The opening of the first branch of the Swedish furniture store IKEA in Dublin provoked unprecedented scenes of jubilation. Extra buses were laid on, heavy traffic was planned for and thousands queued for hours in order to visit the store on its opening day.
What makes the Irish reception of the IKEA brand all the more astounding is the treatment that its sister chain, Habitat, received when it shut up shop in Ireland in the summer of 2008. The Irish franchise, owned at the time by retailer Malcolm Brighton who bought the rights to it in 2002, closed its stores in Dublin and Galway in May 2008, informing staff members that talks with banks regarding temporary loans had fallen through and that the owners simply did not have the cash to keep the stores open. The closure resulted in the loss of over 60 jobs but the real effect was the illustration of the fragility of even strong brands in a global recession. Indeed officials cited the ‘current economic environment’ as well as deteriorating sales as the source of the franchise’s troubles. This type of occurrence soon became commonplace in the EU with Woolworths, Zavvi UK and Zavvi Ireland quickly following suit.
The demise of Habitat in Ireland might have been thought of merely as the result of the global recession were it not for the fact that its parent company, INGKA Holding, decided to tap the Irish market by colonizing Ireland with the first of its IKEA stores- while the global recession was in full swing. Habitat is experiencing difficulties in its 71 stores across Spain, France, Germany and the UK. This fact has led to the parent company announcing its decision on October 18th to put the company up for sale. Lazard, the investment bank, was called in and requested that a solution be found or a buyer be sought (already Dwell, the designer homeware chain have been making noises about taking over its rival). It is also thought that the sale may have to be made on a country-by-country basis rather than as a pan-European transaction. The Daily Telegraph reported that the newly appointed chief executive of Habitat Holding BV, Mark Saunders, intended to continue with a review of the company’s operations, while pursuing the expansion of the chain. However, with estimated losses of around £13m in March (year-on-year) it is likely that reform has come far too late to move Habitat back into a competitive position. Indeed, its failure, and IKEA’s success, is representative of a shift in consumer’s expectations as well as a change in the way they want to shop.
One obvious consequence of the global recession is that people have moved away from luxury goods and substituted them for more modest items. Habitat was successful during the Celtic Tiger years precisely because it was a luxury homeware store. The brand had a certain cachet and its Irish flagship store, located on Suffolk Street, was as much a store as a statement . Equally, the fascination of the Irish with IKEA is a product of the current economic climate. IKEA’s flat-pack furniture and obsession with ensuring lower prices for consumers contrast sharply with Habitat’s attempts to corner the luxury-end of the furnishings market.
However, it must be said that it is not merely IKEA’s proud pursuit of low costs and low prices which have made it popular across Europe and seen it expand far beyond its native Sweden. Indeed, even in these straightened times the company is pursuing expansion across Asia. Much like Ryanair, the budget airline, the global recession seems to be working in its favour. But what IKEA has that Ryanair doesn’t is a sense of history. The IKEA brand has been decades in the making and it is through its the clever exploitation and promotion which that it has been made a success. The powerhouse behind the world’s largest furniture retailer is Ingvar Kamprad, the Swedish entrepreneur who set up the firm in 1943.
Now the fifth richest person in the world, according to Forbes Magazine, Mr. Kamprad has spent a great deal of time and money cultivating a certain image for both himself and his company. Mr. Kamprad consistently presents himself as a man who came from humble beginnings (he started selling matches as a teenager before moving on to various other products) but who has never forgotten his origins. Profiles on the entrepreneur often refer to his habit of staying in Travel Lodges when he goes abroad on business, flying economy class and driving a battered Volvo. His determination to preserve his image was evidenced when it emerged that he had been involved with a pro-Nazi group in his youth. Mr. Kamprad took a pro-active stance and promptly sent letters of apology to each of his employees of Jewish origin.
The reputation of his chain is preserved and protected with equal vigour. Central to his approach is a desire to show IKEA as more than just a store. The firm has been presented for a long time as a ‘caring corporation’. IKEA stores have become much more than just shops. They now house restaurants, coffee shops and children’s play areas. The IKEA experience no longer merely consists of the buying of furniture; a trip to an IKEA store is now a special event. In much the same way as McDonald’s strives to present itself as socially conscious and concerned about the environment, so too does IKEA attempt to present itself as having much more than a straight-forward profit-making agenda. The pursuit of a green agenda, for example the adoption of an Environmental Action Plan in 1992 and the setting up of a venture capital fund, GreenTech, in 2008 which aims to make green technologies commercially viable, shows just how committed the company is to this image. At a time when the majority is expressing disgust at greedy bankers and those who are perceived to be profiting from the benefits attached to state employment, it is those companies who can present themselves as corporations with a heart which must surely benefit.
Although IKEA looks set to continue to profit from its business strategy, it remains to be seen if it can continue to do so indefinitely. Already there have been questions raised about the way in which IKEA’s parent company INGKA Holding avoids paying tax because it is technically owned by INGKA Foundation, a charitable foundation set up by Mr. Kampard. Critics have argued that this tax avoidance represents a big case of ‘corporate irresponsibility’. As it expands yet further, IKEA could find that it will come under unwelcome scrutiny from all sides. As for Habitat, it seems almost certain that its days as part of INGKA Holding are numbered. Its fall, and the subsequent rise of IKEA in Ireland, illustrates how the global economic crisis has caused a subtle alteration in consumers’ preferences and expectations. Whether this is a permanent shift or merely a transient phase which will right itself once recovery is achieved remains to be seen.