IKEA battles Amazon, Temu as market shifts bring pain to flat-pack dynasty

By Rafaela Lindeberg | Bloomberg

As the first snow fell in November over Älmhult, the small Swedish town where IKEA was born in the 1940s, managers of the world’s biggest furniture retailer from across the globe gathered for its annual summit on products, prices and priorities.

Beneath the bonhomie under the warm glow of Scandinavian lamps and the corporate talk of “togetherness” was a sense of urgency. The iconic global brand with its familiar blue-and-yellow logo is traversing one of the toughest periods of its more than 80-year history: flat sales, soaring timber costs and brutal competition from online marketplaces like Amazon.com, Temu and Shein. Profit at Inter IKEA, its worldwide franchiser, plunged 26% in the year ended Aug. 31 after it cut prices to stay competitive.

“Consumers want price, convenience and speed, and they’re more than ready to change stores to get it,” said Clarisse Magnin, a senior partner leading the consumer and retail sector at the consulting firm McKinsey & Co. “Marketplaces are changing the game. They massify sourcing, logistics and customer reach. Even the biggest incumbents have to reckon with that scale.”

Inside IKEA, which helped spawn an almost $20 billion global flat-pack furniture industry, it has prompted some soul searching. The maker of the much-loved Billy bookcases and products with hard-to-pronounce, consonant-rich names like Fyrkantig and Ödmjuk is on its third iteration of “the biggest transformation in IKEA history.”

To work on the latest chapter of that metamorphosis, it has named for the first time in its history non-Swedes to helm its two main entities — Inter IKEA, owner of the brand and the supply chain, and Ingka Group, which operates most of its stores.

“We are amazingly good when things go well; now we need to work on being very resistant and responsive for when things don’t go as planned,” Jakub Jankowski, the new chief executive officer of Inter IKEA, said in an interview when he was appointed in September. The 49-year-old  Polish national, a company veteran, took  charge on Jan. 1.

Being private — with one of the world’s most intricate ownership structures — IKEA has more room to maneuver than most global retailers. It’s shielded from quarterly disclosures and can reinvest profits rather than pay out dividends, something that helped it absorb shocks like the 1970s oil crisis, the 2008 recession and the pandemic. But now, the convergence of sluggish housing markets, tariffs, weak spending and fast-moving online rivals reshaping the market is raising the question of whether the brand’s long-term cushion, even after its sweeping transformation, will be enough to keep it growing.

“They will need to continue developing their ability to meet customers where they want to be met,” said Sara Rosengren, a professor at the Stockholm School of Economics’ Center for Retailing. “There’s low-cost competition coming in, and this affects retail in general. For IKEA, competition also comes from platform actors such as Amazon as well as direct-to-consumer furniture brands with more niche offerings and different price points that IKEA has not traditionally focused on.”

The brand’s overhaul is largely focused on broadening product offers, bringing stores closer to customers and speedier deliveries. After decades of opening outlets on the outskirts of big cities and then expanding into urban centers from New York to Paris, it recently piloted a new format dubbed “Lada,”  the word for a barn in Swedish, for towns of about 100,000 to 200,000 people. It’s also expanding online services, while a new hybrid model is ensuring that large stores serve both as showrooms and logistics hubs.

“The store will always remain the backbone of the IKEA experience in an omni-channel world,” Juvencio Maeztu, the 57-year-old Spaniard who last year took over as Ingka’s new CEO, said in an interview.

Maeztu and his Inter IKEA counterpart plan to push for aggressive pricing, strict cost discipline and the scaling up of the omni-channel model as they take on digital marketplaces like Temu and Shein, which are expanding into home goods and furniture and bringing intense price competition. Online specialists including Wayfair and platforms like Amazon have also raised expectations for convenience and delivery speed.

“In the US, Wayfair and Amazon are obvious competitors,” Fredrika Inger, who leads IKEA’s global range and design operations, said in an interview. “Competition is growing from marketplaces like Temu and from supermarkets adding home lines. It’s good pressure that makes us better.”

Another crunch point is securing a reliable supply of its biggest raw material — wood. After sanctions cut off Russian and Belarusian timber, IKEA doubled down in central and eastern Europe. Ingka Investments, the group’s asset arm, now owns more than 330,000 hectares of forests. In October, it put down €720 million ($844 million) for forest land in Latvia and Estonia, its biggest such acquisition.

That has brought environmental scrutiny. Greenpeace and other organizations criticize the brand for sourcing wood from sensitive areas, including Romania’s Carpathians, although IKEA denies those claims. While it set a goal to halve emissions between 2016 and 2030, environmental groups question that target. The brand was recently nominated for “Sweden’s Greenwash Prize” for talking about sustainability while maintaining high sales volumes.

For all its challenges, IKEA remains a global behemoth with 808 outlets, about 222,000 employees and annual retail sales of €44.6  billion. Its stores continue to draw people, with visits edging up 1.8% in its most recent fiscal year to about 915 million. E-commerce now accounts for 28% of sales, and the retailer is ranked highly in several global consumer surveys. It is also one of a handful of companies from Sweden — a nation with a population of just over 10 million — to be a household name across the globe, alongside Electrolux, Spotify and H&M.

As it has grown, IKEA has perfected what’s known as the Gruen effect. Named after Austrian-American architect Victor Gruen, a pioneer in shopping-mall designs in the US, it’s a phenomenon that causes people to make impulse purchases, forgetting their original reason for entering a store. IKEA’s huge, maze-like, windowless stores with piped music and bright lights put shoppers in a retail-therapy mode, prompting them to toss into their trolleys things they never knew they needed.

That may not have been what Ingvar Kamprad set out to do when he founded IKEA in 1943 at the age of 17, using money given to him by his father for doing well in school. Kamprad started his mail-order company by selling goods like pens and wallets before turning to furniture in 1948. When the costs and damage rates of transporting furniture became a problem, he adopted a flat-pack and self assembly formula, taking that model overseas.

In the 1980s, Kamprad put in place an intricate ownership structure to make IKEA takeover-proof and ensure it was built to last. Instead of a listed parent or a family trust, he built a web of foundations and holding entities — each with clear social or operational mandates.

At the time of his death in 2018, he was ranked No. 8 on the Bloomberg Billionaires Index, thanks to his retail fortune valued at $58.7 billion. But the foundation structure meant his wealth was dissipated when he died, with his heirs denied direct control of the firm. The family remains involved through oversight and culture rather than ownership. Kamprad’s sons — Peter, Jonas and Mathias — act as the custodians of their father’s legacy, holding board positions across the IKEA empire.

The foundation structure helped IKEA weather the shock of the pandemic, which closed hundreds of stores, snarled supply chains and exposed the fragility of its just-in-time logistics. Then came a costly exit from Russia, tariffs, and soaring material costs. Executives chose to cut prices to protect affordability — the company’s defining promise — even as profits shrank. As the brand traverses troubled waters now, IKEA’s ownership organization is once again providing it an edge.

“The foundation structure — low gearing, reinvestment, no dividend pressure — gives IKEA flexibility,” said Charles Allen, a Bloomberg Intelligence analyst.  “It can lower prices, take a hit on margins, and still think in 10-year cycles. Few companies operate on such thin margins and still generate that level of cash flow.”

For IKEA’s new generation of leaders, stepping into the structure means following the guidelines in Kamprad’s 1970s “Testament of a Furniture Dealer” — a nine-point manifesto. Maeztu and Jankowski describe their mission as shortening supply chains, expanding circular models like furniture buybacks and repairs, and developing smaller, more flexible formats.

“That means being affordable, digital and sustainable — but also staying true to who we are,” Maeztu said.

At IKEA’s bright and functional design center in Älmhult, which creates every item sold in its stores globally, Inger, the design chief,  is optimistic.

“In many markets our share is still small,” she said. “We can grow by being more accessible in big stores, small formats, web, and social, while staying unique and relevant.”