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1. A fashionista runs the place

Kerri Molinaro wasn't a big fan of Ikea stores. A cavernous warehouse was not her idea of homey. She did like the Swedish retailer's cheap and cheerful home furnishing designs; she even had bought one of its ubiquitous Billy bookcases. But the shopping excursion had been a chore.

Nonetheless, on a sunny April day 18 years ago, Molinaro showed up for a job interview at Ikea Canada. Why, the young fashion retailer wondered, was the Swedish icon courting her so aggressively to head its flagship Toronto store? She, after all, came from the leisurely paced world of high fashion, having managed stores for Holt Renfrew & Co. and Birks. Even the interviewer, Mikael Ohlsson, had his doubts. "I was worried that she was a little too fine for hard work," says Ohlsson, who was then president of Ikea's Canadian arm, and is now CEO of the entire company.

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Both parties' skepticism was dispelled by the time the interview was over. Molinaro was intrigued by the company's informal, no-nonsense ways; Ohlsson detected the sort of hands-on attitude that Ikea needed. In Molinaro, he'd found someone he could later promote to run Ikea's Swedish operations, of all things, before she was named to oversee Canada in 2005.

"It was a very big risk to hire me," says Molinaro, 48, looking un-corporate in cropped jeans over shiny beige boots and a lime- and aqua-striped cardigan. "But we are selling fashion. It requires merchandising, instead of just throwing things on pallets. …The stores have to sing."

And the song they sing is about the harmonious spot where cheap meets chic. There's a science to this: The company is a relentless cost-cutter-except when it makes better strategic sense to spend. It painstakingly hand-picks factories in Poland and China that can produce its Sultan mattresses or Klippan sofas at the lowest possible cost. But it pours money into research on consumer habits and product design. And it hires fashion mavens such as Molinaro to keep its hip edge.

More from this month's Report on Business Magazine

The chain also offers unusual perks like a supervised kids' play area and impossibly cheap specials (Swedish meatballs: $2.99!) in its cafeteria. Ikea customers understand the deal: Those treats are just a way of keeping them in the store longer. They save money at Ikea, but they have to go to work themselves to get the savings. Shoppers invest hours driving to the store, finding a parking spot, wandering the showroom, searching for staff, waiting at the cashier, hauling the flat-packs to the car and then, once home, mastering the art of the Allen key to assemble the stuff-only to discover that a part is missing.

And consumers keep motoring back for more. Even during the recession, privately held Ikea made gains globally, with sales rising 1.4% to $29.4 billion in 2009 at more than 300 stores in 35-plus countries. In Canada, its revenue fell 2% to $1.4 billion at 11 stores-a retreat, true, but one that beat by a long shot the overall home-furnishing sector's decline of 9.2%. And fiscal 2010 is already looking promising. In the first six months, domestic business shot up by about 6%, Molinaro says, double her 3% forecast-and four times the sector's growth.

But she's not the only savvy retailer in the sector. American home specialists Crate & Barrel, Bed Bath & Beyond and Lowe's are among new players crowding the Canadian market. Molinaro's mission is clear: Broaden her customer base by branching out into more upscale areas of kitchens, storage units, and do-it-for-me delivery and product-assembly services. She's wooing professional designers as her ambassadors by setting up shop at trade shows.

As well, she's tightening the purse strings-the global company has set a goal of slashing costs by 5% over the next five years, she reveals. That's more aggressive than past targets, with savings to be poured into price cuts. In Canada, Molinaro shaved $23 million off prices in the six months to the end of February-on the way to exceeding the $30 million of price cuts in the previous 12 months.

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In the next three years, she intends to expand store space by 30%, including adding an outlet in Winnipeg. Her next big focus will be bathrooms: Internal research finds that Ikea customers are shifting their attention to gentrifying the loo.

If she aspires to follow in Ohlsson's footsteps and return to Sweden as CEO, Molinaro is not letting on. "I feel I have lots to still contribute to the Canadian organization and plan to commit my time and energy here."

2. They know what we want before we do

For Ikea, the living rooms, bedrooms and kitchens of the world present a vast laboratory of consumer behaviour that, if properly parsed, points to future profit centres.

Take the power shift in the average living room, for instance. Historically, the sofa was the anchor piece. But the television, which had typically been hidden in a corner, has been moving to centre stage over the years, Ikea's research found.

Ikea, like other furniture makers, was accustomed to designing deep shelves to accommodate television sets. But on the horizon in the early 2000s was a new style of extremely pricey flat-screen TV. Ikea's product developers made a prescient bet that flat-screen prices would steadily fall and consumers would embrace the sets. That planted the seed for what became the shallow-shelved Bestå ("long-lasting" in Swedish) media storage unit.

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Good bet. In Canada, the price of 42-inch flat-screen TVs tumbled 85% between 2003 and 2009 to an average of $885, according to market researcher NPD. Meanwhile, the number of flat-panel TVs sold skyrocketed by more than 11,000% to 2.9 million in 2009.

Flat-screen TVs: How much to spend? The best of personal finance reading from Rob Carrick

Bestå, which presents an array of options ranging in cost from $122 to more than $1,700, allows shoppers to mix and match pieces to suit their space and media needs. "People are dying to get organized in their homes," Molinaro notes.

Ikea contracted out the production of Bestå, which uses a favourite Ikea formula of fibreboard with a lightweight filling, to factories in Poland and Portugal, never relying on just one plant. "We try never to put all our eggs in one basket," Molinaro says. "If we had a problem with a supplier, it would just cripple us." The search for cheap has, unusually, made its way to Heartland USA. Ikea makes about 40% of Bestå products for the North American market at a new factory in Danville, Virginia, a location that chops the expense of shipping the bulky items to stores. By 2012, Ikea plans to raise Danville's share to 80%.

Bestå units started arriving in European stores in 2006, and in Canadian locations in 2008. But these first units featured a bench to seat the TV that was too narrow, Molinaro says. "We were way ahead of our time," she says. "You can't be too far ahead."

In Canada, Molinaro waited a year, while the wrinkles were ironed out, before starting to actively market Bestå. TV commercials use the voice of the Niles Crane character (actor David Hyde Pierce) from Frasier to suggest, in typical tongue-in-cheek Ikea style, that the storage unit will prevent Dad from tripping over a DVD case; thus spilling scalding tea on Daughter's favourite stuffed toy; and prompting his daughter to scream, "Daddy, I hate you!" and his wife to declare, "You've ruined my life."

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The stores currently are putting a spotlight on Bestå units, prominently placing them among the first five room settings that customers encounter. A little farther into the showroom, a separate display of Bestå products is being set up with one or two sales staff to help shoppers customize their units. The retailer also peddles its "TV solutions" in pamphlets and its catalogue. The efforts seem to be yielding returns: Bestå sales here have grown in the double digits, Molinaro says. What's more, "We're just scratching the surface."

3. They keep it light and breezy

Ikea head office directs that products in all markets should be pitched with unpretentious copy, written with "a twinkle in the eye." "There are more important things in the world than Ikea home furnishings," a marketing manual says.

In Canada, Molinaro insists that Ikea's ads set the products in a "gorgeous" interior of a house. Thus she budgets for separate photography for the Canadian market, rather than relying solely on a central corporate pool of product shots. "It costs a little extra but it's worth it."

Every ad has to have some tension-which is resolved, quelle surprise, by an Ikea product. Her own favourite is a TV spot in which a couple is quarrelling in their glossy Ikea kitchen, slamming drawers to express their anger. But the only noise they can generate is a whispered swoosh.

The company is willing to push the envelope beyond such bits of drollery. Last summer, it sent spray paint-armed teams to tag streets and buildings with the name of its promotional contest site, The bad-boy act was in jest (the paint was chalk-based, washing away with a heavy rain), but the stunt still generated a wave of media coverage. After the proprietor of a skate shop complained about being tagged, the company removed the graffiti everywhere it had appeared. Still, a Toronto politician who viewed the concept as vandalism sent a heated missive to Ikea. Molinaro apologized. She concedes, "Sometimes there are going to be mistakes made when you're trying to be an innovative brand." But there's a twinkle in her eye when she says it.

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Part of the genius of Ikea's marketing style is its ability to keep the company's halo of Nordic cool firmly in place. Although it has been criticized for the usual sins of globalization, Ikea dulls the attack by refraining from the hard sell or taking itself too seriously. So there's no Walmart-type stigma to prevent conscientious consumers from making the journey to Ikea. "At the end of the day, we still need furniture," says Daniel Lucht, a senior consultant at market researcher Verdict Research in London.

Another sensitivity the company has to watch is geographical. It can't just slap images from Ikea in Europe onto Canadian ads, says Shelley Brown, president of Zig, Ikea's ad agency. For example, photos of Swedish bookshelves would fail to resonate with North American consumers, she says. The reason? Europe's plain white paperbacks wouldn't look right.

In the same vein, white or light-hued furniture tends to be popular in Europe because space is at a premium; light colours make rooms look larger. Besides which, consumers in Scandinavia are inspired by native pale woods such as birch and beech. In North America, where homes are more spacious, a black-brown finish is in high demand. So the company has learned to keep things on the light side in one market, and on the dark in the other.

4. They trap us in that damn maze

Shoppers spend an average of two hours trekking through an Ikea, which is roughly the size of six football fields; in contrast, customers take less than half that time at the supermarket.

Molinaro is determined to keep shoppers in the store even longer-and get them to buy more. On a tour of one of her Toronto-area locations, she shows how it's done. To encourage impulse purchases, she places more bins filled with products near the main aisles. A new display of decorative cushions, mounted in rows along an entire wall, serves a similar purpose. First the mounted cushions grab customers' attention; then they appear right at hand in a bin. It's the first time the products have been shown with their covers on, rather than tucked away separately on shelves.

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Currently, more than half of the people who visit Ikea make a purchase, Molinaro says. In her old milieu of womenswear boutiques, only about 8% of shoppers become buyers, according to Marshal Cohen at market researcher NPD Group.

As shoppers enter an Ikea on the main floor, they move through five different room settings. Ikea features its key products in these "rooms"; today Bestå shelving is displayed in at least two of them. To make room for a separate Bestå section a little farther into the store, the retailer is scaling back its space for office furniture, which doesn't attract as many customers.

Molinaro stops to peer into a storage cupboard in one of the bedroom settings. She's pleased to see that even the clothes here have been updated for the season, including a trendy turquoise tank top with sequins and lightweight summer skirts; it's important to entice customers with rooms that look authentic, she says. And she gives a nod to a blue throw blanket that co-ordinates with the duvet and cushions on the bed. This is the sort of thing that gives customers ideas for multiple purchases.

Getting the room layouts just right is crucial for attracting the kind of customer Molinaro needs-Nicole Harvie, for instance. The 35-year-old Vancouver makeup artist thought she'd said goodbye to Ikea at the end of her student years. But the high-end kitchens she covets today are still beyond her means, and Kelly Deck, her friend and decorator, nudged her to consider Ikea.

The full kitchen displays at her local store helped her visualize the $5,000 white high-gloss lacquered Abstrakt kitchen cabinets she bought about 18 months ago for her newly purchased home in the tony Kerrisdale neighbourhood.

She ended up spending about one-quarter the amount she would have invested in her dream kitchen if she had shopped upscale-but has attained, in her view, the same look. For about $250, two designers recommended by the retailer went to her house to draw up a plan; for another $2,000, a contractor suggested by Ikea took care of installation. She splurged in other ways, buying pricier stainless steel appliances and a glass-tile backsplash at other stores. Then she went back to Ikea a few months later for a bathroom vanity (about $500) and a built-in bedroom wardrobe system (roughly $750). Guests at her house now ask in awe where her kitchen cabinets are from. "I say from Ikea and they say, 'No, they can't be from Ikea.'"

Deck headed to Ikea herself for her office furnishings, recently spending $6,500 on desks, lighting and shelves for eight workstations. Then, to impress clients, she went high-style with other suppliers for her boardroom. By the time she's done, she will have forked out about twice her Ikea bill on items such as classic mid-century boardroom chairs and a designer light fixture. "Buying Ikea allows us to have a nice balance of 'high-low,'" she says.

Store appearance is crucial at Ikea, not just for its upscale drive but also at a more foundational level: It has a leaner complement of sales staff than many other retailers, Molinaro says. About 30% of the 400 employees in each store are in sales; the rest work in areas such as display and warehousing. A clothing store, meanwhile, employs almost twice that proportion of sales staff, according to Statistics Canada. Giant chains such as the Gap instruct their staff to greet shoppers and ask if they need help. Ikea lets the displays do the work. "Often people will never come into contact with staff until the cashier," Molinaro says. "These products are really selling themselves."

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