IKEA's growth plans in the American market

Résumé du document

The US furniture retailing market is fragmented. Being one of the top 10 furniture retailers, IKEA owns less than 15% of the market share. In a highly fragmented market, gaining market shares is harder than in a concentrated market. Besides, IKEA is a generalist furniture retailer, i.e. it manufactures case goods, upholstered furniture, bedding, ready-to-assemble furniture and casual furniture.

Extraits

[...] IKEA's growth plans In the American market IKEA plans to open 36 stores in the next 10 years, increasing its number of stores in operation up to 50. As the IKEA CEO Anders Dahlvig puts it, the more stores IKEA has, the more its market shares will increase[1]. This organic growth strategy is very ambitious, due to the presence of multiple constraints relative to both the US furniture retailing market structure and the US customer tastes mostly; nonetheless, to me, this strategy seems to be suitable. [...]

[...] Unfortunately for IKEA, America is not mostly populated by fine food and wine lovers who travel a lot. Sustainable Growth Objectives IKEA sales in the US account for 11% of the Group's $ 12.2 billion sales (FY 2003), i.e. $ 1.34 billion. The US furniture retailing market represented $67 billion in 2003[3], IKEA's market shares could be evaluated at 2%. IKEA plans to open 36 stores by 2013. In 2003, its average store size in the US was 21,250m², and each store generated on average, annual revenues of about $100 million 95.9 million)[4]. [...]

[...] Indeed, low price, which is the mission statement of IKEA, is contradictory with very high quality products. It does not imply that the product will fall apart after a few months but still, it won't match the American durability standards. This issue has been addressed by an ad campaign. Moreover, IKEA's Scandinavian designed furniture can be considered as niche. American tastes are quite different from Europe, as their sheets and appliances are. Poor market study leads to an estrangement of IKEA's products by the US customers. Design should thus take into account local preferences. [...]

[...] IKEA website : ikea.com “IKEA Invades America” (Harvard Business School 9-504-094 revised on September 14, 2004). p.5 This point is easily understandable with the old concept of the cardinal utility theory and its marginal decreasing utility rule that can be applied to market share positions. See chart for calculation details See chart for calculation details See chart for calculation details See chart for calculation details See chart for calculation details See chart for calculation details Invades America” (Harvard Business School 9-504-094 revised on September 14, 2004). [...]