Ikea

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A vocal minority rails at Ikea for its long lines, crowded parking lots, exasperating assembly experiences, and furniture that's hardly built for the ages (the running joke is that Ikea is Swedish for particle board). But the converts outnumber the critics. And for every fan who shops at Ikea, there seems to be one working at the store itself. The fanaticism stems from founder Kamprad, 79, a figure as important to global retailing as Wal-Mart's Sam Walton. Kamprad started the company in 1943 at the age of 17, selling pens, Christmas cards, and seeds from a shed on his family's farm in southern Sweden. In 1951, the first catalog appeared (Kamprad penned all the text himself until 1963). His credo of creating "a better life for many" is enshrined in his almost evangelical 1976 tract, A Furniture Dealer's Testament. Peppered with folksy tidbits -- "divide your life into 10-minute units and sacrifice as few as possible in meaningless activity," "wasting resources is a mortal sin" (that's for sure: employees are the catalog models), or the more revealing "it is our duty to expand" -- the pamphlet is given to all employees the day they start.


Kamprad, though officially retired, is still the cheerleader for the practices that define Ikea culture. One is egalitarianism. Ikea regularly stages Antibureaucracy Weeks, during which executives work on the shop floor or tend the registers. "In February," says CEO Dahlvig, "I was unloading trucks and selling beds and mattresses."

Another is a steely competitiveness. You get a sense of that at one of Ikea's main offices, in Helsingborg, Sweden. At the doorway, a massive bulletin board tracks weekly sales growth, names the best-performing country markets, and identifies the best-selling furniture. The other message that comes across loud and clear: Cut prices. At the far end of the Helsingborg foyer is a row of best-selling Klippan sofas, displaying models from 1999 to 2006 with their euro price tags. In 1999 the Klippan was $354. In 2006 it will be $202.


The montage vividly illustrates Ikea's relentless cost-cutting. The retailer aims to lower prices across its entire offering by an average of 2% to 3% each year. It goes deeper when it wants to hit rivals in certain segments. "We look at the competition, take their price, and then slash it in half," says Mark McCaslin, manager of Ikea Long Island, in Hicksville, N.Y.


It helps that frugality is as deeply ingrained in the corporate DNA as the obsession with design. Managers fly economy, even top brass. Steen Kanter, who left Ikea in 1994 and now heads his own retail consultancy in Philadelphia, Kanter International, recalls that while flying with Kamprad once, the boss handed him a coupon for a car rental he had ripped out from an in-flight magazine.


This cost obsession fuses with the design culture. "Designing beautiful-but-expensive products is easy," says Josephine Rydberg-Dumont, president of Ikea of Sweden. "Designing beautiful products that are inexpensive and functional is a huge challenge."

No design -- no matter how inspired -- finds its way into the showroom if it cannot be made affordable. To achieve that goal, the company's 12 full-time designers at Almhult, Sweden, along with 80 freelancers, work hand in hand with in-house production teams to identify the appropriate materials and least costly suppliers, a trial-and-error process that can take as long as three years. Example: For the PS Ellan, a $39.99 dining chair that can rock back on its hind legs without tipping over, designer Chris Martin worked with production staff for a year and a half to adapt a wood-fiber composite, an inexpensive blend of wood chips and plastic resin used in highway noise barriers, for use in furnishings. Martin also had to design the chair to break down into six pieces, so it could be flat-packed and snapped together without screws.


With a network of 1,300 suppliers in 53 countries, Ikea works overtime to find the right manufacturer for the right product. It once contracted with ski makers -- experts in bent wood -- to manufacture its Poang armchairs, and it has tapped makers of supermarket carts to turn out durable sofas. Simplicity, a tenet of Swedish design, helps keep costs down. The 50 cents Trofé mug comes only in blue and white, the least expensive pigments. Ikea's conservation drive extends naturally from this cost-cutting. For its new PS line, it challenged 28 designers to find innovative uses for discarded and unusual materials. The results: a table fashioned from reddish-brown birch heartwood (furniture makers prefer the pale exterior wood) and a storage system made from recycled milk cartons.


If sales keep growing at their historical average, by 2010 Ikea will need to source twice as much material as today. "We can't increase by more than 20 stores a year because supply is the bottleneck," says Lennart Dahlgren, country manager for Russia. Since Russia is a source of timber, Ikea aims to turn it into a major supplier of finished products.


Adding to the challenge, the suppliers and designers have to customize some Ikea products to make them sell better in local markets. In China, the 250,000 plastic placemats Ikea produced to commemorate the year of the rooster sold out in just three weeks. Julie Desrosiers, the bedroom-line manager at Ikea of Sweden, visited people's houses in the U.S. and Europe to peek into their closets, learning that "Americans prefer to store most of their clothes folded, and Italians like to hang." The result was a wardrobe that features deeper drawers for U.S. customers.


The American market poses special challenges for Ikea because of the huge differences inside the U.S. "It's so easy to forget the reality of how people live," says Ikea's U.S. interior design director, Mats Nilsson. In the spring of 2004, Ikea realized it might not be reaching California's Hispanics. So its designers visited the homes of Hispanic staff. They soon realized they had set up the store's displays all wrong. Large Hispanic families need dining tables and sofas that fit more than two people, the Swedish norm. They prefer bold colors to the more subdued Scandinavian palette and display tons of pictures in elaborate frames. Nilsson warmed up the showrooms' colors, adding more seating and throwing in numerous picture frames.

Ikea is particularly concerned about the U.S. since it's key to expansion -- and since Ikea came close to blowing it. "We got our clocks cleaned in the early 1990s because we really didn't listen to the consumer," says Kanter. Stores weren't big enough to offer the full Ikea experience, and many were in poor locations. Prices were too high. Beds were measured in centimeters, not king, queen, and twin. Sofas weren't deep enough, curtains were too short, and kitchens didn't fit U.S.-size appliances. "American customers were buying vases to drink from because the glasses were too small," recalls Goran Carstedt, the former head of Ikea North America, who helped engineer a turnaround. Parts of the product line were adapted (no more metric measurements), new and bigger store locations chosen, prices slashed, and service improved. Now U.S. managers are paying close attention to the tiniest details. "Americans want more comfortable sofas, higher-quality textiles, bigger glasses, more spacious entertainment units," says Pernille Spiers-Lopez, head of Ikea North America.


Can the cult keep thriving? Ikea has stumbled badly before. A foray into Japan 30 years ago was a disaster (the Japanese wanted high quality and great materials, not low price and particle board). The company is just now gearing up for a return to Japan next year. Ikea is also seeing more competition than ever. In the U.S., Target Corp. (TGT ) has recruited top designer Thomas O'Brien to develop a range of low-priced furnishings, which were launched in October. Kmart has been collaborating with Martha Stewart on its own furniture line. An Ikea-like chain called Fly is popular in France. In Japan Nitori Co. has a lock on low-cost furniture.


Perhaps the bigger issue is what happens inside Ikea. "The great challenge of any organization as it becomes larger and more diverse is how to keep the core founding values alive," says Harvard Business School Professor Christopher A. Bartlett, author of a 1996 case study. Ikea is still run by managers who were trained and groomed by Kamprad himself -- and who are personally devoted to the founder. As the direct links with Kamprad disappear, the culture may start to fade.


For now, the founder's legacy is alive and well. The Klippan couches are selling briskly. New lines of foods, travel gear, and toiletries are due soon. Ikea is gearing up for its Christmas tree promotion -- you buy a live tree, then return it for a rebate (and end up shopping at Ikea in the slow month of January).


And the fans keep clamoring for more. At least once a year, Jen Segrest, a 36-year-old freelance Web designer, and her husband travel 10 hours round-trip from their home in Middletown, Ohio, to Ikea in Schaumburg, Ill., near Chicago. "Every piece of furniture in my living room is Ikea -- except for an end table, which I hate. And next time I go to Ikea I'll replace it," says Segrest. To lure the retailer to Ohio, Segrest has even started a blog called OH! IKEA. The banner on the home page reads "Ikea in Ohio -- Because man cannot live on Target alone."

By Kerry Capell, with Ariane Sains in Stockholm, Cristina Lindblad in New York, Ann Therese Palmer in Chicago, Jason Bush in Moscow, Dexter Roberts in Beijing, and Kenji Hall in Tokyo