Term Paper: Weaknesses of IKEA

By | April 27, 2011

Sample Term Paper

Location disadvantage:

One of the major lop whole which was analyzed during the study was that of location. In most of the countries where IKEA stores are present, they are located outside the city. The primary factor of establishing stores outside the city was because of the high cost of the land. Although this strategy reduced the cost at the company’s end but for the customers it became really difficult to travel a long distance to visit the store. Also in the current scenario when recession has hit almost every sect of people the out of the town location impacted a lot and people prefer to shop from the local shop rather than spending extra dollars on traveling large distances (Datamonitor, 2010).

Sales decline in UK:

Another alarming situation for the company is its declining sales in the UK. During 2004-2009 the sales declined by 22.7%. One of the reasons was that there were too many stores located in a small town which reduced the customers because the customers were distributed. This means that now the company has to revise their strategy and do something else other than opening new stores (Zetes, 2007).

Opportunities:

Expanded sourcing base:

As we have discussed before that the primary objective of IKEA is to produce low price products as a result they outsource a major chunk of their work to low cost manufacturing centers like china. In the year 2009 IKEA sourced 30% of their products from Asia with the majority from China 21%. To reduce its dependence on China IKEA is also strengthening its relationship with India and by 2014 the company expects India to produce $677 million products for IKEA (Arnold, 2002).

Online sales:

As the market dynamics is always changing, organizations need to meet the challenges so as to compete the market. The importance of e-commerce can be understood from the fact that in the year 2009 the retail e-commerce revenue was recorded $142.4 billion. Experts believe that this rate is only going to increase. Keeping in mind this huge market IKEA has also started its transaction on its website which is www.ikea.com. This would also open up another channel to reach the customers those who prefer to shop online (Datamonitor, 2010).

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