IKEA: How the World’s Largest Furniture Retailer Was Built

From flat-pack innovation to global dominance — the business model behind a EUR 44.6 billion retail empire

IKEA Origins and the Flat-Pack Revolution

Ingvar Kamprad founded IKEA in 1943 in Sweden. The name of the company is made up of the founder’s initials – IKEA, Elmtaryd, a farm of Kamprad’s family, and Agunnaryd, where Kamprad lived. 

Initially, IKEA was selling common household items via catalogue, while furniture became the hallmark of the business only later. It was discovered by IKEA that in the 1950s, regular furniture was overpriced due to its transport and storage. IKEA invented flat pack design. Furniture was being disassembled into pieces and packed in small packages (IKEA official history). As a result, smaller packages mean lower costs, higher efficiency, and more furniture per truck.

Customers assemble furniture at their places, and they save some labor costs, but most importantly, they pay very little for this service. Flat pack design became the main pillar of IKEA’s development around the globe.

Business Model of IKEA

IKEA found the niche of being successful that few other stores managed to occupy – affordable price and modern designs in one. Thus, young families, students, or middle-class households can afford to equip and decorate their apartments without spending a lot of money on that. Not only does it mean finding a target market, but also expanding it, as well.

Firstly, instead of inventing a thousand new things, IKEA standardized many products, so they could be manufactured in high numbers, which helped the company to decrease per-unit cost and negotiate with suppliers much more easily. Mass production, affordable design, and control over the processes became one of the most valuable competitive advantages of IKEA.

Secondly, flat packing made it possible to solve many furniture retail problems that were typical for traditional companies. Small packages increased the speed of logistics and deliveries; warehouses contained larger stocks of furniture; there were more furniture shipped per trip; customers delivered furniture themselves, which was done according to a self-service philosophy, which allowed saving a lot of costs on operations.

Thirdly, all above savings created a feedback mechanism: cheaper furniture attracted more customers that brought economies of scale and allowed reducing costs and decreasing prices further.

Supply Chain: Global Purchases, Logistics, and Resiliency

One notable strength of IKEA is its global supply chain where it purchases products from several different countries but maintains high-quality standards regarding product design, materials used, packaging, and manufacturing.

Unlike most retailers, IKEA collaborates with manufacturers while designing products and minimizing their consumption of materials and simplifying production processes as well as packaging options.

Cost-saving and effectiveness are priorities in IKEA’s supply chain process, where it has strategically expanded its supplier base to increase operational resilience towards global disruptions. IKEA’s distribution centers and computerized warehouses along with global purchases, have enabled it to minimize operating expenses and outdo many other traditional furniture companies by cutting costs.

Shopping Experience at IKEA and Impact on Spending

IKEA designed its stores to ensure higher customer engagement rates and increased spending by encouraging shoppers to spend more time in the store.

The layout of the store makes customers see various products arranged in a complete home setting first and then go to the warehouse area of the store. Such a layout strategy promotes additional purchases because people will also look for fabrics, kitchenware, lights, and storage options for their house once there.

Food courts located in-store make customers spend more time in the shop and thereby increase their spending. Moreover, by making furniture shopping entertaining for customers, IKEA makes sure to increase the average spending rate. 

Besides, the warehouse structure of the store reduces staffing costs compared to many traditional furniture shops using a lot of sales representatives on each floor.

IKEA Financial Performance: FY25 Key Figures

The scale of IKEA’s business reflects how successful its model has become. The table below summarises key FY25 financial results against the prior year.

Source: Inter IKEA Group Financial Summary FY25; Yahoo Finance. 

Note: Global retail sales fell approximately 1% from FY24, reflecting weaker demand in some mature markets and store closures in China.

Inflationary trends, increased sourcing costs, trade tensions, and lower demand in specific areas were among the reasons behind such results. IKEA was profitable during its expansion but still maintained affordability-oriented pricing. The company focused more on building long-lasting relationships with customers rather than improving its margins by increasing prices.

New CEO, U.S. Expansion, and India Growth (2025-2026)

Inter IKEA Group appointed Jakub Jankowski as its new CEO in January 2026, taking over from Jon Abrahamsson Ring. 

Jankowski had been working as the CEO of IKEA Industry, which was responsible for production operations at the company. At the time, trade tensions, increased inflation, and other issues affected supply chains and businesses around the world. 

In his first statements after becoming the new CEO, Jankowski highlighted affordability and operational resilience as strategic priorities for the company, suggesting that IKEA was not planning on moving towards luxury branding (The Globe and Mail).

IKEA’s plans in the US included opening ten new stores in seven states by 2026, with two locations planned for Texas. 

Despite the general trend of shrinking physical retail spaces, IKEA continues to develop in this direction. Physical shops are very important for its operations, and besides large warehouse-style shops, the company will also be expanding into more compact options in city centers.

Another emerging market where IKEA has made strong progress is India. IKEA saw sales increase by about 6% in India in the fiscal year ending August 2025, while furniture was the best-selling category (CNBC 2026). Rapid urbanization and rising demand for low-cost furniture from the expanding middle-class population make India one of the most promising markets for the company at this stage.

Product Innovation, E-Commerce, and Sustainability

Ikea consistently updates its product range. As part of its IKEA PS 2026 concept, the company launched 44 new products based on foldable, flexible, and mobile furniture designs (IKEA Global Newsroom). Periodic updating helps to keep consumers interested and motivated to return to visit the retailer online and offline.

For most of its history, IKEA focused on its extensive destination stores. E-commerce has changed the shopping habits of consumers. The company has expanded its efforts in digital sales channels, mobile applications, click-and-collect options, urban planning studios, and home delivery partnerships. Instead of ignoring brick-and-mortar stores, IKEA seeks to combine them into a seamless customer experience.

Sustainability has shifted from an afterthought to being an explicit goal. The company has made significant investments in renewable energy sources, furniture buybacks, and recycling schemes. These sustainability measures do not represent a response only to environmental concerns but also meet rising expectations among consumers and prepare for future regulations in its core markets.

Why IKEA’s Business Model Is Hard to Imitate

The business model of IKEA is effective because it revolves around building an entire system, and not just an advantage in product lines. Other companies can easily copy such elements as flat-pack furniture, warehouse-style retail format, and Scandinavian design. However, they rarely succeed in replicating the whole system in their own way.

Each element of this system contributes to the affordability of the final product – from product design and package size through warehouse and logistics operations to store construction and customer involvement and cooperation with suppliers. This synergy ensures a sustainable competitive advantage. The real competitive barrier of IKEA comes from uniformity in operation achieved over many years at hundreds of stores in various markets.

Frequently Asked Questions

Q1. What makes IKEA products cheap?

The company cuts down costs in logistics due to its flat-pack packaging, self-service retail concept, worldwide procurement of materials, and mass manufacturing of items. Savings achieved through this are passed to buyers, not kept as profit margins.

Q2. What is the principle behind flat-packs used by IKEA?

Items are designed in such a way that they can be dismantled and placed in minimal space containers for transportation and storage. This allows lowering expenses on transportation and logistics and making shipment on behalf of the clients possible.

Q3. How did IKEA establish itself worldwide?

A careful and selective market entry policy was used by IKEA, which implied market-by-market development with careful product adaptation, including changes in size, food service options, store format. Its business was built around the franchise model.

Q4. What is the current CEO of IKEA?

Jakub Jankowski took over the position of CEO at Inter IKEA Group since 1 January 2026. He succeeded Jon Abrahamsson Ring who held this job until then. The former one headed the IKEA Industry division.

Q5. Will IKEA keep on growing in 2026?

Yes, the company continues its growth in the US and Indian markets and expands into smaller urban formats of stores as well as improving its e-commerce platform. In FY25, the company’s retail sales were reported to be EUR 44.6 billion compared to EUR 45.1 billion in FY24.

Q6. How does IKEA deal with tariff pressure?

IKEA diversifies its suppliers and uses production resources from multiple countries in order to minimize dependence on any country. CEO Jakub Jankowski makes efficiency his priority amid the current uncertainties on the trade arena.