When we think of the largest retailers in the world, the first companies that come to
mind are Walmart and Amazon.
If you thought a bit harder, you’d probably name Target, Costco, Sams Club, and Home Depot.
But what about IKEA?
We all know about IKEA and have probably shopped there in the past, but for most people, IKEA
is not the first retailer that comes to mind.
And this isn’t a coincidence either, for how large IKEA is, they keep an extremely
low profile.
You don’t see many articles talking about how IKEA is a monopoly or that its founder
is actually Lex Luthor.
We also don’t see analysts giving outlooks for IKEA’s revenue or putting out price
predictions for IKEA stock because the company is privately owned.
IKEA is one of those things that we all know about but we never talk about.
And that’s a shame given how impressive and substantial their business is.
So, here’s the story of Ingvar Kamprad and how he became the $58.7 billion shadow retailer.
Taking a look back, Ingvar was born quite a while ago on March 30, 1926, in Pjätteryd
Sweden.
He grew up on a small farm called Elmtaryd located in the village of Agunnaryd.
Ingvar was born right before the great depression and his parents weren’t particularly wealthy,
so the depression was a pretty rough experience for the family.
Everyone in their little village was just trying to survive on a day-to-day basis by
saving every penny and wasting nothing.
Most kids were expected to work on the farm during the day and help out with house chores
in the evening.
But despite the Kamprad family’s desperate state, they never forced Ingvar to help out.
It appears that though they couldn’t give Ingvar financial freedom, they wanted him
to have the freedom of spending his time how he wanted.
Ingvar was never too interested in working on the farm or doing house chores, but from
a very early age, he wanted to help his family financially.
So, at 5, Ingvar decided to start selling matches to his neighbors for pennies.
Ingvar barely made any money from this endeavor given the cheap nature of matches, but it’s
crazy to think that Ingvar levitated towards business at age 5.
Fortunately, as Ingvar grew older, he delved into some more profitable ventures.
Ingvar sold pens, pencils, Christmas tree decorations, and most importantly fish.
Selling fish was the first time that Ingvar addressed a gap in the market.
You see, many farmers in his village didn’t have fishing licenses, but Ingvar’s father
did.
So, catching fish and selling it to these farmers was a rather profitable idea.
Ingvar even got his father to become an investor in the business and buy him larger nets which
substantially increased his yield.
Despite his side hustle going decently well, Ingvar’s parents wanted Ingvar to complete
basic education, so they sent Ingvar to a nearby boarding school at age 14.
School was quite hard for Ingvar though because he was dyslexic.
However, a promise from his father motivated Ingvar to work super hard at school.
Ingvar’s father promised that if Ingvar got good grades in school and graduated, he
would pay the registration fees for setting up Ingvar’s first business.
Ingvar put his head down and worked his way through school by age 17.
And as promised, his father paid for Ingvar’s business registration fees and Ingvar had
the freedom to choose the name.
Ingvar chose to keep it simple and personal.
He based the first two letters of the name on his initials IK, and he based the third
and fourth letters on the village and farm he was born on.
E for Elmtaryd and A for Agunnaryd.
And with that, Ingvar had launched IKEA at age 17 in 1943.
Ingvar had saved up a decent amount of money throughout his childhood, but his savings
were nothing in comparison to established retailers in the area.
So, Ingvar focused on starting a business that had super low costs.
His first idea was to create a mail-order business that sold wallets, photo frames,
pens, and other small items.
This business model allowed Ingvar to completely eliminate storage costs, but similar to his
match business, Ingvar barely made any money due to the cheap nature of the items he was
selling.
So, in 1948, Ingvar decided to expand to furniture.
Even with furniture, Ingvar stuck to the mail-order business model to keep costs low.
He delivered the furniture using trucks and trains and his business started to grow quite
rapidly.
But, his personal life was a lot more questionable.
Around this time, Ingvar joined a group called the New Sweden Movement led by a man named
Per Engdahl.
Per Engdahl was a fascist and this was during the height of world war 2, so Ingvar had basically
joined a youth Facist group.
He later explained that this decision was largely influenced by his father and grandmother
given that he joined the group at age 16.
Ingvar’s primary role within the organization was to raise funds and recruit new members
for the group.
Ingvar’s involvement didn’t public till 50 years later in 1994 though, when Per Engdahl’s
personal letters were made public.
We don’t know when Ingvar left the organization, but there’s evidence suggesting that Ingvar
remained friends with Engdahl up until the early 1950s.
Ingvar did publicly apologize for his involvement and acknowledged that it was a massive mistake,
but this is nonetheless a dark spot of his life.
Anyway, going back to IKEA, it didn’t take long for Ingvar to double down on the furniture
business given the much larger profit per unit.
By the early 1950s, Ingvar removed everything else from IKEA’s catalog, and IKEA officially
became a furniture company.
About a decade after starting the business, Ingvar opened up IKEA’s very first showroom
in 1953.
The showroom was especially effective at converting shoppers into paying customers.
But, as IKEA grew, established furniture players weren’t exactly pleased to see another competitor
entering the scene.
So, they banded together and tried to take down IKEA.
They called up IKEA’s suppliers and told them that they would stop buying furniture
from them if they continued to supply IKEA.
In fear of preserving their own businesses, the suppliers bent to this request and stopped
supplying IKEA.
I’m sure this was an extremely stressful time for Ingvar, but some of the best ideas
emerge under the most stressful circumstances, and this couldn’t be truer for Ingvar.
Since he couldn’t buy furniture from the popular suppliers, Ingvar decided to design
his own furniture that was simple and cheap.
Ingvar made a couple of deals with foreign suppliers for the materials and with that,
Ingvar was back in business.
Ironically, this experience allowed Ingvar to cut out the middle man suppliers which
only further reduced the price of his furniture making IKEA even more popular.
Now that IKEA was making their own furniture, Ingvar had more freedom when it come to how
the furniture was packaged.
And that brings us to IKEA’s breakthrough innovation which is of course their flat boxed
DIY furniture.
By shifting the assembly process to the consumer, Ingvar was able to drastically reduce shipping
and labor costs.
Now, of course, this completely cut out the premium furniture buyer market.
Premium furniture buyers weren’t particularly impressed with IKEA’s choice of materials
or the build it yourself model.
However, for the vast majority of us peasants, acceptable quality furniture for super low
prices is more than enough.
This new flat boxed design also meant that IKEA didn’t need to store their merchandise
at warehouses and ship it to customers.
They could just store it in the showrooms and have customers take it home with them
which reduced costs even further.
In 1965, Ingvar opened IKEA’s first retail outlet in Stockholm Sweden.
IKEA had already expanded internationally a few years before this in 1963 with the opening
of a showroom in Norway.
But, the modern IKEA didn’t make its debut till 1965.
Around the same time, Ingvar also opened the first IKEA restaurant in 1960.
Ingvar noticed that customers generally left the store during lunchtime to eat at one of
the restaurants across the street.
So, in an effort to bleed fewer customers during lunchtime, Ingvar opened a kitchen
which turned out to be a massive success.
Just as everything was progressing forward though, Ingvar would be hit with some bad
luck.
In 1970, an electrical problem would start a fire at the Stockholm IKEA.
The fire caused a lot of damage and was quite expensive to repair, but somehow, even this
turned into a good thing.
Given that a large portion of the store had to be shut down while it was being repaired,
Ingvar introduced a self-service area that he hoped would reduce congestion and give
customers more freedom.
And as we now know, this became a permanent change that also reduced costs.
Throughout the rest of the decade, IKEA focused on opening retail outlets outside of Scandinavia
including Switzerland and Germany.
IKEA opened their first US store in 1985, and they’ve exploded internationally ever
since.
By the end of the century, IKEA had grown to 114 outlets spread across 25 countries.
And that brings us to their last major avenue of growth which was the internet.
In 2000, IKEA began selling their furniture over the internet and this quickly cemented
them as the world’s largest furniture retailer.
Given how enormous IKEA is today, I don’t think you’d be surprised to hear that Ingvar
was worth $23 billion by March of 2010.
And his wealth grew to a peak of $58.7 billion in June of 2015 making him the 8th richest
person in the world.
But, Ingvar hated the publicity he got for his wealth and he actively tried to avoid
it.
Ingvar set up a super convoluted set of holding companies and foundations that were all independent
of each other.
Ingvar felt that this was the best way to ensure
that one of his children or a future leader of IKEA didn’t screw up the business by
making some sort of rash decision.
Ingvar spread his wealth across these holding companies and made it so that no major decision
could be made without approval from all of them.
He also made it so that neither he nor his children could withdraw money from these holding
companies.
So, on paper Ingvar no longer had access to this money and his net worth was slashed to
a little over $3 billion.
This didn’t really matter that much to him though given that he never lived like a billionaire
in the first place.
In fact, not only did he live a modest life, but he was actually insanely frugal.
On the surface, he lived in a modest house and only flew economy and stayed at budget
hotels.
But his frugal habits stretched much further than just that.
Ingvar hated paying for haircuts in the Netherlands because they often ran him up to $27.
So, whenever Ingvar visited an IKEA store in a third-world country, he would just get
a haircut there.
He also purchased a lot of clothes at nearby flea markets.
I think we can all agree that he’s really quite a character.
Unfortunately, Ingvar passed away a few years ago on January 27, 2018.
But he was 91 years old at the time, and there’s no doubt that he lived an extremely productive
and accomplished life.
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