IKEA is today the world’s biggest seller of furniture, with 460 mostly franchise-operated stores spread across 62 countries that carry some 9,500 products. Its price-conscious shoppers wonder: How does a nice chair cost only $35?
IKEA grew into a furniture behemoth with a relentless focus on keeping costs low, but that goal has become more challenging, writes The Wall Street Journal (April 26, 2023). The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers’ wallets. IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board.
They learned that they could substitute less expensive recycled aluminum for zinc, which had doubled in price over two years to $4,371 per ton. Recycled aluminum is now going into bathroom hooks and other products. When they turned to packaging, they cut freight costs by purging flat packs of “fresh air and wasted space.”
For one of IKEA’s most popular office swivel chairs, the Flintan, smaller armrests and less steel and plastic in the back cut manufacturing costs. The new Flintan is the same size as its predecessor, but it’s much more efficient to ship after designers tweaked its components to make them fit more snugly into a flat pack. IKEA can now squeeze 6,900 Flintans into one shipping container, up from 2,750.
Designers likewise reworked the Säbövik bed, by changing the construction of its wooden frame. It was previously made of two thin layers of wood glued together. IKEA settled on a less expensive and lighter combination of solid wood, plywood and a compressed structure of wood strands and glue. The Säbövik used to come flat-packed in 3 cardboard boxes, but now fits into just 2 more compact boxes, enabling the company to cram twice as many flat-packed beds into a shipping container.
Classroom discussion questions:
- What is IKEA’s competitive advantage? (See Chapters 2 and 5 in your Heizer/Render/Munson text).
- Is there a downside in the product redesigns such as the ones noted above?