IKEA

“At peak, two hundred and twenty million copies were printed across 69 different versions, 32 languages, and 50 markets.”

“Today we dive into IKEA, the company that sells over a billion Swedish meatballs a year, and a lot of furniture and homewares to go with it.”

“71% is products in stores. 26% is e-commerce. Three percent is services to customers.”

“Starting in 2017, revenue continues to grow on the order of five-ish percent per year, but their operating margin drops from eight percent, six percent, five percent, and kind of hovers in this three to five percent range the last few years.”

“On the first day that they open it, in June of 1965, they have 18,000 customers come through. And then in that first year, that store alone does seventy million kroner in sales. So it doubles the company's revenue.”

“This is, I think, and Ingvar thinks, and he writes this is the very first time anywhere in the world that a mail order business is combined with a physical showroom.”

“Today, restaurants, just to flash all the way forward, it is technically the world's sixth largest restaurant chain, measured by number of customers. In 2017, they had seven hundred million people Per year eat at their restaurants.”

“So they only opened one or two more, despite the fact that the locally owned stores, well, the Seattle store, actually did way better. I think it was the highest performing U.S. Store and beat all the corporate owned ones.”

“And actually, do you know what IKEA's largest market is still to this day? It is not Sweden. It's not the US. It's not China. It's Germany.”

“30% of people who visit IKEA do so just to eat.”

“And they own all the real estate, so, like, it's not like they're paying rent. They choose the location strategically, and then they become a landlord to other people in these new mega shopping centers.”

“Sweden, at the time, had high and rising wealth and inheritance taxes. So, inheritance taxes for large estates, of which The comp rad and estate and Ikea as an asset would definitely be one was over 60%. And on top of that, there was an annual wealth tax in Sw…”

“Today, in twenty-twenty-four, with forty-seven billion dollars in revenue, IKEA holds only a 5.7% market share.”

“The even more amazing thing is he codifies this into the official policy of the company, which is we must have at least, at first it's 10 quote unquote hot dog products across the range. He later ups it to 20, and it's, yes, it's like the lack table. It's an i…”

“I mean, it's the Amazon play, right? Of once you reach scale and you have enough customer eyeballs, You can staple on a near hundred percent margin advertising business for free.”

“And by the end of the decade of the sixties, Poland is producing 50% of IKEA's furniture, including some of the first modern classics like the Billy Bookcase, the Ogla Cafe chair.”

“And the results of this crazy stew of ingredients is that IKEA has become the world's largest furniture retailer, and one of the largest retailers, period.”

“And that, listeners, is the only capital that ever goes into Ikea. That is the only money that Ingvar would ever raise.”

“In inflation adjusted dollars was 350 dollars in 1988. By 2016, they had it down below a hundred dollars, and it's effectively flattened out. It's now a 130 dollars, but with a little bit more inflation.”

“The ultimate maximization function is, it's almost like, it's not margin dollars. I think it's like number of items sold profitably at all. They want to sell more things to more people.”

“The pent-up demand in Philadelphia from the cacophony of factors leading to the excitement around it was insane. There was over a one-mile-long line to get into the store. They ran out of merchandise on opening day, and they actually had to run radio ads apolo…”

“The issue with that, though, about going global is that tastes at the high end are way more heterogeneous and fragmented, especially across geography. Than they are at the middle and low ends.”

“So they bought TaskRabbit for a small amount, 50 to seventy-five million, somewhere in there, a few years ago.”

“Products are usually named after Scandinavian locations. I think Swedish locations are used for sofas and coffee tables, like the core part of the line. Norwegian locations, I think, are used for beds. Danish locations for textiles. And then some of the smalle…”

“There's a great study that Ernest did that we'll link to in the show notes that shows IKEA's peak customer age is 24.”

“The European Parliament Green Party estimated that they saved a billion dollars in taxes between 2009 and 2014 alone.”

“I think they've sold thirty million of these since 1976.”

“Ingvar is going to buy the building for 13,000 kroner, which is about 2500 dollars at the time. We're here in like early 19 fifties. So, you know, not cheap, but not that much money. And that 2500 dollar investment Becomes the first Ikea showroom.”

“In fact, the first employee of IKEA was A Jewish refugee who had fled Austria in 1943.”

“Today, in twenty-twenty-four, the Lack table retails for nine dollars and 99 cents in America.”

“People visit their stores nearly nine hundred million times a year.”

“Today, IKEA sells almost twenty million lakh tables every year and has been for decades.”

“IKEA does not have a direct competitor today in 2024. There is not a single other globally scaled furniture business in the world.”

“It is Inca Holdings, which is the physical sphere, the technically largest franchise operator of Ikea stores. They own and operate 400 of the 476 Ikea stores in the world today. And that is owned by the Dutch Inca Foundation, which is a charitable foundation.”

“There were many other companies that were doing flat-packed furniture before this, including the company we've talked about multiple times on this episode, Sears Roebuck, was flat-packing in their catalog distribution in America.”

“That's why they have, what is it now, 1600 suppliers, 55 countries, and the average supplier relationship is 11 years long.”

“And actually, I happen to know, the founders of Costco made a special trip up to one of the Canadian Ikeas, even before the founding of Costco, because they had so much respect for IKEA as a brand they admired. They, like, wanted to go and see it and experienc…”

“He has plenty of competitors who are doing the same things and probably catching on to this same idea that low prices are also important. But none of them become IKEA. And the next reason why none of them become IKEA is none of them have a showroom.”

“Within a year, they pass one million kroner in sales at this showroom, which has got to be by multiples the largest business ever built in Elmhult in, like, human history. In 1954, so the next year after this has been open, they pass three million kroner in sa…”

“And in return for that licensing of the brand and concept, Inter IKEA gets a royalty of three percent of gross sales from every store.”

“I mean, the man lives to be 91. He clearly didn't think he was going to live to be anywhere near that age. And the stories we heard of him visiting stores, being super engaged in board meetings, making decisions, making product decisions up until the last week…”

“Ikea's gross margins are, like, mid-thirty percent, and Costco's are 13%.”

“How its founder became the eighth wealthiest person in the world before shifting his ownership into a foundation”

“He names it his name and his mailing address. Ingvar Kamprad Elmterud Agunyard. I-K-E-A. IKEA.”

“At this point, he's running an actually incredibly capital light business. Most things I think he is not taking inventory. Some of it he is, he's storing some pens and stuff, small goods under his bed while he's at college. But a lot of it, what he's doing is …”

“By the 19 eighties, they're doing two billion dollars a year in revenue. So call it 1520 years to scale from twenty million to two billion.”

“They own, I think, all of their real estate today, they own all this, I'm sure they probably use construction financing today, but, you know, they have twenty-five billion euros in the bank, like, This is it.”

“No other vertically integrated retailer brand of this scale in any category.”

“That parent company did twenty seven billion dollars in sales of goods, and they made 1.4 billion dollars from franchise fees.”

“Complete ownership, or at least board control in Meta's case, is freedom. You can do things like invest for 10 years from now when it's gonna be a super lumpy period between now and 10 years from now. If you believe in the long-term vision, you can suboptimize…”