IKEA Franchise - Do They Actually Franchise?

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ikea franchise

Ikea boasts one of the most recognisable brands in the world and has become an economic superpower thanks to its intelligent, ready-to-assemble furniture designs. Here, we take a look at the history of the organisation, examine the corporate structure it utilises, and ask whether they offer franchising opportunities.

What is Ikea?

Ikea is a Swedish-based flat pack furniture manufacturer that is now the largest furniture retailer in the world. It is renowned for its modernist, Scandinavian-inspired design, affordable prices, and the simplicity of its products. With over 420 locations spread across more than 50 countries, the business has developed a truly global reach, and it now operates in some of the most profitable markets in the world.

The remarkable success of the Ikea brand has resulted in the business being ascribed a symbolic position in modern society. It is seen as the epitome of contemporary design practices, as well as being representative of globalised neo-liberal capitalism, and it has also assumed a position of great cultural significance. In particular, the instructions that accompany its flat-pack furniture, its low-cost food halls, and the use of Scandinavian words to identify products have all become recognisable memes that are perceived as typifying the Ikea experience.

A brief history of Ikea

Established in 1943 by a 17-year-old carpenter, Ikea started life as a mail-order sales business. Its founder, Ingvar Kamprad began building his businesses from a very young age and started by selling matches to his neighbours at just five years old. By 1948, Ikea has started to sell furniture, and the business' first brick and mortar store were opened in 1958. This store was located in lmhult, Smland, in Sweden.

Further expansion occurred in the 60s, with the company growing both domestically and internationally. In 1963, it opened its first store in Norway and, six years later, this was followed by a location in Denmark. However, it was the following decade that saw Ikea become a truly global brand and begin consolidating its commercial empire.

The first stores outside of Scandinavia were opened in Switzerland and West Germany in 1973 and 1974 respectively, while Japan, Canada, Singapore, Hong Kong, and Australia all received stores later in the decade. Expansion into Western Europe began in the 80s, and these markets soon became the company's most profitable. To this day, Germany remains the country with the most Ikea stores.

Ikeas impact on the global furniture industry cannot be underestimated it is the business that exemplifies the move from an individual, artisanal approach to furniture design and manufacture to simple, affordable, mass-produced, and ready-to-assemble products. Likewise, its cultural footprint is enormous. From revolutionising store design practices to the widespread adoption of a consumerist approach to home fittings and dcor, Ikea manages to represent and sum up some of the most significant changes to society that have taken place over the last few decades.

Who is in charge at Ikea?

Ikeas corporate structure is astoundingly complex and consists of various for-profit and not-for-profit organisations that are arranged and connected in a complex web. At the top of the organisational structure are the Stitching INGKA Foundation and the Intergogo Foundation, which are registered in the Netherlands and Liechtenstein respectively.

The Stitching INGKA Foundation is a charitable foundation that aims to promote and support innovation in architecture and design. In 2006, figures showed that it was the wealthiest charity in the world but also one of the least generous. Since then, it has expanded its purview to include an additional focus on helping children in the developing world. The business' complex corporate structure is utilised to decrease the amount of tax paid by Ikea, as well as to make the business immune to an aggressive takeover by outside elements.

How has Ikea performed financially?

The most recent figures available for the companys financial performance are for the year 2009. They show that the organisation achieved a net profit of 2.5 billion. Due to the way in which the organisation is structured, none of this profit can be taxed by national governments. The way in which payments are made between the various holding groups and foundations that make up the Ikea family is notoriously opaque, making it difficult to assess where revenue is generated, transferred, and retained in the organisation.

Is Ikea a franchise?

The vast majority of Ikea stores are technically franchised stores, though they are not franchised in a traditional sense. Around 370 of the 420 Ikea stores are franchised to INGKA holding which is owned by the Stitching INGKA Foundation. This company is responsible for stores in Europe, as well as those in Japan, China, the US, and Australia. Other companies hold the franchise agreement for different regions. For instance, the Al-Futtaim group operate four stores in Egypt, Qatar, and the UAE, while Dairy Farm holds the rights to open and operate stores in Hong Kong, Indonesia, and Taiwan.

This means that, although Ikea is technically a franchise, investment opportunities are not available to individuals or small organisations. Instead, considerable capital and the ability to manage all of the stores in a single nation or region is required to open an Ikea franchise.

How much does an Ikea franchise cost?

As Ikea does not utilise a traditional franchise model, it's difficult to know how much the rights to a particular region cost. However, there are figures for development costs in specific areas. For instance, in 2012, the company moved into India and announced their intention to build a total of 25 stores across the country. This will require $1.9 billion of investment and is set to be made over a 15 to 20-year timeframe.

What does the future hold for Ikea?

Ikea is continually working to develop new product ranges and to revolutionise the home furniture market yet again. The Ikea Home Lab was set up to act as the business' research and development arm, and it continues to innovate and introduce new materials, designs, and ideas. In business terms, the company hopes to introduce a higher number of smaller stores into city environments over the coming years.

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