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Think of Ikea, and you might think of Scandinavian design, big sheds of flat-pack furniture and a Swedish heritage. You might not think of a busy motorway junction in the Netherlands.
Nonetheless, this is where perhaps the most important part of the sprawling Ikea empire is located. Inter Ikea, which owns the brand and concept as well as being responsible for product design and manufacturing of the group, is based in Delft just off the motorway joining Rotterdam and The Hague.
Its location is key to a contentious structure. The European Commission has been investigating the Netherlands’ tax treatment of Inter Ikea for the past seven years in a case that has yet to be resolved.
Ikea was broken up by its legendary founder Ingvar Kamprad in the 1980s for the twin reasons of giving it eternal life by ensuring it could never be acquired in a hostile takeover, and minimising tax. Its spiritual home may remain in the Swedish woods in Älmhult, but the two main parts of Ikea are now based in the Dutch student towns of Delft and Leiden.
Understanding how the entire empire is put together is sometimes akin to trying to build its furniture without an instruction manual. But at its heart, the set-up is designed as a classic franchise system, just one where the franchiser and main franchisee were once the same company.
Inter Ikea is the franchiser, the equivalent to Starbucks, McDonald’s or Burger King. Ingka Group — based in Leiden — is the main franchisee, accounting for 90 per cent of Ikea’s sales (Inter Ikea runs a single store that is in Delft). The ties between the two are deep — executives often move from one side to the other.
To grasp one of Europe’s most important privately owned companies — which had revenues of €48bn last year — it is essential to understand what goes on in Delft and at Inter Ikea.
Jon Abrahamsson Ring is the low-key chief executive of Inter Ikea, and a former assistant to Kamprad, who died in 2018, 75 years after starting Ikea. The two used to spend hours in German supermarket Lidl after it opened its first stores in Sweden, exploring what it did well.
“Ingvar always talked about centuries, not decades or years,” says Ring, explaining the decision to employ a franchise system to help Ikea survive longer than the next business cycle. All Ikea stores pay 3 per cent of their turnover as a franchise fee to Inter Ikea, which in turn provides the brand, product range and manufacturing.
Cynics might also say that Kamprad also talked a lot about tax. He left Sweden in the 1970s in protest at what he saw as eye-watering levels of taxation that were so high his three sons could be forced to sell Ikea or float it. So he sought out tax-efficient jurisdictions, settling on the Netherlands and Liechtenstein where he set up foundations that still control Inter Ikea and Ingka to this day. “We have always viewed taxes as a cost, equal to any other cost of doing business,” he said in 2011.
Brussels’ tax investigation relates to how the Netherlands taxed Inter Ikea over how it used intra-company loans to develop its franchise system. That is a matter between the commission and the Netherlands, Inter Ikea has noted, while underlining that it believes it has been taxed according to EU rules.
Whatever the outcome of the case, there is little doubt about the central importance of Inter Ikea. Ring points to the work on delivering on the somewhat awkward-sounding slogan of the group: “making a better everyday life for the many people”. To that end, Inter Ikea’s focus this year is in lowering prices after the pain of being forced to raise them during the Covid-19 pandemic due to inflation and supply chain problems. “If there’s an opportunity, we lower the price, we don’t make the margin bigger. Customers’ wallets are thinner,” says Ring. He points out the iconic Billy bookcase was cut from €99 to €79, for instance.
Inter Ikea has reduced costs by standardising products — for instance, by making drawers in different pieces of furniture the same size — and by reducing material use. It also has developed its ecommerce operations as well as new city-centre stores such as a planned one on Oxford Street in London to complement its big out-of-town warehouses, which themselves have got new life from being used as fulfilment centres for online orders.
Ikea’s pre-eminent position in furniture seemed at risk from disruption when Kamprad died six years ago, but that threat appears to have receded, in part due to how fast Ikea has changed. That makes a trip to the junction of the A13 motorway all the more important these days.
X: @rmilneNordic
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