Business: Big Interview / Berlin
Amid economic chaos and geopolitical shifts, Jesper Brodin is transforming Ingka Group, the firm behind Ikea, with serenity.
There’s a moment during monocle’s conversation with Jesper Brodin in Berlin’s Tempelhof Ikea when a man walks into the room and shoos him off the low, ash-coloured sofa where we’re sitting. This is not his sofa, though it soon could be and he wants to measure it. Having retracted his tape measure – and none the wiser that he’s just wafted away the man who runs Ikea – the man wanders back onto the shop’s main walkway. Brodin handles the interruption with ambassadorial grace (a journalist’s presence notwithstanding), as well he might. Throughout our conversation he uses the term “touchpoints”, meaning the physical points at which consumers experience Ikea. It’s only natural for the ceo of Ingka Group, which runs nine in 10 of the world’s Ikeas (including this one), to want his customers to have a pleasurable experience.
For many consumers around the world, Ikea is also one of Sweden’s most recognisable touchpoints, so any stance that the retail giant takes carries greater resonance than the average company. During times of geopolitical and economic calm, that might be a mere quirk of corporate branding but in times of flux, the clout that global companies wield in the public imagination can turn them into soft-power embassies for their home countries – think McDonald’s in the Soviet Union of the 1980s.
With its doorknobs named after Swedish towns and the meatballs it sells from Nagoya to Santiago, “Ikea’s Swedishness is something quite fun – it stands out,” says Brodin. “But it’s also deeply value-based.” The company’s alignment with its mother country is intentional, he adds. Its conspicuously Swedish blue and yellow logo was originally red and white, “and it was a conscious decision to build the brand with an understanding of the culture of Sweden: the aspects of togetherness, simplicity and cost-consciousness”. That might sound like corporate spin but on that latter characteristic, Ikea has walked the walk in recent months.
Supply-chain difficulties and inflation have hammered retailers around the world. With many companies putting up their prices to protect their bottom lines, Brodin, along with the Ingka Group board and Ikea, decided that Ikea should absorb some of the higher prices of raw materials rather than passing them on to consumers. “We have a resilient economic set-up, Ingka Group has no loans and some money in the bank,” he says. “So we decided to take a lot of the hits on the cost variation on our own profit and loss.” To an extent, consumers rewarded Ikea’s largesse, with the retailer posting record sales in its most recent full-year results in October 2022. That, though, was followed by an announcement the next month that in the year to the end of August, Ikea’s profits halved.
“We don’t have to see these as the most profitable years,” says Brodin, conceding that Ikea’s private status makes such decisions easier when away from the glare of shareholder scrutiny. Now, he says, the economic storm that began with the spiralling cost of materials and shipping is about to get choppier. “Maybe you see things earlier when you have an integrated value chain but soon we’re going to have shortages and overstocks, inflation and deflation, so in the coming period you will need to be really agile.”
Ikea, along with many other global corporations, is already cooling its heels from one display of agility in 2022. When Russia invaded Ukraine – a move that accelerated the inflation that’s rocked European business – the sanctions that Western governments placed on companies doing business with Moscow left Ikea with no choice. “It took us many many years to get profitable in Russia,” says Brodin.” But then, of course, none of us had [the invasion] in our scenario list. Supply chains were breaking down so quickly that even if we would have liked to continue there, we wouldn’t have been able to.” With Russia representing about 4 per cent of Ikea’s total sales and its business there having employed 15,000 staff, “it’s both emotionally and financially a great loss,” he adds.
What the ongoing conflict means for Ikea’s Russian operations in the future remains unclear but in June, Inter Ikea Group cut staff there and began looking for new ownership for its factories. The implications of the war in Ukraine for Western businesses in other countries that run the risk of being swiftly deemed pariahs is also in question. What, for example, if China were to invade Taiwan? The world’s second-largest economy is part of Ingka’s growth strategy. “The plan is to be agile and responsible,” says Brodin carefully. “The question is more for us: how do we not panic?” And what of the broader shift towards deglobalisation? “We’ve been benefitting for two or three decades from more open borders, free trade and collaboration across borders. We’re believers in the benefits of that for our business but also for how it spreads ideas and makes people connect.”
Fiscally prudent, collaborative and an undramatic attitude to crises – so far, so Swedish. Ikea also echoes the Swedish government on the issue of the environment. In 2021 the World Economic Forum named Sweden at the top of its Energy Transition Index. The country has one of the most aggressive net-zero target dates – 2045 – and is targeting a 70 per cent reduction in transport emissions by 2030 by deploying electric cars and aeroplanes (see Issue 154). Similarly, Ingka Group has already spent €3bn on forestry projects and wind and solar installations to power its shops. It has a further €3.5bn set aside for green-energy projects by the end of the decade. “We’re conservative on 80 per cent of our assets and then on the other 20 per cent, we said, ‘Where can we go that serves our business model and what we believe in?’” says Brodin. The decision, which has taken Ingka Group’s in-house operations carbon-neutral, “has turned out to be an incredibly good business even before the recent energy crisis.” A push into renewable energy and selling energy to consumers is one part of Ikea’s plan to boost its revenue. Another is its foray into the circular economy as it attempts to tackle waste. “We have too many people sharing the same resources,” says Brodin. “There is a new economy being built; the other one will only get more expensive.” Being privately owned puts less pressure on Brodin for every trial to succeed. Furniture rental, for instance, works for Ikea’s corporate customers and students using furniture for fixed periods of time but, he adds, “it’s not as strong as we had hoped it would be”. “We think that it’s one of the things that people will go towards so we’ll keep experimenting,” he says.
As for how Ikea plans to sell or rent those more environmentally friendly products to its customers, the pandemic accelerated Brodin’s plans to boost the company’s online sales. Since shops reopened, Ikea’s city-centre, delivery-only shops have helped to provide a bricks-and-mortar experience to those unable to get out to the company’s warehouses and amplified its online sales. Before the pandemic, online comprised a high single-digit percentage of Ikea’s sales but restrictions and the attendant shift to online retail has since tripled that number, according to Brodin. “People have told me, ‘I’m a single mother of two kids, I come home from work, cook, help with homework and put them to bed and I’m not getting on a tram or a bus to go to Ikea.’ That kind of situation in big cities is something we probably have underestimated a little bit.”
Not all of Ikea’s experiments have proven popular with customers, who have come to expect a certain experience that comes with a side of flatbed trolleys and bickering couples. Just after our couch’s interested customer slips back into the pathway that snakes through the Tempelhof branch, Brodin tells monocle about the firm’s experiment with multiple entrances and free-flowing walkways in its shops. “Our customers told us, ‘No, we get lost, we don’t recognise ourselves in Ikea without them.’ So now we have to spend some money to correct that.”