All too often you hear about your friends and family making the trek to the nearby Ikea. Generally, it is a full blown expedition that includes a lengthy car ride, hours shopping in an enormous labyrinth of Swedish furniture, awful cafeteria food, more hours shopping and then another car ride home with cheap furniture tied to the roof of a hatchback. But why? When did Ikea become the first choice for modern furniture? Furthermore, is Ikea living up to its responsibilities?
Frankly, it is a travesty to design that Ikea is ‘known’ for affordable modern furniture. Sure, if you’re looking for a futon under $200 it’s an ideal one stop shop. However, does anyone ever wonder how Ikea can offer those unrealistic prices? There is a common, correct, assumption that big-box retailers like Target and Wal-mart take advantage of the natural economies of scale. However to assume that Ikea fits into that same mold would be way off base. The typical big-box chains can negotiate fantastic pricing on name brands because of their sales volume. Ikea does something entirely different: they manufacture most of their products themselves. They aren’t negotiating with anyone! In other words, you can head on over to Sam’s Club and buy a Sony television at a great price. You cannot stop by Ikea and purchase a Sealy mattress.
This is a huge difference when you begin looking at pricing. For example let’s consider a $2,000 bed you might find at a small furniture store. That bed was likely made overseas and cost the store roughly $1100 to procure with materials costing more than $1,000. Ikea would sell a similar bed using a different tactic. They realize average “market” price for a bed is $1,600 so they decide to sell one for $400. They work backwards from there, stripping value out of the bed to get their actual cost well under $200. Instead of real wood veneer they use laminate. Rather than orthopedic slats they use flat pine. Rather than using fibreboard designed for furniture, they create lighter, cheaper fibreboard that will warp over time.
In truth, Ikea’s size does provide a distinct advantage when it applies to purchasing raw materials. Furthermore, they could import and sell the same exact products for less. But that is not what they do. They makes cheaper products at substantially cheaper costs. So, next time you are seeking cheap modern furniture, consider what you’re paying for. The old adage holds true: if it’s too good to be true, it because Ikea stripped out every drop of quality to make it appear that way…
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