How IKEA Makes Money

IKEA is a Swedish multinational company founded in 1943 by Ingvar Kamprad, 17 years old. It is one of the largest in the world private companies and has been the world’s largest furniture retailer since 2008. The majority of IKEA outlets are controlled by holding company INGKA Holding, which is owned by the Stichting INGKA Foundation. The Stichting INGKA Foundation is one of the largest charitable foundations in the world and is registered in the Netherlands. This complicated structuring helps IKEA minimize its taxes, makes a hostile takeover impossible, and allows the company to operate as a not-for-profit corporation.

IKEA corporate structure

The stated aim of the INGKA Foundation is to “support innovation in the field of architecture and interior design”. However, the main caveat is that the foundation primarily supports “innovation” by operating a major furniture empire. The goal of the Foundation structure – owning a holding company that controls furniture outlets – is ultimately to minimize taxes. And there is even an additional layer to the structure of the company: its intellectual property and intangible assetsincluding its logo, are owned by a separate company.

Key points to remember

  • IKEA is one of the world’s largest private companies and the world’s largest furniture retailer since 2008.
  • IKEA’s complex corporate structure allows its parent company, a non-profit foundation, to minimize taxes.
  • In 2019, IKEA’s profits fell 3% due to rising costs for materials, transportation and logistics.

In 2019, IKEA’s profits fell 3% due to rising costs for materials, transportation and logistics. In 2019, the global turnover generated by IKEA was 41.3 billion euros. There are currently 473 IKEA stores in 30 countries, as of August 11, 2022, and the company employs 225,000 people, as of October 14, 2021.

The future of renewable energy

Since 2009, Ikea has invested nearly 2.5 billion euros in renewable energies. The company now has 534 wind turbines and more than 700,000 solar panels in 14 countries, as well as 920,000 solar panels on store roofs. And the company says it is on track to create as much energy from renewable sources as it consumes in its operations by 2020.

In June 2018, the company announced plans to use only renewable and recycled materials in its products by 2030. Their goal is to reduce the climate impact of all their products by two thirds. As a company, they set the benchmark for competitors, raw material suppliers, and customers. The company also announced plans to offer solar home solutions in 30 different markets by 2025.

IKEA makes most of its money from franchising. Dozens of its stores around the world are franchised; the others belong to the company. Each store pays an annual franchise fee, including company-owned stores. IKEA also continues to build on its commitment to sustainability to win over its customers.

Commitment to sustainability

In 2016 Steve Howard, Head of Sustainability at IKEA, spoke at a sustainable business debate. At one point he said, “If we look globally, out west, we’ve probably peaked. We are talking about peak oil. I’d say we hit peak red meat, peak sugar, peak stuff…peak home furnishings.” Howard made other remarks about Western consumption, calling the new situation “peak curtains.” Although this seems to contradict the company’s goals of increasing sales, IKEA is not like most large companies.

Howard’s implicit message seemed to be that IKEA should look elsewhere for sales or find another line of business. In 2018, Ikea partnered with the “Big Clean Switch” campaign as part of an effort to ensure cheaper green power to households that sign up for the program. According to the company, by switching to green energy, a typical UK household can save £300 a year on gas and electricity.

For each subscriber who makes the switch, IKEA receives a commission, which the company has pledged to use to support local initiatives within each store’s community. Consumers have many different green energy providers to choose from, so IKEA faces significant competition in this area.

The essential

IKEA has made furniture shopping fun, filling its stores with bright colors and an airy layout, as well as a cafeteria. The modular design of its chairs and tables is contemporary and inexpensive, making them appealing to both low-income students and more financially established professionals. Although they are currently investing more in sustainable initiatives, it is likely that their thriving home decor market will not disappear and will in fact become more important as consumers demand more sustainable and transparent business practices in their home products and furniture.

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