IKEA Porter’s Five Forces Analysis

Porter’s Five Forces model is “a generic framework that deconstructs industry structure into five underlying competitive forces or variables”[1]. IKEA Porter’s Five Forces are represented in figure below:

IKEA Porter’s Five Forces Analysis

IKEA Porter’s Five Forces

 

Threat of new entrants in IKEA Porter’s Five Forces Analysis

Threat of new entrants to furniture and home appliances manufacturing industry in general is significant. There are no or minimum legal or regulatory barriers to enter the industry and knowledge barriers are not substantial as well. However, the threat of new entrants at the global scale to rival IKEA can be assessed as not significant due to a number of entry barriers.

Firstly, the new market entrants would not be able to benefit from the economies of scale to the same extent as IKEA, at least during the initial stages of operations. Secondly, it will be difficult for new entrants into the global furniture and home appliances industry to gain access to distribution channels similar to IKEA. This is because it took the Swedish furniture chain several decades to establish 422 stores in 50 markets around the world.[2] Last, but not least, the time of entry can be specified as another entry barrier for new businesses taking into account the fact that the global market of furniture and home appliances is already highly saturated one.

 

Rivalry among existing firms in IKEA Porter’s Five Forces Analysis

Rivalry among existing firms is intense. IKEA faces both, direct, as well as, indirect competition. The majority of large supermarkets such as Wall Mart, Target, Tesco and Sainsbury’s sell some types of furniture. In addition, there are direct competitors for IKEA that includes but not limited to Argos, Ashley Furniture and Rooms to Go. Moreover, there is a great number of local small-sized furniture manufacturers that pose serious competition to IKEA along with giant online retailers such as Amazon, EBay and Alibaba.

The global furniture industry is forecasted grow at the rate of 5.2% until 2023.[3] Such a growth level can be considered as insubstantial compared to other industries such as IT, entertainment and tourism. Accordingly, slow growth in the industry is expected to further intensify the level of competition of existing market players, each trying to increase their sales.

 

Bargaining power of buyers in IKEA Porter’s Five Forces Analysis

Bargaining power of buyers in furniture and home appliances manufacturing industry is huge. IKEA customers are generally price sensitive and this situation increases their bargaining power. Furniture buyers possess information about the list of furniture sellers and advantages and disadvantages associated with each brand, with positive implications on their bargaining power. The competition is intense and as such, there is a long list of furniture retailers people can buy from.

Moreover, the absence of switching costs for buyers fuels their bargaining power to a significant extent. In other words, there are no additional costs for buyers to start buying from the competition and this contributes to the amount of their bargaining power.

IKEA Group Report contains a full analysis of IKEA Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of IKEA marketing strategy, ecosystem and addresses issues of corporate social responsibility.

IKEA-Group-Report

 

[1]Nemati, H.R. & Barko, C.D. (2004) Organisational Data Mining: Leveraging Enterprise Data Resources for Optimal Performance, IGI, p.29

[2] IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-and-figures/index.html

[3] Global Furniture Market – Growth, Trends, and Forecast (2018 – 2023). Available at: https://www.researchandmarkets.com/reports/4622419/global-furniture-market-growth-trends-and