Deconstructing a retail giant

 

BUSINESS:The author of a controversial book on the inner workings of Ikea makes claims of shady finances and a wretched environmental record

‘FIRST A TIP, from someone who knows. When venturing into the furniture wonderland that is Ikea, have a plan. And don’t pick up one of those blue and yellow bags along the way; having a bag encourages you to fill it. And to help you over the threshold of that all-important first purchase, the store manager will ensure the first things you see are remarkably, or to use Ikea’s own jargon, ‘jaw-droppingly’ cheap: a €10 bookcase perhaps, or a €1 toilet brush in vivid, wacky colours. Or, it could be those all-important tealights wrapped in cellophane, which make for a relaxing dip in the new bathroom (which by the way, is available around the corner, just before the meatballs).

“The area of an Ikea store containing the small stuff is known to company insiders as the wallet opening zone: they know that once you have made a decision to buy something – anything – you are far more likely to continue to spend on the more expensive items awaiting you on the carefully designed customer trail that weaves its canny way through the store.”

This inside guide to shopping at Ikea comes courtesy of Johan Stenebo, a former senior executive at the company, whose book, The Truth About Ikea, claims to reveal how the hugely successful company operates.

Stenebo had a 20-year career working for Ikea, rising from trainee in the Kaltenkirchen warehouse just outside Hamburg to managing director of the company’s subsidiary GreenTech. During this period he worked alongside Ikea’s founding father Ingvar Kamprad, as his personal assistant. His book is hugely controversial and is about issues of far greater import than cheap loo brushes and tealights. But clearly, as in the store, it’s a good place to start.

“I have two pieces of advice to shoppers,” says Stenebo. “You should be very focused on what it is you actually want to buy. If it’s a kitchen table, do not ever, ever touch a yellow bag or take one of the trolleys around with you. The minute you do, you are bound to buy stuff and most of it is unnecessary – it’s just crap you’re bringing home. That’s what Ikea flourishes on. Few retailers are as smart at extracting money from customers’ pockets.”

One more thing on shopping: Stenebo says that the ever-so-convenient walkway that wends its way through the showroom is actually a neat piece of science, a map with ‘hotspots’ and ‘cold spots’.

“The big sellers are placed at the exact point en route to achieve maximum effect. The walkways divert into a different direction every 10 metres to ensure your gaze is directed towards different products. It’s like walking through a fairytale land of furniture, and it’s so cheap that you can’t help yourself. I know how it works. It works on me to. And I’m an expert.”

Kamprad created Ikea in 1943 when, according to the company’s own telling of the story, “his father gives him money as a reward for succeeding in his studies, which he uses to establish his own business”. The name Ikea is formed from the founder’s initials plus the first letters of Elmtaryd and Agunnaryd, the farm and village where he grew up.

Kamprad, now 85, has relinquished the day-to-day running of the company but remains in close touch with his creation, which increased turnover in the last business year 2009/2010 (31 August) by 7.7 per cent to roughly €23.1 billion (the 2008/2009 figure was €21.8 billion).

The fact that these figures have been released into the public domain at all is a recent development, and some claim a direct response to Stenebo’s book, which was published first in Sweden last year. One of Stenebo’s main criticisms of the company and its secretive owner is the distribution of its profits. These, he says, are mired in a complex arrangement of trusts, but, he claims, they all lead back to Kamprad and his family, notably his three sons Peter, Jonas and Mathias. As a result, says Stenebo, the sons are set to inherit from “the fifth richest man in the world” claiming that Kamprad Snr has a personal fortune in “the region of €60 billion”.

“The money goes through Holland to its corporate HQ and from there to the Caribbean. Ingvar always says that the company is owned by trusts and he has nothing to do with it but he and his three sons are the sole owners.”

Responding to the claims, Ikea said: “The Stichting INGKA Foundation was established in 1982 (by Kamprad) to create an ownership structure and organisation that stand for independence and a long-term approach. The fact that our Group is owned by a foundation with the sole purpose of supporting the business of Ikea gives us freedom to focus on financial stability, financial independence and flexibility – including the opportunity to expand from our own resources and make long-term decisions. No other purpose or individual can access or benefit from these funds.”

Mikael Ohlsson, group president of Ikea, said at the time of release that net profit had “fluctuated between 10 per cent and 13 per cent of revenue in the past 10 years”. “The yearly summary is aimed at our co-workers and suppliers as well as other stakeholders, who have shown an increasing interest in knowing more about different parts of Ikea,” ran the statement.

The lack of transparency in the company’s finances is matched by a culture which, according to Stenebo, has its roots in Kamprad’s early years and even his early membership of the Nazi party. These allegations were first revealed in a Swedish newspaper in 1994. Kamprad initially claimed not to remember if he belonged to the Nordic Youth, Sweden’s equivalent of the Hitler Youth. Later, as further allegations emerged, he wrote in a letter to Ikea staff: “You have been young yourself. And perhaps you find something in your youth you now, so long afterward, think was ridiculous and stupid”.

Stenebo believes that Kamprad is genuinely contrite about his past, but that it has had a major impact on the way things are done within the company.

“Think about this for a minute. Here is a guy who . . . was brought up in a Sudeten German family by a very strong grandmother and his father, who was a tough Nazi. If you’re brought up that way until you’re 25 that leaves its mark. He took part of that ideological movement, or what he saw as the most efficient elements of management, and implemented them in his company. Enormous discipline, a strong, sect-like culture supported by a spy network. The way in which he built the organisation’s structures meant that there was an inherent power struggle constantly.”

The huge financial success of the company, says Stenebo, is based on its ability to drive costs down through what he describes as the ‘Ikea machine’, a ruthlessly efficient supply chain operation. The huge popularity of the company’s trademark wooden furniture, such as the ‘Billy’ bookcase or ‘Lack’ shelving unit, has created an enormous demand for timber, taken mainly from the vast forests of Siberia and China.

“Ikea has become very arrogant in terms of its impact on the environment,” says Stenebo. “Ikea [creates] 30-40 per cent [more] CO2 emissions than the country of Sweden. With all the industry we have, such as Saab and Volvo, that is remarkable. Ikea is pouring out gases right, left and centre.

“Ingvar has decided consciously to do nothing about it. Because he feels that it would threaten their ability to make products at the lowest price possible. They don’t care about the environment; they just want to keep the price down. My view is that we can do both. We have to.”

Most of the wooden products you buy at Ikea come from China and Siberia. “Ikea is purchasing all these logs from the area, some of the most important forests in the world, turning them into furniture in China then sending them to the rest of the world at very low prices. The bigger question is: what is the [true] cost of those low prices for the rest of us?”

One of the most controversial sections of Stenebo’s book relates to his views on Ikea’s relationship with environmental campaigners and NGOs, such as the World Wildlife Fund and Greenpeace. Stenebo writes: “Ikea gives contributions to organisations like Unicef and WWF. With Greenpeace, the co-operation is more idealistic, but there is also the odd project sponsored, as in the case of Global Forest Watch”.

In return, he claims, these organizations have stayed quiet on the subject of Ikea’s environmental record. “If you want me to clarify this even further: I am convinced that Greenpeace has been taken hostage by Ikea. They let themselves get into that situation and that is why they are not criticising the company. They call Home Depot (the American furniture retailer) the largest retailer of virgin forest in the world. But Ikea is the largest virgin forest retailer in the world.”

A Greenpeace spokesperson refuted the accusation that it had been “muzzled” by Ikea and pointed to several reports it has produced that include some criticism of the firm.

“One of Ikea’s most weighty environmental issues is forestry and, in particular, the impact of timber extraction on ancient forests. At the end of the 1990s, pressure from Greenpeace and other environmental groups led Ikea to introduce a policy prohibiting the use of wood from intact natural forests, except those certified by the Forest Stewardship Council.”

Responding to the claims made by Stenebo in this interview, Ikea said the book was the author’s personal opinion and that the firm had chosen not to comment on Stenebo or his personal opinions. However, the company said that any statements that suggested that Ikea was influenced by any Nazi values, that the owners didn’t care about the environment or that they would allow illegally logged wood into their supply chain were absolutely absurd.

It said: “We do not accept illegally logged wood. All Ikea wood suppliers must comply with a set of requirements before being allowed to supply to Ikea. This is ensured by Ikea business teams around the world, supported by Ikea forest specialists, as well as internal and external auditors. Last year, Ikea carried out more than 100 audits of wood products suppliers worldwide and 36 in-depth wood supply chain audits in China.

“Ikea partners with WWF, the global conservation organisation, to combat illegal logging in Russia and China. The co-operation started in 2002 and has contributed to doubling the certified forest areas in China. It has helped increase the certified forest areas in Russia from 3.2 million to over 25 million hectares in September 2010 – making it the world’s second largest country by certified forest areas. Ikea has a dialogue with Greenpeace on environmentally related issues such as climate change and deforestation.”

It said the CO2 emission levels referred to by Stenebo were incorrect and that the firm had an internal project, Ikea Goes Renewable, which “aims to improve overall energy efficiency by 25 per cent, compared to 2005 levels, in all Ikea stores, distribution centres, factories and offices”.

Dax Lovegrove, WWF-UK’s head of business and industry, said his organisation had received funds from Ikea as funding for a number of partnerships since 2002. “We have not been muzzled at all. In fact we’ve worked with Ikea to identify a number of carbon hotspots, notably in forestry but also in their supply chain relating to textiles and food. They are a member of the Global Forest and Trade Network, which works toward minimising environmental effects. This is not perfect. They have good action plans, but could do better.”

Stenebo’s motivation for writing his book stems he says, from his desire to portray the company and its owner in a more honest light. He sayd Kamprad has chosen to portray himself in the media and public as, among other things, a man of unsophisticated tastes. Stories abound of how his house is furnished with old Ikea furniture and that he runs a 15-year-old Volvo. This image, says Stenebo, is aimed at placating suppliers and employees, whose lives are dedicated to driving down costs in order to keep Ikea’s reputation for high quality at a low price.

“He has tried to paint a picture of himself as a stupid man and I’ve tried to alter the picture . . . This is one of greatest geniuses ever born in Sweden. His brilliance cannot be underestimated which, incidentally, is the first thing most journalists do. His legacy will be a profound one both in terms of the company but also in what he’s done to Sweden as a country.”

There is more than a suggestion that Stenebo clashed, in particular, with Peter, the eldest of the Kamprad sons, which did for the ‘outsider’s’ career in the family business. “He lacks leadership qualities,” says Stenebo.

The question of succession is critical, says Stenebo. He says the low-cost business model is “beginning to creak”, particularly in its ability to get raw materials at the right price.

“Ingvar was very innovative in the way he drove costs down and I don’t see that happening in the future. No one else saw the opportunity of going to Poland in the 1960s or eastern Europe and Russia when the Berlin Wall came down. All these advantages are being eroded and Ikea is in danger of becoming more like its competitors.

Customers will notice two things, he says. “Sales prices are going to come closer to their competitors’, and they will find it hard to be competitive in Britain and Ireland because they are sophisticated retail markets. Ikea’s growth has been about doing the same thing over and over again. There has not been an innovative thought in the company for 10 years. From a retail point of view, the last significant innovation was when the walkways around the stores were introduced and the self-service element was brought in, in the late 1990s.”

Despite his coruscating attack on his previous employer, Stenebo’s admiration for Kamprad is palpable. There are passages in the book portraying him as a visionary business leader. “If he walked in here, you would see his aura,” he says. But “a great man must be replaced by another great man. And his sons were born billionaires,” he says dismissively.

How much closer to The Truth About Ikeawe are as a result of Stenebo, it’s hard to know. But the company continues to be extraordinarily popular. Just don’t pick up a bag.

The life and thoughts of Ingvar Kampard

INGVAR KAMPRAD is the founder and father figure behind Ikea, a privately owned family business so popular that a research organisation estimated that one-in-10 Europeans was conceived on an Ikea bed.

Aged 17, Kamprad formed a small company to enable him to bid for a contract to supply pencils. Within five years he had set up a mail-order firm and was sending goods out with the daily milk round. Then he bought a disused factory and made furniture cheap enough to undercut the local competition. When he and a colleague couldn’t fit one of the company’s tables into the back seat of a car, they sawed off the legs and created their first ‘flat pack’ furniture. A business model was born.

IN HIS OWN WORDS

“It was our duty to expand. Those who cannot or will not join us are to be pitied. What we want to do, we can do and will do, together. A glorious future!”

“Only those who are asleep make no mistakes.”

“You can’t do so much in 10 minutes’ time. Ten minutes, once gone, are gone for good. Divide your life into 10-minute units and sacrifice as few of them as possible in meaningless activity.”