How does IKEA keep prices so low? What are its design secrets? Why is it drawing on these skills to redesign its furniture once again? Why are there new pressures to cut costs?

• How does IKEA go about figuring out where costs can be cut? Can you summarize the basic method that IKEA uses to redesign for lower cost?
• What has always been the IKEA secret for reducing shipping costs? What is IKEA doing now to reduce shipping costs even further?

IKEA exemplifies the cost leadership strategy, especially with the Billy bookcase highlighted in the article. One pedagogical takeaway is that cost leadership requires constant effort and reinvention as new technical options open up. Another is that not all cost increases can necessarily be passed on to the consumer, as we learn from IKEA's experience: sometimes IKEA lives with lower margins to avoid price increases.

ARTICLE BELOW:

The Wall Street Journal-IKEA Redesigns Its Bestsellers, Starting With the Billy Bookcase.

LMHULT, SwedenAmid IKEA's colorful staged living rooms, piles of umlaut-laden housewares and endless rows of flat-pack boxes is furniture that can have shoppers wondering: How does that chair cost only $35?

IKEA grew into a furniture behemoth with a relentless focus on keeping costs low, but that goal has become more challenging. The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers' wallets. Managers at IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board.

Designers experimented with ways to reduce IKEA's reliance on woodeven in its trademark wooden furnitureto cut material and shipping costs. Lighter, less expensive plastics, they discovered, could be used instead in cabinet doors and drawers.

They learned that they could substitute less expensive recycled aluminum for zinc, which had doubled in price over two years to $4,371 per metric ton after the start of the Ukraine war. Recycled aluminum is now going into bathroom hooks and other products.

When they turned to packaging, they cut freight costs by purging flat packs of "fresh air and wasted space," said Fredrika Inger, IKEA's global range manager. On the new Nmmar garden chair, the curved wooden slats featured on a previous model were straightened, which allowed the components to be packed more tightly together.

"Our budget is the customer's wallet, and their wallets are smaller than ever," said Susanne Waidzunas, global supply manager at Inter IKEA Holding BV, the company that owns the IKEA brand, develops its products and manages its supply chain.

Based in lmhult in southern Sweden, where the late Ingvar Kamprad founded the company eight decades ago, IKEA is today the world's biggest seller of furniture, with 460 mostly franchise-operated stores spread across 62 countries that carry some 9,500 products. Its in-store canteens serve 1 billion Swedish meatballs with cream sauce and lingonberry jam each year.

Mr. Kamprad, who died in 2018, believed in "democratic design"essentially that everyday products should be attractive and functional, but also affordable. It was, in part, a hard-nosed strategy designed to maximize sales.

The challenges started with the disruptions of the Covid-19 pandemic, compounded by Russia's invasion of Ukraine. Then high inflation presented many companies with a dilemma: raise prices to offset growing costs and risk alienating customers, or keep prices down and sacrifice profit margins. IKEA did some of both last year, and its annual profit halved, to 710 million euros, equivalent to $778 million, despite record sales.

As part of its push to boost profits, the company said last week it would spend 2 billion euros to open new U.S. locations over the next three yearsits largest-ever investment in new American stores.

One of the company's chief weapons in its fight to cut costs is the Billy bookcase, a bestseller considered the "heart of IKEA," said Jesper Samuelsson, the product's manager. Over 140 million units have been sold since it first appeared in the 1979 edition of the IKEA catalog. The company says someone, somewhere buys a Billy every five secondswhich comes out to around 6.3 million sales a year.

According to IKEA's official history, the Billy's original design was scribbled on a napkin after its creator, Gillis Lundgren, was inspired by criticism from IKEA's then-advertising manager that the company's bookcases lacked simplicity.

Now, Mr. Samuelsson said, IKEA colleagues have a game they play: "If you're a product in IKEA, which one are you? I'm Billyit's a very simple, straightforward product."

The Billy comes in two styles: white and wood finish. Its last major overhaul came in 1999, when the company changed its method for producing the white version. IKEA designers knocked a fifth off the unit's price by replacing its white lacquer coating with a melamine foil.

It has been significantly cheaper than the wood-finish version ever since. In the U.S., the model that measures roughly 6 feet tall and 2 feet wide retails at $89.99 in white and $109.99 in wood finish. IKEA executives wanted to make the latter version less expensive, too, said Mr. Samuelsson.

Targeting a cost savings of 25% to 30%, Mr. Samuelsson and his colleagues focused on a solution that IKEA had been developing for years: the replacement of wood veneer with paper foil.

IKEA's wooden furniture isn't typically made of solid wood. Instead, it has traditionally used veneer, a thin slice of wood less than a millimeter thick that is glued onto a main structure of particleboard. Particleboard is formed from compacted wood chips and sawdust, and is significantly less expensive than solid wood.

Mr. Samuelsson knew that getting rid of the costly veneer would be key to savings, he said. The paper foil is less expensive, less wasteful and much quicker to apply than veneer, which speeds up the rate of production, Mr. Samuelsson said. Wrapped around the particleboard structure and printed with wood patterns, it looks like a wooden surface, he said.

IKEA first began to develop paper foil for use on its furniture around 2004, and has since steadily made the material less expensive and more reliable, gradually deploying it on other furniture lines, including the Pax wardrobe, one of the company's bestselling bedroom closets.

By the time Mr. Samuelsson and his team of a dozen designers set about reworking the Billy in 2020, IKEA leaders had enough confidence in the paper foil to use it on their prize bookcase, he said. The Billy redesign brought some functional changesincluding the replacement of metal nails with user-friendly plastic fastenersbut the switch from veneer to foil generated the cost savings that managers had been hoping for, he said.

The global rollout of the reworked version of the bookcaseproduced in Sweden, Germany, Slovakia and Chinahas faced obstacles. Factories in Europe were already running at capacity, so the company would need to move slowly and carefully to introduce the new version without disrupting output. IKEA also realized its demand for paper foil would balloon, which required lengthy preparations to help suppliers build up their output.

Production of the new version started last year in China, where the local manufacturer had spare capacity and could implement the new production system sooner. The Billy is the country's No. 1 IKEA product. There the wood-style bookcase is priced at 499 yuan, equivalent to about $72, down from 699 yuana 29% reduction. The white version sells for 399 yuan. The new Billy hits stores in the U.S. and Europe in early 2024.

These kinds of design changes are unlikely to alienate IKEA consumers, who typically don't focus on how their furniture is made, said Tom Higgs, a furniture designer and lecturer at London's Brunel University. "IKEA's customers are looking for affordable, replaceable and convenient furniture," he said.

For one of IKEA's most popular office swivel chairs, the Flintan, smaller armrests and less steel and plastic in the back cut manufacturing costs. The new Flintan, which hit stores in 2021, is roughly the same size as its predecessor, but it's much more efficient to ship after designers tweaked its components to make them fit more snugly into a flat pack. IKEA can now squeeze 6,900 Flintans into one shipping container, up from 2,750.

Even so, the company said that costs have increased so much that it decided to hold the chair's price at $119 in the U.S. Without the design tweaks, the price would have risen significantly, it said.

IKEA designers likewise reworked the Sbvik bed, available in Europe but not the U.S., by changing the construction of its wooden frame. It was previously made of so-called sandwich board, comprising thin layers of wood glued together. Designers experimented with new material mixes before settling on a less expensive and lighter combination of solid wood, plywood and a compressed structure of wood strands and glue called oriented strand board.

The Sbvik used to come flat-packed in three cardboard boxes, but now fits into just two more compact boxes, enabling the company to cram twice as many flat-packed beds into a shipping container.

Tasked with developing a new extendible dining table that wouldn't be prohibitively expensive, IKEA designers tried a novel approach.

Earlier IKEA tables typically used solid wood legs for strength and stability. In developing the new Rnninge table, which launched last year, designers created a leg made from hollow wood veneer with solid-wood inserts at the top and bottom to add strength. This approach significantly reduces material and freight costs since each leg now contains 90% less wood than if it had been made of solid wood, the company said. The Rnninge retails at $499 in the U.S.

Credit: By Trefor Moss | Photographs by Maximilian Mann for The Wall Street Journal

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