How IKEA Makes Money
IKEA is a Swedish multinational company that was founded in 1943 by 17-year-old Ingvar Kamprad. It is one of the world’s largest privately-held companies and has been the world’s largest furniture retailer since 2008. The majority of IKEA outlets are controlled by the 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 permits the company to operate as a nonprofit corporation.
IKEA’s Corporate Structure
The INGKA Foundation’s stated purpose is “supporting innovation in the field of architectural and interior design.” However, the major caveat is that the foundation primarily supports “innovation” by operating a major furniture empire. The purpose of the Foundation’s structure–owning a holding company that controls the furniture outlets–is ultimately to minimize taxes. And there is even an additional layer to the company’s structure: its intellectual property and intangible assets, including its logo, are owned by a separate company.
Key Takeaways
- IKEA is one of the world’s largest privately-held companies and has been the world’s largest furniture retailer since 2008.
- The complicated corporate structure of IKEA allows for its parent company–a nonprofit foundation–to minimize its taxes.
- In 2019, IKEA’s profits fell by 3% due to higher costs for materials, transportation, and logistics.
In 2019, IKEA’s profits fell by 3% due to higher costs for materials, transportation, and logistics. In 2019, the global revenue generated by IKEA was €41.3 billion. There are currently 473 IKEA stores in 30 countries, as of Aug. 11, 2022, and the company employs 225,000 staff members, as of Oct. 14, 2021.
The Future of Renewable Energy
Since 2009, Ikea has invested close to €2.5 billion into renewable energy. The company now owns 534 wind turbines and over 700,000 solar panels in 14 countries, as well as 920,000 solar panels on store rooftops. And the company claims 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 aim is to reduce the climate impact of all of their products by two-thirds. As a company, they are setting the benchmark for competitors, raw material suppliers, and customers. The company has also announced plans to offer home solar 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 remainder are company-owned. Every store pays an annual franchise fee, including the company-owned stores. IKEA also continues to rely on its commitment to sustainability to appeal to its customers.
Commitment to Sustainability
In 2016, Steve Howard, the head of sustainability at IKEA, spoke at a sustainable business debate. At one point, he said, “If we look on a global basis, in the west we have probably hit peak stuff. We talk about peak oil. I’d say we’ve hit peak red meat, peak sugar, peak stuff … peak home furnishings.” Howard made further remarks about western consumption, calling the new state of affairs, “peak curtains.” While this would seem to contradict the company’s goals of increasing sales, IKEA is not like most major corporations.
Howard’s implicit message seemed to be that IKEA ought to 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 secure cheaper green power for households that subscribe to the scheme. According to the company, by making the switch to green power, a typical UK household can save £300 a year in gas and electricity.
For each subscriber that makes the switch, IKEA receives a commission, which the company has promised to use to support local initiatives within each store’s community. Consumers have the choice of many different green energy suppliers, so IKEA faces significant competition in this arena.
The Bottom Line
IKEA has made furniture shopping fun, filling its stores with bright colors and an airy layout, plus a cafeteria. The modular design of its chairs and tables are contemporary and inexpensive, making them appealing to both lower-income college students and professionals who are more financially established. While they are currently investing more in sustainable initiatives, it is likely that their thriving market for home décor will not disappear, and will, in fact, become greater as consumers demand more sustainable and transparent business practices in their home products and furniture.
