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Just don't ask why it's so cheap Add to ...

With its focus on sharp design and Scandinavian élan, its hip, irreverent television commercials, its conspicuously progressive outlook, IKEA appears to be the anti-Wal-Mart; a classy, high-minded company where value and good values co-exist. Image may not be everything, but sometimes it's enough.

Cognitive scientist Kathryn Fitzgerald of FKF Applied Research Neuroscience in Los Angeles has made a study of retail strategies and how customers respond to them. Wal-Mart can't escape its downscale connotations, she says, but IKEA has artfully decoupled low price from its unsavoury side:

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"IKEA is an example of using youth, friendliness, and other brand personality traits along with design innovation to make the notion of buying low-priced furnishings socially acceptable. Retailers of this sort use style and other cues to make sure their low prices don't come along with heavy low-status baggage."

Price is a vital consideration for any business, the bottom line being the bottom line after all. But for IKEA, price is no mere consideration or signal, it is the starting point.

Wal-Mart, Target, Lowes and other big-box discounters scour the globe for low-price suppliers from which to buy their low-priced goods. IKEA takes matters one step further: It designs to price, commissioning its suppliers to build not a mug per se, but a custom-designed 50-cent mug; not a kitchen table and two chairs, but a custom-designed kitchen table and two chairs for less than 100 euros.

Every year, IKEA challenges its suppliers to lower their prices, and every year it challenges its designers to dream up still cheaper objects to sell, whether new ones or updated versions of classics.

COST 'THE MAIN CONCERN'

Focused and deliberate, IKEA president and CEO Anders Dahlvig is a plain-spoken MBA with what appears to be a deep inner calm. Dahlvig began by explaining that IKEA is legally not Swedish at all, but a holding of Ingka Holding, a Dutch company which itself is owned by the tax-exempt Stichting Ingka Foundation. In 1982, founder Ingvar Kamprad donated all his shares to Stichting Ingka, thereby creating the world's flushest charitable foundation. In 2007, Stichting Ingka Foundation had a net worth of at least $36-billion, devoted to "innovation in the field of architectural and interior design."

Architectural and interior design is not the usual target for philanthropy, and Dutch foundations are subject to very little oversight or regulation, so it's hard to know where all the money goes. One observer thought he knew, telling The Economist: "Clearly, the Kamprad family pays the same meticulous attention to tax avoidance as IKEA does to low prices in its stores." That Kamprad is a tax refugee living in Switzerland gives some level of credence to this speculation.

IKEA's core mission, Dahlvig said, is fundamentally philanthropic: "to create a better everyday life for people by being cost-conscious and working within small means." To that end, IKEA positions itself as the great equalizer, a force for spreading Scandinavian levels of comfort around the globe one cheap table at a time.

Dahlvig is well aware of the trade-offs involved, but IKEA, he says, is no Wal-Mart. "Cost is a big concern, the main concern," he said. "But there is no evidence that the cost goes up when you make a cleaner, more orderly factory, or buy wood not from virgin forests, but from well-managed forests only."

QUEST FOR WOOD

Dahlvig's abrupt segue from price to trees was not random. IKEA is the third-largest consumer of wood in the world, just a step or two behind discounters Home Depot and Lowes, and just a step or two ahead of Wal-Mart. The timber used in the wood products sold by these chains comes mostly from Eastern Europe and the Russian Far East, where wages are low, large wooded regions remote and, according to the World Bank, half of all logging is illegal.

Forests in this region are on the decline, especially forests of high-demand varieties like oak, ash, birch and Korean pine. In pursuit of these and other valuable species, illegal loggers cut on restricted river banks, fish spawning sites and other conservation areas, and bribe officials in exchange for documentation that the timber they poach was acquired legally.

In 2007, The Washington Post published a penetrating and exhaustive investigation of illicit forestry practices focused on Vostok, Russia, where villagers earned roughly $100 a month felling trees and hauling logs.

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