Clean Revolution case study: IKEA

Author:
Clare Saxon Ghauri
Reading time: 12 minutes
26 September 2012

This is part of The Climate Group's Clean Revolution case study series. Read an interview with Steve Howard, Chief Sustainability Officer for IKEA.

IKEA's history and ownership model have created a strongly values-based organization with a social mission. It is clear that much of its leadership is born from this values base, but that many of its strategies are also good for its bottom line, particularly given its longer-term investment approach.

Jack Welch, the former CEO of General Electric, famously said that: “Shareholder value is the dumbest idea in the world. [It] is a result, not a strategy. Your main constituencies are your employees, your customers and your products.” While many current-day CEOs may agree in principle, the pressure of quarterly earnings reports can nevertheless push executives to favor short-term profits over long-term success.

What happens when the “short-term profit obsession” is absent? Not surprisingly, managers start thinking long term. Founded in Sweden in 1943, IKEA is the world’s leading home furnishings company, with a fully-integrated supply chain, including its own industrial group – Swedwood and Swedspan. The parent company of the IKEA Group, INGKA Holding B.V., is owned by Stichting INGKA Foundation in the Netherlands.

IKEA’s unique ownership model allows it to take a long-term view on its costs, investments and products. The approach has resulted in some pioneering actions on the sustainability front such as setting a bold 100% renewable energy target and selling only energy-efficient lighting in its stores. How has the long-term approach affected profits? FY2010 profits for IKEA Group have increased 6.1% to $3 billion.

WHAT IS GOOD FOR OUR CUSTOMERS IS ALSO GOOD FOR US IN THE LONG RUN. WE ARE NOT ON THE STOCK EXCHANGE, SO WE CAN ACT LONG TERM.
– Mikael Ohlsson, CEO, IKEA Group

Betting on rising fossil-fuel prices in the future, IKEA plans to get 100% of its energy from renewable sources. While not yet there, they've made headlines in recent years with major renewable energy investments, bringing their total renewable energy use to 47% in 2010.

(Note: An average IKEA store can be powered with 5700 MWh/year – megawatt hours - or about 0.07 MWh/ m3.)

 

WIND

France Purchase of three wind farms (48 MW) Germany Purchase of six wind farms (45 MW) Scotland Purchase of six wind farms (12 MW) Sweden Purchase of six wind farms (20.7 MW) Denmark Purchase of six wind farms (0.85 MW)

GEOTHERMAL & BIOMASS

In several countries, IKEA has installed geothermal system and biomass, e.g. Sweden, Poland, Italy, United States, United Kingdom, France, Switzerland, Austria and Germany.

SOLAR

In total, IKEA has installed solar photovoltaic (PV) systems at 40 IKEA units, including stores and distribution centers, in a total of seven countries.

United States Installed in 11 stores and distribution centers (7 MW) in 2011 United Kingdom Installed in 10 stores throughout the country Belgium  Germany  Italy  Spain  Canada

The IKEA Investment Committee has approved a total of 125 PV installations, including the 40 already installed.

FINANCIAL BENEFIT

IKEA is known for its flat packaging. From an environmental standpoint, flat packages are great because they allow more items to be shipped in a single trip, reducing transport emissions. But the main reason for the flat package is cost savings. For example, designing the EKTORP sofa to pack flat for transport saves IKEA $11.6 million a year in transport costs and reduces the associated carbon emissions by 75%.

COMPETITIVE ADVANTAGE

IKEA wants to get innovative products to their customers before their competitors. One way they achieve this is by ‘price investing’ in next-generation, energy-efficient technologies like LED light bulbs and induction cookers – charging a lower price in order to drive volumes and create a market. With induction-cooker hobs, they brought the price down by a third over 12 months and experienced a four-fold increase in sales as a result.

TRANSPORTATION TO STORES

IKEA’s business model is based on people driving to their stores. Increasing the availability of cleaner methods of transport for its customers, like public transport and electric vehicles, will be key to making IKEA’s business model more sustainable in the long term. Doing so will require collaboration with local governments.

CUSTOMER EMISSIONS

Of IKEA’s full-scope emissions, 32% occur after products are sold, made up of customer transportation, product use and product end of life. Addressing these emissions through cleaner products and consumer education will remain a challenge.

SUPPLY CHAIN MANAGEMENT

Of IKEA’s emissions, 65% come from raw materials and production. Working with its suppliers to make their processes cleaner and more efficient will be a key challenge for IKEA. Some progress has already been made. For example, an aluminum supplier in Slovenia has cut its emissions in half by switching from oil to biomass boilers. But more remains to be done.

THE NUMBERS

100%

Long-term renewable energy target

52

Wind turbines installed by 2011

80%

Renewable energy target for 2015

40

IKEA units, including stores and distribution centers, partially powered by solar energy in 2011

75%

Reduction in associated transport emissions by flat packing a sofa

1,000

Trips avoided each week in Europe by switching from wooden to paper pallets

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