Decoding IKEA’s Business Model in 2025: How It Achieves Global Success

About IKEA

IKEA was founded in 1943 by Ingvar Kamprad in Älmhult, Sweden. Starting as a small mail-order business, it soon expanded into a global furniture and home goods powerhouse.

The one great idea that propelled IKEA into international success was its innovative concept of flat-packed furniture. This reduced transportation costs and allowed customers to assemble their own furniture at home, cutting down on costs and making home furnishings more affordable.

Today, IKEA operates over 450 stores in more than 50 countries and serves millions of customers annually. It continues to be a leader in the global furniture market, generating billions in revenue each year. IKEA cares deeply about sustainability, affordability, and functional design.

Their in-store experience focuses on convenience, with customers experiencing an entire journey, from the showroom to the checkout counter. IKEA’s commitment to sustainability is evident in its use of renewable resources, eco-friendly packaging, and partnerships with NGOs. Its success lies in its combination of affordable pricing, efficiency, and constant innovation in the supply chain and customer experience.

How Does IKEA Make Money?

Revenue Stream Breakdown:

• Product Sales: The primary revenue source, IKEA earns most of its income through the sale of home furnishings, appliances, and food products globally
• Franchise Fees: IKEA operates through a franchise model, with franchisees paying a percentage of their sales to the brand in franchise fees
• Wholesale Sales: IKEA sells its products to franchisees and third-party distributors worldwide
• Services: IKEA also generates income from services such as delivery, assembly, and installation of products

Nike’s business model focuses on leveraging digital marketing and direct-to-consumer sales, strategies that can be compared with IKEA’s retail approach.

Revenue Contribution:

• Product Sales: 75% of total revenue
• Franchise Fees: 15% of total revenue
• Wholesale Sales: 10% of total revenue

Pricing Strategy:

IKEA uses a low-cost pricing model, focusing on providing affordable home solutions while maintaining profitability through efficient supply chain management, bulk production, and global reach. This strategy allows IKEA to remain competitive while offering products at prices accessible to a wide range of consumers.

IKEA Business Model Canvas

IKEA Value Proposition

IKEA’s unique value proposition is its ability to provide stylish, functional, and affordable home furnishings through a combination of efficient operations, innovative product designs, and low-cost production. Unlike many competitors, IKEA emphasises affordability while maintaining quality. The company solves key customer pain points by offering easy-to-assemble furniture and home goods at accessible prices, making it an attractive option for customers on a budget.

The emotional benefit IKEA provides is a sense of pride, as customers feel they are contributing to a sustainable future by supporting a brand that prioritises eco-friendly materials and practices.

IKEA’s functional benefits include the durability of its products, ensuring that customers receive long-term value. Additionally, the company offers services like home delivery and assembly, making it even more convenient for consumers. The competitive advantage lies in IKEA’s ability to scale operations globally, reducing costs through economies of scale while offering high-quality, affordable home goods.

IKEA Cost Structure

IKEA’s major expenses include manufacturing costs, logistics, marketing, salaries, and technology investments. The company uses automation, bulk production, and outsourcing to reduce operational costs. By leveraging economies of scale and optimising its supply chain, IKEA maintains healthy profit margins despite rising raw material costs. Continuous innovations in production and logistics help the brand streamline operations and control expenses.

IKEA Customer Segment 

IKEA primarily targets middle-income families, eco-conscious consumers, and urban dwellers looking for affordable, stylish, and functional home furnishings. The brand operates primarily on a B2C model, offering a wide range of products for individual consumers, with a growing focus on millennials and sustainability-focused buyers. Customers are motivated by affordability, convenience, and eco-friendliness, which drives their preference for IKEA over competitors.

IKEA Distribution Channels

IKEA operates both physical retail locations and e-commerce platforms. Its physical stores are located globally, including large-format "blue box" stores and smaller formats in urban areas. The company also offers online shopping, with delivery and click-and-collect options. IKEA embraces an omnichannel approach, ensuring customers can shop seamlessly across both offline and online channels. Innovations like AR apps and catalogue-based shopping further enhance its distribution and customer experience.

IKEA Key Partnerships

IKEA works closely with a variety of suppliers, logistics providers, and tech partners to maintain its global supply chain. Key partners include manufacturers and distributors of home furnishings and accessories. IKEA also collaborates with organisations like the International Organisation for Migration (IOM) to improve ethical sourcing practices. These partnerships ensure efficient production, delivery, and sustainability efforts, all of which contribute to IKEA’s ability to maintain low prices and scale globally.

DHL’s business model, consisting of logistics and global supply chains, can provide valuable lessons for IKEA’s operational strategies.

SWOT Analysis of IKEA:

IKEA Competitor Comparison:

What’s New with IKEA?

IKEA is investing heavily in digital innovation with the introduction of AR apps for product visualisation and personalised shopping experiences. It is also ramping up its sustainability efforts by eliminating plastic from packaging and transitioning to paper-based solutions. Furthermore, IKEA is exploring automation and AI to optimise its supply chain, ensuring better inventory management and quicker delivery.

Key Takeaways for Students/Marketers

• IKEA’s low-cost pricing and efficiency-driven operations are scalable across global markets
• Small businesses can replicate IKEA’s digital transformation and omnichannel strategy to enhance customer reach
• IKEA’s focus on sustainability and customer convenience offers valuable insights into long-term brand loyalty

Conclusion 

IKEA’s business model blends affordability with sustainability, allowing it to dominate the global market. As it adapts to new digital and sustainability demands, IKEA’s ability to innovate and scale positions it for continued success in the future. Will IKEA's approach continue to shape the future of home goods retail? What do you think?