How Is IKEA Used to Make Money?

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Susan Kelly

Jun 25, 2022

It has been the biggest furniture retailer in the world since 2008, making it one of the most successful privately-owned firms in the world. The holding firm INGKA Holding, which the Stichting INGKA Foundation owns, exercises authority over most of IKEA's retail locations. The Stichting INGKA Foundation, headquartered in the Netherlands and one of the world's biggest charitable foundations, is officially recognized there. IKEA can keep its tax burden to a minimum because of its intricate corporate structure, which also renders a hostile takeover of the firm unfeasible and enables it to function as a nonprofit organization.


IKEA's Corporate Structure


The mission of the INGKA Foundation is to "promote innovation in the area of architectural and interior design," as stated on the Foundation's website for the money. The most important proviso, however, is that the Foundation largely helps "innovation" by running a large furniture business. This is the most important caution. In the long run, lowering tax liability is the goal of the Foundation's organizational structure, which consists of owning a holding company that owns the furniture retailers. The firm's intellectual property and other intangible assets, such as its logo, are held by a different corporation. This adds even another level of complexity to the business's organizational structure.


The Prospects for Renewable Sources of Energy


Since 2009, Ikea has put about €2.5 billion towards developing renewable energy sources. Currently, the business owns 534 wind turbines and 715,000 solar panels throughout 14 nations, in addition to 920,000 solar panels installed on the roofs of shop locations. And according to the business, they are well on their way to meeting their goal of producing as much energy from renewable sources as they need in their operations by 2020.


In June of 2018, the firm declared that by 2030, it intends to manufacture all of its goods using only renewable or recycled resources. They have set a reduction of two-thirds in the overall climate impact caused by all of their goods. As a business, they are establishing a new standard for their rivals, their raw materials suppliers, and their consumers. The business has also revealed that it intends to roll out these residential solar product offerings in 29 distinct areas by 2025.


The majority of IKEA's revenue comes from the sale of franchises. Most of its locations across the globe are operated by the firm itself, while some are franchised. Every shop, even owned by the parent firm, must pay a yearly franchise fee. IKEA also relies on its commitment to sustainability as a primary strategy to win over new consumers.



Dedication to the Concept of Sustainability


A discussion on sustainable business practices was held in 2016, and IKEA's Head of Sustainability, Steve Howard, participated. At one time, he was quoted as saying, "If we take a worldwide perspective, it is likely that makes the maximum amount of goods in the western world. We speak about oil reaching its peak. I would argue that we have reached the pinnacle of red meat, the peak of sugar, the peak of goods, and even the peak of house furnishings." Howard made further comments on western consumption, in which he referred to the current state of things as "peak curtains." Although this may seem in direct opposition to the company's stated objective of growing sales, IKEA is not like the majority of other significant firms.


Howard appeared to be implying that IKEA should go elsewhere for sales or find another line of business to be involved in. In 2018, Ikea entered into a partnership with the "Big Clean Switch" initiative, which aims to provide homes that subscribe to the plan with access to cheaper green electricity. The business claims that transitioning to green power may save a typical home in the United Kingdom around £300 per year in gas and energy costs. IKEA is entitled to a fee for each subscriber who changes providers, and the firm has committed to using this revenue to fund community programs around each store. IKEA is up against the tremendous competition in this space because customers may choose their green energy provider from among a large number of options.


Shopping For Household Furnishings


IKEA has turned shopping for furniture into an enjoyable experience by stocking its shops with vivid hues, an open layout, and even a café. Its chairs and tables have a modern, modular design, and they are reasonably priced; as a result, they are attractive to a wide variety of customers, including college students with lesser incomes and professionals with more established financial situations. Likely, their thriving market for home décor will not disappear, and it is even more likely that it will grow as consumers demand more sustainable and transparent business practices in the products and furniture they purchase for their homes. This is even though they are currently investing more in environmentally responsible initiatives.



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