Understanding IKEA

By Kerry Capell

updated 7:17 p.m. ET Nov. 8, 2005

When Roger Penguino heard Ikea was offering $4,000 in gift certificates to the first person in line at the opening of its new Atlanta store, he had no choice. He threw a tent in the back of his car and sped down to the site. There, the 24-year-old Mac specialist with Apple Computer Inc. pitched camp, hunkered down, and waited. And waited. Seven broiling days later, by the time the store opened on June 29, more than 2,000 Ikea fanatics had joined him. Some were lured by the promise of lesser prizes for the first 100. Others were just there for the carnival atmosphere (somebody even brought a grill). The newly wed Penguino got his certificates and bagged a $799 Karlanda sofa and a $179 Malm bed, among other items. He also achieved celebrity status: "Whenever I go back, employees recognize me and show me the new stuff."

Penguino is a citizen of Ikea World, a state of mind that revolves around contemporary design, low prices, wacky promotions, and an enthusiasm that few institutions in or out of business can muster. Perhaps more than any other company in the world, Ikea has become a curator of people's lifestyles, if not their lives. At a time when consumers face so many choices for everything they buy, Ikea provides a one-stop sanctuary for coolness. It is a trusted safe zone that people can enter and immediately be part of a like-minded cost/design/environmentally-sensitive global tribe. There are other would-be curators around — Starbucks and Virgin do a good job — but Ikea does it best.

If the Swedish retailer has its way, you too will live in a BoKlok home and sleep in a Leksvik bed under a Brunskära quilt. (Beds are named for Norwegian cities; bedding after flowers and plants. One disaster: a child's bed called Gutvik, which sounds like "good f***" in German.) Ikea wants to supply the food in your fridge (it also sells the fridge) and the soap in your shower.

The Ikea concept has plenty of room to run: The retailer accounts for just 5 percent to 10 percent of the furniture market in each country in which it operates. More important, says CEO Anders Dahlvig, is that "awareness of our brand is much bigger than the size of our company." That's because Ikea is far more than a furniture merchant. It sells a lifestyle that customers around the world embrace as a signal that they've arrived, that they have good taste and recognize value. "If it wasn't for Ikea," writes British design magazine Icon, "most people would have no access to affordable contemporary design." The magazine even voted Ikea founder Ingvar Kamprad the most influential tastemaker in the world today.

As long as consumers from Moscow to Beijing and beyond keep striving to enter the middle class, there will be a need for Ikea. Think about it: What mass-market retailer has had more success globally? Not Wal-Mart Stores Inc., which despite vast strengths has stumbled in Brazil, Germany, and Japan. Not France's Carrefour, which has never made it in the U.S. Ikea has had its slip-ups, too. But right now its 226 stores in Europe, Asia, Australia, and the U.S. are thriving, hosting 410 million shoppers a year. The emotional response is unparalleled. The promise of store vouchers for the first 50 shoppers drew thousands to an Ikea store in the Saudi Arabian city of Jeddah in September, 2004. In the ensuing melee, two people died and 16 were injured. A February opening in London attracted up to 6,000 before police were called in.

Why the uproar? Ikea is the quintessential global cult brand. Just take those stunts. Before the Atlanta opening, Ikea managers invited locals to apply for the post of Ambassador of Kul (Swedish for fun). The five winners wrote an essay on why they deserved $2,000 in vouchers. There was one catch: They would have to live in the store for three days before the opening, take part in contests, and sleep in the bedding department. "I got about eight hours of sleep total because of all the drilling and banging going on," says winner Jordan Leopold, a manager at Costco Wholesale.

Leopold got his bedroom set. And Ikea got to craft another story about itself — a story picked up in the press that drew even more shoppers. More shoppers, more traffic. More traffic, more sales. More sales, more buzz. A new store in Bolingbrook, Ill., near Chicago is expected to generate some $2.5 million in tax revenues, so the town is paying down debt and doing away with some local levies.

Such buzz has kept Ikea's sales growing at a healthy clip: For the fiscal year ended Aug. 31, revenues rose 15 percent, to $17.7 billion. And although privately held Ikea guards profit figures as jealously as its recipe for Swedish meatballs, analyst Mattias Karlkjell of Stockholm's ABG Sundal Collier conservatively estimates Ikea's pretax operating profits at $1.7 billion. Ikea maintains these profits even while it cuts prices steadily. "Ikea's operating margins of approximately 10 percent are among the best in home furnishing," Karlkjell says. They also compare well with margins of 5 percent at Pier 1 Imports and 7.7 percent at Target, both competitors of Ikea in the U.S.

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