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:
"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.
The Russian logs were milled into planks by low-wage Chinese workers and shipped to border towns in low-wage China. More wood, much of it illegally harvested, poured into China every day from timber depots in Indonesia, Malaysia, the Mekong Delta, central Africa and the Amazon.
Most of this wood goes to make cheap tables, chairs, bookcases and other wood products sold in by discounters, especially in the United States.
Wood is in theory a renewable resource, but environmentalists warn that the demand for cheap Chinese-made furniture - half of all timber in the world is traded there - has stoked a "cut and consume" cycle that is destroying the world's forests at a rate unprecedented in human history. This harvest is not sustainable, and what's being taken - and what's being lost in the largest sense - is not renewable.
Illegal logging operations generally locate in remote areas that are difficult to oversee, including wildlife habitat and conservation land. Over the long haul, deforestation contributes mightily to climate change, accounting for over 18 per cent of global carbon-dioxide emissions - more than the entire global transport system or the whole of the industrial manufacturing sectors.
Despite knowing this, few players on the global scene, be they factory owners, wholesalers, retailers or customers, are motivated to question the provenance of their wood products. Questions would only raise the price.
Dahlvig assured me that IKEA was asking questions and demanding answers. The company's timber, he said, is harvested legally, a claim often made by other discount retailers as well. But unlike most other companies, IKEA has gone beyond lip service to take the extraordinary step of hiring a team of forestry experts to monitor its suppliers.
Forestry co-ordinator Sofie Beckham's team consists of 11 forestry monitors worldwide - five in all of vast China and Russia combined - certainly not enough eyes and ears to closely monitor such a massive enterprise. Dahlvig said he regretted this, but could do nothing about it. Hiring more inspectors would be costly, thereby adding to the price of his company's products. This, he said, was unacceptable.
Many of us think of IKEA as the world's largest furniture maker, but that's wrong. It's the world's largest furniture retailer. IKEA's vaunted "made in Sweden" quality is hammered out by tens of thousands of workers mostly in the employ of other companies - 1,300 vendors in 52 countries. China is the company's largest supplier, but that's just for now. If Chinese workers demand better wages, protections and benefits, as they have in the past, IKEA is likely to move on to India or Vietnam, where the company already has a strong foothold. Or it might expand in Africa, or even the United States, where to great fanfare it recently installed a factory in Danville, Va.
BILLIONAIRE WHO HAGGLES
Kamprad may not be much of a philosopher, but he is a folkloric figure - an intrepid farm lad who sold matches at age 5 and peddled goods from a milk truck at age 12. He calls staff members by their first names and gives them mountain bikes for Christmas. He is also a billionaire who flies coach and barters for day-old vegetables at farm stands.
That the seventh-richest man on Earth haggles with a dirt farmer over the price of lettuce is a cruel irony that should give us pause, and for some it does. But IKEA soothes its few and fitful critics by acknowledging flaws and forming alliances with not-for-profits. In response to complaints from environmental groups over its wood policy, the company partnered with the World Wildlife Fund and Greenpeace. When human-rights activists accused IKEA of child-labour violations in India, Pakistan, Vietnam and the Philippines, it partnered with Save the Children and Unicef.
What these partnerships have produced in terms of societal betterment is unclear since IKEA offers no guarantees and few specifics. Yet in the minds of consumers these alliances apparently offset any nagging negatives. About 1.1 million customers visit an IKEA store every single day.
NOT THE WHOLE STORY
Maria Vinka designs fabrics for IKEA, and also cutlery, clocks, china and furniture. Her proudest creation is a stack-able "rocking chair" composed primarily of tightly woven banana leaf fibres.
Vinka's chair, shaped like a cross between a spoon and a ruffed grouse, is named after the tiny Swedish fishing village of Gullholmen. It is made in Vietnam in a vast open factory. Women weave the banana fibres, and men weld the frames. Each chair takes half a day to build, and in the United States costs $59.99. The design is intriguing, but the chair is not for everyone: Access requires lowering oneself nearly to ground level.
Vinka attributes the success of her Gullholmen chair to its "good story." "It is biodegrad- able, made out of stuff that was once thrown away," she told me. Apparently, furniture made of waste products is pure seduction for IKEA's target demographic.
But the backstory IKEA tells is not the whole story.
While IKEA suppliers are instructed to follow the IKEA way, Vietnamese enforcement of environmental and human-rights regulations is at best haphazard. Vietnamese factories pay workers as little as $50 a month for a 48-hour, six-day work week. As one American commentator said about doing business in Vietnam, "the effect of bringing into the global labour pool hundreds of millions of low-wage workers - people whose wages are held in check by both capital mobility and communist repression - is to hold down wages in democratic nations with advanced economies…"
The banana-leaf story may keep IKEA customers coming, but cheap labour and wood are what keeps IKEA in Vietnam and other low-wage nations.
IKEA succeeds the way all discounters do: by passing much of its costs onto us. The chain has a policy of having relatively few stores - 270 spread across 35 countries and territories. Most are enormous - Atlanta's IKEA is nearly 366,000 square feet, the area of about seven football fields.
Like discount outlet malls, IKEA stores are positioned well outside city centres, in areas where huge spaces can be had at relatively low cost and at reduced tax costs. This business model allows the company substantial economies of scale while at the same time compelling customers to drive very long distances - an average 50-mile round trip in the United States. (In Europe, some customers travel even farther: the northernmost IKEA outpost in Haparanda, Finland, attracts customers within a 500-kilometre radius.)
As well, customers must drive back to the store to return malfunctioning furniture or retrieve missing parts (a surprisingly frequent occurrence). Few IKEA outlets in the United States are accessible by public transportation, and since the company does not support a home-delivery service there, U.S. customers willing and able to take public transport rarely do so.
As a result, the traffic jams surrounding IKEA stores are so gnarly that customers are discouraged from shopping on weekends when lines of idling cars can back up for miles.
GREEN JUST A COLOUR
IKEA touts its "green side" by lighting its stores with low-wattage bulbs, and charging extra for plastic bags while its clientele burns through gallon after gallon of fuel to buy disposable tables and lamps.
Asked for his assessment of company practices, Wig Zamore, an urban-development expert trained at the Massachusetts Institute of Technology, put it this way: "IKEA is the least sustainable retailer on the planet."
In the final analysis, IKEA offers predictable uniformity in the guise of novelty; design without craftsmanship, the customer bending to accommodate the commodity.
We need not save for months or even weeks to buy a Bankas coffee table for $89.99. And when its "clear lacquered ash veneer" muddies with coffee spills, we don't despair that we cannot sand it smooth again.
It's simply time to buy a new one.
Ellen Ruppel Shell is co-director of the Knight Center for Science and Medical Journalism at Boston University. This article is excerpted from her new book, Cheap: The High Cost of Discount Culture (Penguin, 2009) .Report Typo/Error
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