SWOT on "SWOT Analysis of IKEA"

SWOT 4 pages (1281 words) Sources: 4

[EXCERPT] . . . .

IKEA

The SWOT analysis framework (strengths, weaknesses, threats and opportunities) provides a scan of a company's internal and external environments (QuickMBA, 2010). The objective of the SWOT is to help understand how well the company's strengths much up with its opportunities and how well its weaknesses align with its threats. This analysis can then shed light on potential strategic directions.

IKEA has a number of strengths that it can leverage in order to improve its business. The company has one of the best brands in retailing. The company believes that its brand awareness is "much bigger than the size of our company" (Capell et al., 2005). The company's brand is powerful enough to draw crowds to store openings and to attract a dedicated fan following. This brand power allows IKEA to enter new markets and succeed immediately. The company has a 5-10% share of the furniture market in each country in which it operates.

Another strength of IKEA is in its team of designers. Design is a source of competitive advantage for two reasons. The first is that the company's products have a distinct aesthetic that is easily recognizable. This attracts customers who appreciate the design, but also the consistency of that design applied across a broad range of products. The design also helps in the manufacturing process. Consistency in design makes it easier to produce and ship the goods around the world.

The company's supply chain is another source of strength. As of 2005, IKEA had 1300 supplies located in 53 countries. This provides diversification in its supply chain, hedging against adverse events in any one country. The company's logistics allow it to move its goods around the world. The company is also able to turn over its product line frequently (up to 1/3 turnover per year). In addition, these logistics allow the company to offer around 7000 items per store, delivering a total shopping experience that few furniture retailers can match but which appeals to its customer base.

The company is believed to be strong financially. It is privately held, and the section on its website where it posts its annual report is non-functional, but all indications are that IKEA is highly profitable. Its net margin is estimated to be 10%, a healthy rate for the industry. In 2005 it was believed to have recorded an operating profit of $1.7 billion. For FY 2009, the company saw an increase in revenues by 1.4% to €21.8 billion. Profit that year -- in the middle of the recession -- increased 11.3% to €2.5 billion (IKEA.com, 2011).

This financial strength gives IKEA flexibility with respect to its capital structure and its pace of expansion, among other benefits.

A firm as successful as IKEA does not usually have many weaknesses. One potential weakness that has been identified is a dependence on founder Ingvar Kamprad. Though retired, he set the corporate culture and most of the current management team trained under him, allowing that culture to permeate further. It has been speculated that as his influence wanes, the unique culture at IKEA will wane as well, taking with it a source of competitive advantage (Capell et al., 2005).

Another weakness, one that the company has hopefully addressed, is that the products are designed for universal tastes and standards. This caused the company problems when it first entered the U.S. market, as the products did not fit with American needs and tastes, particularly with respect to sizing (Capell et al., 2005). As a result, the company struggled when it first arrived in the U.S. market. As it moves into more exotic markets like the BRIC countries and the Arab states, it must ensure that it is fully aware of local tastes and purchasing styles in order to avoid a repeat of its initial struggles in the U.S. market.

The U.S. market actually represents a… READ MORE

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