In numerious previous postings, I have held up the now-bankrupt Circuit City electronics retail chain as the example of how not to foster your intangible assets. So here is an analysis from Strategy+Business about a retail chain that seems to be doing it right: “How Ikea Reassembled Its Growth Strategy” [registration required].
Ikea has built its business around low prices and leveraged its customer loyalty into a strong brand. Ikea’s founder Ingvar Kamprad had a reputation as a vigorous cost cutter. But it is not just about cutting cost, as Circuit City found out too late. Ian Worling of Ikea explained how the company coped with the recent economic downturn:
We didn’t focus on cutting costs, because that’s the easiest thing to do in retail. You just lay people off, and cut back some of your capital expenditure, and it reduces your variable costs. But it also weakens you. Instead, we decided to make structural changes — to rethink our practices.
. . .
We did not cut back on our investment in retail stores. We own all of our buildings and land, and our stores are custom built and designed for efficiency and sales potential. We want people to feel at home in our stores, which is why we include the restaurants and child-care facilities. We decided to keep our investment, not just in new stores, but in extending and expanding our existing stores. We think it’s just as important to improve the way we serve the customers we have today as it is to take on new customers
Note that there are two important intangibles at work here: customer relations (the “customer experience”) and the technical know-how to design the store for efficiency and sales potential.
Investing in stores was one key to Ikea’s strategy. Increasing volume and better managing the supply chain were also important. But it was also the workforce:
The fourth area involved empowering our co-workers. We try to keep the center of the company relatively lean, and not make too many decisions centrally that would be better made in stores or factories close to customers and suppliers. Therefore, we must have a strong group of co-workers who can make the right decisions to support our strategies.
. . .
Our biggest advantage was Ikea’s culture and value. Culture is extremely important at Ikea, even more so than at other companies. We work hard to ensure that as new people come in, they understand who we are and what we’re trying to do. The people who work here genuinely want to be here and share Ikea’s core values of cost consciousness and humility. I suppose that we must do a lot of things reasonably well, but we never talk about that. We always talk about where we’ve disappointed people and how we can do better. When we have a particularly good triumph, you’ll hear someone say: “Okay, we’ll take one minute now for satisfaction, and then move on.”
In summary, the key’s to Ikea’s success has been investing in its intangible assets: relations with customers, deep knowledge of store design/functionality, and its workforce. That makes it the anti-Circuit City in my mind.