What Does Ikea Have In Store For The United Kingdom Market?

  • Jan 12, 2020 GMT
  • Team Kalkine
What Does Ikea Have In Store For The United Kingdom Market?

An overview of IKEA

IKEA is a Swedish company and is one of the world’s biggest retailer in the furniture, as well as home improvement products segment. The company is in the business of designing and manufacturing furniture and household products and sells them through its own stores, or franchisee stores across the world. The company’s wide range of products includes various segments such as Baby and Children, Bathroom Products, Beds and mattresses, Carpets, Mats and flooring, Decoration, Food and beverages, Furniture (which is the company’s flagship product), Home electronics, Home improvement, Kitchen and appliances, Kitchenware and tableware, Laundry and cleaning, Leisure and Travel, Lighting, Outdoor products, Pots and Plants, Safety products, Seasonal products, storage and organisation, textiles and winter holiday products. The company also provides room ideas, through which it provides services like bedroom and living room improvements and home interior design ideas.

This list of company’s businesses, to sell its products include the likes of Delivery Service, Installation services, Assembly service, Kitchen planning, measuring service, as well as after-sales service. The company provides these services physically, or customers can also demand these products and services online through the company’s website as well as its application, which is available in all the countries where IKEA has a store and delivery to the customer’s location is possible. The IKEA Concept begins with giving a scope of home outfitting items that are reasonable to the numerous individuals, not simply the couple of. It is accomplished by joining capacity, quality, plan and worth - consistently considering supportability. The IKEA Concept exists in all aspects of its organisation, from configuration, sourcing, pressing and disseminating through to the plan of action.

While the IKEA vision communicates why the company exists, the IKEA brand highlights how the company wants to operate and what it wants to deliver to its customers – which is value. The company needs to offer a wide scope of well-planned, practical home outfitting items at costs so low that many individuals as could be expected under the circumstances will have the option to manage the cost of them.

IKEA Business Model

The Franchisee Model:

Potential IKEA franchisees are assessed by Inter IKEA Systems B.V. Whenever picked, an understanding is fixed that awards the franchisee the privilege to work as an IKEA store and additionally different deals direct as per the IKEA establishment frameworks and strategies. IKEA franchisees pay the company an annual franchise payment of approximately three per cent of the total sales in their stores. Consequently, they gain benefits to the IKEA brands. They are likewise approved to market and sell the IKEA item, run and work IKEA stores and different deals channels. Entomb IKEA Systems B.V. is the proprietor of the IKEA Concept and overall IKEA franchisor.

IKEA Financial Highlights

Consolidated balance sheet
In millions of EUR 31-Aug-19 31-Aug-18
Intangible fixed assets 10,355 10,700
Tangible fixed assets 1,663 1,618
Financial fixed assets 295 256
Total fixed assets 12,313 12,574
Inventories 4,312 4,632
Receivables 4,692 4,046
Cash and cash equivalents 153 230
Total current assets 9,157 8,908
Total assets 21,470 21,482
     
Group equity 8,298 7,298
Provisions 705 578
Non-current liabilities 6,487 7,068
Current liabilities 5,980 6,538
Total liabilities 13,172 14,184
Equity and liabilities 21,470 21,482
Consolidated income statement
in millions of EUR FY19 FY18
Sales of goods 23,986 23,651
Franchise fees 1,195 1,200
Other income 73 68
Total revenues 25,254 24,919
Cost of goods sold 20,703 20,228
Gross profit 4,551 4,691
Operational cost 2,695 2,729
Total operating income 1,856 1,962
Financial income and expense -65 -257
Total income before taxes 1,791 1,705
Income taxes -301 -256
Losses from the sale of entities -5
Net income 1,485 1,449

 Source: Company Website

The company reported its final group results for the year ended 31st August 2019. The Group’s financial performance was decent in the financial year 2019. Gross profit was marginally lower as compared to Financial Year 18 primarily driven by higher costs for materials, transport and logistics. Income taxes increased to 17 per cent, resulting in net income of around EUR 1,485 million for the period.

IKEA’s Strategy in the United Kingdom

IKEA UK chose to adopt an all-encompassing strategy for London, their greatest market. Instead of considering the stores and site independently, they considered everything about how individuals in London communicate with the IKEA brand. At that point, they figured out better approaches to enlighten clients and make shopping and getting IKEA items home much simpler. Thus, they made progressively different alternatives for individuals to meet the IKEA brand. They improved their administrations and made new stores nearer to where individuals live and work. Furthermore, they tend to refine and improve right up until the present time. Presently the company is taking a comparable all-out market approach over-all IKEA markets.

On 9th January 2020, it was announced that the company had purchased a shopping centre/mall in the Hammersmith area of Western London for a purchase consideration of £170 million. The company made this move, to take advantage of the bargain prices of High Street real estate properties on which retailers were previously operating, in part due to the poor performance of retail sector companies in 2019, and many of whom got closed down. This strategy of the company comes into the congruence of its worldwide tactics, as they own 44 Shopping Centres around the globe.

The company, with this move, will also open one of its mini-stores in the purchased shopping mall, as the company wants to introduce its affordable varieties to the people of United Kingdom, as well as they want the customers to enjoy their life at home expertise. This store of the company will include more than 2000 varieties of home furnishing accessories, which will be a major point of focus for its customers in the London Metropolitan area, which also includes 5 other IKEA stores.

The company reported that this store will be operational by 2021, and will also incorporate Swedish food, including its extremely popular meatballs by the time it opens.

Conclusion

United Kingdom has been a tricky market for IKEA to enter and understand in the past, primarily because of the unique and different demands of the British people, which IKEA was not able to service till now. Albeit, surprisingly, 2019 was sort of a revival year for the retailer in the United Kingdom, as its sales were boosted, even though other retailers were doing very poorly. IKEA’s primary strategy now is to take advantage of the traction it has gained in the company with this acquisition, at a bargain price for a property as big as they have been able to obtain, is a great start in this direction. Even though there will be some challenges in the future, especially the likes of Brexit and how it allows the trade to flow in the future with the European Union and so will be the first Budget announcement by the government in March 2020. Overall, the company appears to be on the right track in terms of gaining market share in the retail segment in the United Kingdom.

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