Part 4:
Since the US market is probably the most challenging market to enter in the world today for a retail business, Ikea didn’t know what it was getting itself into. Ikea in the US was a small regional player. It proves that the strategy the Swedish implemented was home replication because of the lack of local responsiveness and low reduction costs. The company did very little research before deciding to enter this new market. Management felt that the Swedish style and the Ikea concept would work perfectly well in the US. However Ikea struggled from the Start with slow sales and a loss making business. The challenges of the US market were based on many differences. I will start in terms of cost. The cost of doing business was high. Marketing costs were many times higher to reach the same level as in Europe. Land and construction were more expensive. Staff cost were also higher not least the Social Security costs. But most important the turnover of staff is much higher compared with Europe resulting in a high recruitment and training costs. The home furnishing competition was moderate but most customers will have to pass into at least couple of stores before getting to an Ikea store. Most of Ikea’s products needed to be imported. This leaves the company with a very vulnerable gross margin. Also the size of the country puts pressure on overhead costs and creates additional challenges to management. The local organization believed that the Ikea wardrobes and kitchens could not be sold in the US market. It was a major problem since these were two of Ikea’s strongest areas in all other parts of the world.
After recognizing all the challenges Ikea started thinking about developing a new winning Strategy a localisation strategy, with high local responsiveness. Ikea had been preserving a malfunctioning of the business model in the US. So they started to invest strongly and get on the offensive. The worst thing to do was to continue the same strategy which is home replication and expecting the outcome to change!!?? The potential for improvement was big and Ikea had to plan the make the US one of the future cornerstones of the company by shifting to localization and respond to the local needs. First of all, the US product range needed to be aligned with the overall Ikea range strategy, getting the kitchen and the bedroom range to take off and become the engine of the sales growth just as they did in the rest of the Ikea