IKEA's Growth Challenges: SWOT, PESTEL, and Financial Analysis

This report provides a comprehensive analysis of IKEA and its growth challenges. It includes a SWOT analysis, identifying IKEA's strengths, weaknesses, opportunities, and threats, as well as a PESTEL analysis, examining the political, economic, social, technological, environmental, and legal factors impacting the company. The report also applies Porter's Five Forces to assess the competitive landscape and includes a financial analysis using profit and loss statements and balance sheets. Furthermore, the competing value framework (CVF) is used to understand IKEA's organizational culture. The report identifies challenges such as competition from local manufacturers and DIY trends, and recommends strategies for online presence, website development, and offering lower-priced product ranges. The conclusion summarizes the key findings and insights regarding IKEA's growth and strategic positioning.

IKEA AND THE CHALLENGES OF
GROWTH

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
SWOT Analysis of IKEA:...........................................................................................................3
PESTEL Analysis of IKEA: .......................................................................................................4
PORTER FIVE Factors of IKEA:................................................................................................5
Financial analysis of IKEA: ........................................................................................................5
Competing value framework: .....................................................................................................7
Challenges of IKEA:....................................................................................................................7
Recommendations for IKEA:......................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
IKEA International is a conglomerate company that sells ready-made furniture and home
appliances, IKEA provide various sets such as home furniture sets, kitchen sets and offices sets.
The company brand is known for furniture retailer, the core activities of IKEA is franchise,
furniture range and supply chain. Established in 1943, a Swedish based international retail
company (THE HISTROY OF IKEA, 2021). In this report we will discuss IKEA and its
challenges of growth later we will analyse strength and weakness as well as threats and
opportunity and Michael porters five factors. Lastly we will understand CVF (competing Value
Framework). Competing value framework is a tool used by organization to develop supervision,
management programs and to examine their existing culture.
MAIN BODY
SWOT Analysis of IKEA:
Illustration 1: SWOT Analysis
Source: Shaw. J 2017

Strength: IKEA is multinational conglomerate known for best design furniture and home decor
retailer, the major strength of IKEA its democratic design (Baxter and Landry, 2017). One of the
major success factors of IKEA is product attention to details design and eye-catching finishing of
the furniture.
Weakness: assembling of IKEA product is frustrating, customer share their views on how
difficult is to assemble them. Some furniture are very low in quality as compared to expected
quality range and IKEA mainly give contract to third party manufacturers which results in slip in
quality standard.
Opportunity: IKEA have opportunity to expand their business to other borders also because
IKEA brand name is so powerful that it will survive any market condition of other country
(Taylor, 2020). They should also focus on online sales of furniture through various means of
media.
Threats: One of the major threats of any business is competitors, for IKEA their competitors are
Pepperfry, Wall-mart and other local furniture retailers. On the other hand threats like recession
of economy drastically can decrease the sales of the product.
PESTEL Analysis of IKEA:
Political factor: IKEA have major international market capture, political environment of country
is very important for company's success for IKEA it may be both, difficult or easy to survive in
other country because of its past controversy such as using prisoners in manufacturing of
product.
Economic factor: it is understandable that economic condition and structure of nations shows
customers purchasing capacity, for IKEA they faced drastic fall because of weakness of euro
pound against dollar, this happened because of every day changing economy of UK.
Social factor: IKEA have faces many controversy in past which have affect the image of the
company, they have brand image but their value has fall because of offending some social
values. IKEA should carefully follow the cultural norms.
Technological factor: IKEA have the latest technology available with them such as powerful E-
commerce websites, and they still use printed brochures. IKEA keep upgrading their technology
to provide smooth running E-commerce platform to customers.
Environment factor: after COVID, the world have become more active in betterment of
environment. IKEA is now planning to work on renewable energy in stores such as solar panels

on the roof of IKEA stores, so they have planned to invest billions of dollars in renewable energy
and better infrastructure of factory.
Legal factors: legal rules and regulation impact heavily on growth of any organization, for
IKEA focus more on labour laws because labour are key important element in production of
furniture products. They need to ensure the safety of labour working in factory to avoid any kind
of lawsuit.
PORTER FIVE Factors of IKEA:
Competitive Rivalry: IKEA's international market is so massive as compared to any other
furniture retailers (Perera, 2020). IKEA major competitors are local retailers who have strong
roots in their home country and multinational brands also give tough competition. There is high
rivalry but IKEA have power of its brand name to defeat them all. In this cases risk is high.
New comers: New entry with massive budget plans impact company's stability and weakness the
root, but in furniture sector there are many hurdles which stops new entry to enter the market
these hurdles are; already establish brand image of IKEA, impressive funding and huge
investment plans of the organization. Level of risk is low.
Substitutes product: these new comers not only give competition, but they also steal innovative
idea of the company, for IKEA stealing their furniture design is very simple for new comers but
IKEA strong patent right stop them for doing that. Risk is moderated
Powers of Suppliers: in furniture sector suppliers have high powers of bargaining because they
have many other options to sell their raw material to local manufacturers. For IKEA their main
raw material is wood which is one of the scare resources so suppliers take advantage of this have
increase price of raw material accordingly. Risk is high.
Powers of Customers: customer carries various powers with them such as rights and lawsuit
provided by the government itself and bargaining power is also very strong of a customer. IKEA
customer keep shifting to other manufacturers mainly local ones, but IKEA manage to control
barging rates because of its innovative product and eye-catching furniture. Level of risk is low.
Financial analysis of IKEA:
Financial analysis examine budget of business and projects or other financial transactions
to result stability and performance of the organization (AREAS, 2018).
Profit and loss of IKEA:
PARTICULARS AMOUNT AMOUNT

SALES 1000000
Cost of goods sold 500000
Gross profit 500000
Expenses
Advertisement 100000
Rent 20000
Depreciation 50000
Salaries and wages 100000
Taxes 50000
Other expenses 80000
Total 400000
Income 100000
Non operating revenue
Interest 10000
Expenses -2000
Total non operating 8000
Net income 108000
Balance sheets of IKEA:
Liabilities Amount Assets Amount
Capital 1000000 Land & building 1200000
Reserve 500000 Plant & machinery 700000
O/S expenses 400000 Furniture 200000
Loans 500000 Stock 100000
Creditors 50000 Debtors 60000

Bills 10000 Cash 200000
Total 2460000 Total 2460000
Ratio analysis:
It means to understand and analysis the company's financial results and making change in
budget, expenditure accordingly. Types of ratio:
Current ratio: IKEA company have greater current ratio than competitors, that means IKEA is
now more powerful and stable in short term liabilities and paying them from help of their current
Assets.
Quick ratio: it is acid test ratio, IKEA have more stable in paying current liabilities than their
competitors and lastly cash ratio of IKEA is much higher in paying expenses of the company
(Fraser, Ormiston and Fraser 2016).
Competing value framework:
It is a tool in manage leaderships behaviour and to produce competencies to produce
more various types of value this is used by organization to manage community's culture (Zeb,
et.al., 2021). The elements of competing value framework:
Clan: it means organization have collaborative culture that show flexibility, IKEA is a
organization where employee are in front and centre, this means employees of IKEA have felt
respected and treated as family member.
Androcracy: this means an organization's flexible environment is innovative, and company is
ready to take risk. IKEA have strong respond to open challenges because their employees are
skilled and ready to adopt change.
Hierarchy: internal hierarchy priorities stability in the organization, IKEA have good culture,
and they are process driven. The strength of IKEA lies in its standardized culture.
Market: organization with popular brand name and external motivation with stable structure of
organization come under this category for IKEA their brand name is their market but other same
field organization are striving to create their brand image.

Challenges of IKEA:
Local furniture manufacturers: IKEA have strong brand image, but they have to face local
manufacture in furniture industry. People usually prefer local manufacture because they have
experience in making the best furniture and trust plays important role here, customer when
decorating their home chose high quality furnitures from their nearby stores (Lee, et.al., 2019).
IKEA may have a quality product, but they need to win the trust of customer that they use the
best quality woods in their furniture such as Mepal woods, white cedar wood, rose wood and Sal
wood. Many upper class income group prefer IKEA furniture to increase their reputation.
IKEA competitors: the biggest competitors of IKEA is Wall mart, Wall mart is giant
international retailer who also have strong roots in furnitures industry and IKEA somehow fails
to defeat wall mart in various countries. The major challenges for IKEA is growth of the
company in this competitive environment, IKEA growth is sustained at a time,
DIY culture: these new trendy videos which shows how to make furnitures at home is one of the
challenges faced by IKEA and other furniture manufacturers, these Five Minutes Craft and Do It
Yourself videos provide easy guidance to make products at home with low cost but people have
no time to make furnitures at home and to bring finishing like IKEA furnitures is impossible at
home so these challenges have less impact on growth of IKEA (Yu, 2019).
Return on investment: IKEA spend billions to create their brand image, they focus on
expansion of the company across the globe. Spending billions and not getting result is the biggest
demotivation for every organization, IKEA invest handsome amount of money in purchasing of
high quality woods from various suppliers. Challenges here is not getting expected price from
customer as per the quality of product, failure of IKEA can be seen in many country where they
have to bear huge losses.
High tax: every country have their own taxation policies and some taxation policies are not in
favour of IKEA, it has faced various regulation and strict guideline in production of furniture.
There is high government interference which slow down the growth of company, IKEA main
resource is wood and wood is a scare resource which make it challenging for company to arrange
wood with suitable taxation rates.
Recommendations for IKEA:
Online appearance: today's generation is so much advance in online world, right now success
of business majorly depends on its online appearance (Spinoglio, 2020). Online appearance

means how company reach there customer through various modes of media such as social media
and advertisement platforms such as google ads. IKEA should focus more on advertisement for
their products to educated people and should provide details.
Website: website is an online platform of any company, customer visit website to have a look on
various product of the company. Organization should focus more on development of their
website because most of the customer is impressed just by design of the website, for IKEA they
have to spend more money in up gradation of their website (Stadalninkaitė, 2019). They have
range of products which can not be displayed on website, so they have to select best of their
product and show its features, uniqueness and details through their website.
Low range: IKEA should also sell products which are reasonable for lower income level groups,
IKEA have good image for selling high quality products but prices of these products are not
suitable for some customer they need to low their rates of some commonly used products such as
sofa set, kitchen set, dining and other purpose tables because middle class families are likely to
purchase these products if the rates are suitable. IKEA have a chance to win trust of customer.
CONCLUSION
In this report we have discussed competing value framework and examined SOWT
analysis which shows strength of IKEA such as its brand image and weakness for example its
competitors, later we have seen PESTEL analysis which provide us idea about factors that are
affect IKEA's such as political factor and other factor, whereas we have shown the porters five
factors and their impact on IKEA, we have understood the financial analysis of IKEA with the
help of profit and loss account and balance sheet of the company and this report provide details
of challenges faced by IKEA such as local furnitures manufacturers and other challenges that
impact the company, at last we have provided recommendation to IKEA for betterment of the
company.

REFERENCES
Books and journals
AREAS, B., 2018. Financial analysis. Growth. 30. p.10.
Baxter, M. and Landry, A., 2017. IKEA: Product, pricing, and pass-through. Research in
Economics. 71(3) pp.507-520.
Fraser, L.M., Ormiston, A. and Fraser, L.M., 2016. Understanding financial statements. New
York: Pearson.
Lee, et.al., 2019. IKEA furniture assembly environment for long-horizon complex manipulation
tasks. arXiv preprint arXiv:1911.07246.
Perera, R., 2020. Understanding Porter’s Five Forces Analysis. Nerdynaut.
Spinoglio, M.A., 2020. Market Communication Strategy: A case study of IKEA.
Stadalninkaitė, I., 2019. Localisation of sustainability idea on IKEA website (Doctoral
dissertation Kauno technologijos universitetas).
Taylor, J.M., 2020. IKEA: Live, Work and Play.
Yu, R., 2019, February. Core Elements of IKEA’s Successful Product Design. In Journal of
Physics: Conference Series (Vol. 1168 No. 3 p. 032118). IOP Publishing.
Zeb, et.al., 2021. The competing value framework model of organizational culture, innovation
and performance. Business Process Management Journal.
Online:
THE HISTROY OF IKEA, 2021. [Online]. Available Through;
<https://about.ikea.com/en/about-us/history-of-ikea>
Shaw. J 2017. How to Complete a personal SWOT Analysis. [Online]. Available Through;
<https://medium.com/thrive-global/how-to-complete-a-personal-swot-analysis-
2f8769aebd5e>
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