “Market Hall” where small items can be picked up instantly, and ends in the warehouse, where previously selected items can be picked off the shelves and then paid for at the register. Most retailers design their stores to maximize the time you spend inside, spreading out staples like bread, milk, and bananas. IKEA takes this approach to the extreme. By arranging its stores like a transit line, the company has total control over the shopping experience and forces you to look through all its departments. Placed toward the beginning of the journey are usually its largest drivers of profit: bedroom and kitchen. The restaurant and kids’ play area not only keep customers inside longer but also communicate low prices and value, which spill over onto the brand, as a whole. The average visit lasts a whole hour and a half at many of its stores, and, by one estimate, 60% of items purchased at IKEA are unplanned. Nudged towards, in other words, by the store psychology. Research also suggests we attach more value to things we help make ourselves - turning IKEA’s self-assembly from a flaw to a feature. It also helps reduce manufacturing and shipping costs - another ingredient in the IKEA formula. Low prices are its self-proclaimed mission - to, quote, “Democratize furniture”. Whatever its true motivation, IKEA has remained inexpensive despite its ubiquity. The price of its most popular chair, for example, has gone down dramatically over time, adjusted for inflation. The company reportedly sets a target price for a product before sending, it off to its small team of around 20 designers, who work within those constraints. Finally, the warehouse design eliminates the need for a large staff, which greatly reduces operating expenses. This low-cost image is so important that, before he died in 2018, the founder and CEO claimed only to fly economy, never stay in luxury hotels, and use public transit - staying true to the company’s values. But, perhaps even more important than its psychology, warehouse design, or low prices is IKEA’s impenetrable brand. As it began expanding internationally, first in Switzerland in 1973, then throughout Europe for the next few decades, it greatly emphasized its Swedish Ness. From 2000 until 2009, the company opened 150 stores, more than it had in the past 50 years, many in North America and Asia. Today, with over 200,000 employees and 433 stores, IKEA is not only the largest retailer of furniture but also the world’s largest consumer of wood, period. Its strategy has been to enter many different markets, each with only a small number of stores at the most optimal locations. The US, for example, is its second-largest market by number of stores, despite having only 50, and 17 countries or territories have only 1. The success of this approach is proof of IKEA’s global brand. While many companies enter a new market by localizing their message and product, IKEA has succeeded by doing just the opposite: embracing its Swedish origins. The IKEA image is so strong around the world, that it can open a single store in an entire country and still be instantly recognized and loved. From the minimal, functional design of its furniture, to their famously hard to pronounce names, IKEA is unmistakably Swedish. Its bright blue and yellow stores announce its heritage from afar. Beyond its visual design, IKEA also exports Scandinavian egalitarianism. Employees, at all levels, are encouraged to address one another by first names, and not titles. Corporate executives are asked to participate in so-called “Anti-bureaucratic weeks” where they work on store floors to experience daily operations and empathize with their colleagues. Not only is this association with its home country good for the company, but it’s also good for Sweden - who has encouraged and greatly benefitted from IKEA’s positive reputation. Swedish embassies, for example, actively participate in new store openings and have even sponsored them financially. Ironically, despite all this, IKEA is, legally, more Dutch than Swedish. The company is actually owned by a Dutch Holding company whose profits end up in a tax-exempt non-profit, also Dutch, foundation, who indirectly channels the money through another Dutch foundation with nearly the same name. Its intellectual property, meanwhile, is owned by a holding company called Inter IKEA, this time, registered in Luxembourg, which, in turn, is owned by a company of the exact same name in the Netherlands Antilles, who, yes, is also owned by a trust company. And that’s a simplified explanation. All this legal fine print makes IKEA the 3rd largest charity in the world, only 30% smaller than the Bill and Melinda Gates Foundation. IKEA is certainly not unique in its complicated legal structure, but in registering as a charitable foundation, it goes beyond the norms of most global companies. All this, it claims, is designed to protect control of the company from outside parties, including, in fairness, the founder’s own family. Critics, though, argue control is only a secondary benefit after tax avoidance. Legally, physically, and financially, IKEA is today, more global than Swedish. And yet it has one of the strongest, most resilient brands in history. IKEA has come to embody a certain, rare kind of friendly capitalism. After all, despite its size and controversies, who could hate a theme park?