The Evolution and Impact of IKEA

When an innocent customer walks into IKEA, what they're really walking into is a powerful psychological trap meticulously designed to make them overspend on furniture. IKEA is one of the world's strangest, but also most innovative companies. And every year, they sell more than $50 billion worth of everything from chairs, to bookcases, to Swedish meatballs. Today, IKEA is the largest furniture retailer in the world, and oddly, also among the world's 50 largest restaurant chains. it all started with a dyslexic farm boy who started selling matches for pennies. Ikea has a remarkably uplifting story, and there's tons of genius business strategies along the way, but there is also a darker side to Ikea, and the man who started it. Ikea's beloved founder has ties to the Nazi party, and the company has been accused of avoiding billions in taxes, and even using forced labour. And, quite suspiciously, Ikea is essentially the 4th largest charity in the world. in the world. This is the crazy true story of Ikea, and it begins with a horrible tragedy. In the 1890s, Achim Kamprad, a German from an aristocratic family, fell in love with a lower class woman named Franziska. To Akim's parents, marrying a woman from a lower class was unacceptable, so he and Franziska moved to a tiny village in Sweden to begin a completely new life. With his last penny, Akim bought a 450 acre farm where he, Franziska, and their children could make a living by selling their harvests. But apart from the land, a modest house and a few dogs, they had nothing else. And so after a year in Sweden, Akim was in desperate need of a loan. Unfortunately, the local bank refused to give it to him. That's when his dark side overpowered him. No one was there to witness this, but the story goes that when Akim returned home, he took his gun, shot his dogs, and then himself. As for his 27 year old widow, Franziska, she hardly spoke any Swedish, hadn't made any friends yet, and she was pregnant at the time, so she had three helpless children to feed and care for. Franziska was completely alone in the world, but she was a brave and energetic woman. and despite her grief, she took on the challenge of a lifetime and made a success of the farm. Her bills were paid, and her children were well fed and well educated. After decades of unrelenting perseverance, Franziska became a respected member of her community. Her three children were starting their own families, and in 1926, her favourite grandson was born, Ingvar Kamprad. The boy who would later go on to found IKEA and become one of the richest men in the world. Growing up, Ingvar's family didn't have much money. but he still enjoyed his childhood on the farm. Francisca showered him with love, and he liked playing with the animals and catching fish in a nearby pond. And even at just 6 years old, he was starting to show a knack for entrepreneurship. With the help of his aunt, Ingvar bought a case of 100 matchboxes for 88 Swedish cents. His first customer was his grandmother Francisca, who bought a matchbox for 3 cents. And by selling at that price to people in the local area, Ingvar more than tripled his investment to 3 Swedish kronor. Around 35 American cents at the time. It wasn't much, but this lit a spark inside Ingvar, and he became obsessed with buying things as cheaply as he could and selling them for a profit. As Ingvar was growing up, he sold Christmas cards, candy, wall hangings and lingonberries. Each time he'd then reinvest the money into more goods to sell, making more and more profit each time. Seeing his entrepreneurial attitude for buying and selling, Ingvar's father gave him a small loan to start a mini fishing business. And by the time he was 11, Ingvar had made enough money to buy himself a racing bike and a typewriter. For every new business, Ingvar's first customer was Franziska, and she always gave Ingvar the courage to make bigger moves, like when he borrowed around 600 kroner so that he could import 500 Parisian fountain pens. And now that he was a natural salesman, he made his biggest profit yet. However, Franziska's influence on Ingvar was not all positive. You see, Franziska came from a German state called Sudetenland. which after WWI became part of Czechoslovakia. But Franziska was a German who did not feel identified nationally with Czechoslovakia, so the happiest day of her life was actually when Nazi Germany annexed Czechoslovakia in 1938. From Franziska's point of view, the Nazis were reuniting Germans with Germans, so they were like saviours to her. Unfortunately, Franziska was so passionate about the Nazis that her politics rubbed off on Ingvar. He was too young to form his own opinions, and plus the horrifying realities about the Nazi regime hadn't come to light yet. So Ingvar was totally indoctrinated into the Nazi ideology by his family. In his teen years, he even recruited a few friends into the Swedish Nazi party, and later on, this would come back to haunt him. It was also in his teen years that Ingvar moved to a boarding school. He often struggled with his classwork, especially because he had dyslexia. But whilst at school, Ingvar was continuing his business, by selling watches, pens, belts and wallets to his schoolmates. This one man operation was looking like a real business, so Ingvar figured, why not make it a real business? As a graduation gift, Ingvar's father gave him the money for the firm's registration fee, and so in 1943, the trading company IKEA was officially created. Ingvar was just 17 at the time, and the business had no physical shop. It was a simple mail order company, buying cheap goods and reselling them at a higher price, just like Ingvar had done all through his childhood. In fact, this tiny shed near his home, was the only is where he kept packages that were to be picked up for delivery. As for the name, that was pretty simple too. The I and K in IKEA stand for Ingvar Akhambraad, the E stands for Elm to Rood, the name of the family farm, and the A stands for Agunarud, the nearby village. So, how exactly did IKEA go from this shed to a billion dollar business empire? In the first days of Ikea, Ingvar was as energetic as ever. He imported all the products that had sold well from his youth, like pens and watches, and then upgraded the business by adding even more products. Ikea was doing okay, but Ingvar's education still wasn't complete. Right after graduating, he began studying business and commerce, and his parents agreed to take over some of IKEA's workload for the time being. In business school, Ingvar was able to take his natural talent for entrepreneurship and fill in the gaps of things he didn't know yet. For example, ever since his childhood, Ingvar had wondered why many products were so cheap to make, but so expensive to buy. He knew from experience that the manufacturing cost of a regular pen was less than one Swedish cent, but buying it from a grocery store cost 10 cents. It wasn't that one particular grocery store was just charging a massive premium, if that was the case other stores would just lower their prices and steal their customers. Ingvar figured the problem was that most businesses focused all their efforts on efficient production and manufacturing, but very little effort was focused on distribution. Ingvar realised Ikea's success rested on how efficiently their distribution was set up, finding the most cost efficient way to get products from factories to customers. After all, Ikea was importing the same products as everyone else. so the only way to get an advantage over the competition was simply to be a more efficient business. This was tough at first. All while running IKEA from a distance with the help of his family, Ingvar studied business, worked as a store clerk, and even did military training. So the business was anything but efficient, and Ingvar worked extremely long hours day and night. But after 5 years of this, Ingvar finally had the freedom to run IKEA full time, and he wanted to go bigger. So in 1948, he decided to add furniture to his product line. This was great timing, as after WWII, the Swedish government built lots of new affordable housing that all needed furnishing. Demand for cheap furniture was high, and so furniture sales soon overtook the other small items Ingvar was selling. Plus, there were a handful of small furniture makers in the area, so it was easy enough to buy it from them in bulk, and then sell the individual pieces for a profit. What wasn't easy for Ingvar, was keeping track of all the different items he was ordering. You see, because of Ingvar's dyslexia, he couldn't keep track of all the different codes for the individual items. So instead, he decided to give them more memorable names. For example, bathroom items were named after Swedish bodies of water, desks and chairs were given male Scandinavian names, and children's products were given the names of Scandinavian mammals and birds. When Ingvar sent out a brochure advertising Ikea's new furniture offerings with these eye-catching names, a lot of mail orders came in. As IKEA expanded, the family farm was cleared out in order to manage the workload, and every member of the Kamprad family helped out however they could. The family was a business, and the business was a family. Before long, Ingvar had hired a staff of 8 people, and he greeted everyone with a hug and considered them his family as well. IKEA's foray into furniture was a massive success, and it was growing steadily, but there was a massive problem on the horizon. You see, IKEA was a mail order business. They would mail out brochures advertising their products, and then customers could mail them back with an order. The problem was that IKEA was just one of hundreds of mail order retailers that also sold furniture, and they all bought it from the same suppliers. With so many sellers in a single market, IKEA and other businesses had virtually no way to stand out other than lowering their prices. But this meant IKEA's profit margins were getting dangerously thin. The only way to mitigate this was to cut costs, but that meant the quality of the furniture suffered, and mail order furniture was getting a terrible reputation. Ingvar knew that if IKEA didn't evolve soon, its days were numbered. But that's when he remembered what he learned back in business school. If Ingvar could design a more cost-effective distribution pipeline than its competitors, IKEA could cut costs without sacrificing quality. This way they could lower their prices and still make a big profit. To do this, Ingvar reimagined IKEA's entire business model. First, he bought a large rundown department store for around $1600. It was a steal. And after paying $75,000 for renovations, Ingvar beautifully designed the store with Ikea's main furniture offerings. Then, Ingvar cancelled most of Ikea's product lines, and sent out an advertising brochure announcing that they were now exclusively a furniture and domestic products business. This would simplify the supply chain massively. Ingvar's new distribution strategy was now in motion. Ikea would mail out catalogues just like they used to, but customers would actually come to the store to buy a piece of furniture. Because of this, Ikea no longer had to worry about shipping. which reduced their distribution costs massively, and thus let Ingvar achieve his initial goal, maintain quality, lower prices, and still make a big profit. No other furniture business had combined mail order with a retail location, so IKEA was pioneering a new and risky strategy. But on opening day in 1953, Ingvar saw a line of more than a thousand customers lined up outside IKEA. He was actually worried that the Swedish buns he was giving out for free wouldn't be nearly enough for everyone. or worse, that the rundown building he'd bought would collapse under the weight of so many people. Thankfully though, the building held, and more buns were cooked just in time. Ingvar described that day as one long rush of constant and joyous work, and since Ikea's consistent quality and lower prices were irresistible to customers, the following days didn't disappoint either. The Ikea store became something of a local tourist attraction, with people coming in from all over Sweden. Ingvar even built a hotel with a pool right next to it. It also helped that people had been sceptical of ordering low priced furniture from mail order catalogues, so allowing people to come and see it themselves in store was hugely popular. But by still sending out mail order catalogues, Ikea could still reach customers in a very wide area, and thus Ingvar's gamble was a big success. But on a larger scale, Ikea was still just one player in a massive industry, and the biggest furniture retailers saw Ikea's new methods as a threat. Ingvar didn't know it yet, But IKEA had just made some powerful enemies. In the mid 1950s, IKEA was growing at record pace, and to a large group of Swedish furniture dealers, this was alarming. All of IKEA's competitors still used the standard mail order model, which meant they couldn't match IKEA's prices without becoming unprofitable. Because of this, the National Association of Furniture Dealers tried everything they could to destroy IKEA before it outgrew them. Now at the time, trade fairs were a crucial part of how IKEA and other furniture dealers got customers. Most of them just showed off brochures of their furniture, but Ingvar actually brought it with him, and since his prices were unbeatable, customers always flopped to Ikea's stands. Because of this, the other furniture dealers tried to use their influence to disrupt Ikea in any way they could. Firstly, they complained that trade fairs were just for showing items, not selling them like Ikea did, and so they managed to get Ikea banned from selling anything at the trade fairs. But Ingvar responded by creating subsidiary companies and selling furniture through them instead. The furniture dealer's counter move was to ban all selling at trade fairs. But Ingvar answered by showing off how much lower Ikea's prices were compared to theirs. The furniture dealers then banned every exhibit from showing prices, to which Ingvar responded by setting up his own trade fairs in Sweden's largest cities. It got to the point where the furniture dealers got Ikea, and even Ingvar personally, banned from attending or hosting any trade fairs. But even then, Ingvar still had them beat. He snuck into a trade fair rolled up inside of a carpet. And so, despite every attempt to destroy IKEA, the furniture dealers were unable to stop Ingvar, he was always too crafty for them. They compared IKEA to a monster with 7 heads, every time they cut one off, another one grew in its place. And IKEA was now growing incredibly fast, so before it could eclipse them all, the furniture dealers delivered one final, and potentially deadly attack to IKEA. In a letter to all Swedish furniture suppliers, the National Association of Furniture Dealers put it plain and simple. If you sell to IKEA, we will no longer buy from you. In an instant, furniture suppliers began cutting ties with IKEA. They could either sell to one small but growing company, or to the entire industry. And the choice was obvious for the vast majority of suppliers. Only a few furniture suppliers remained loyal to IKEA, but even they used fake addresses, removed the logos from their vehicles, and made secret deliveries in the middle of the night in order to avoid associating themselves publicly with IKEA. This time, the threat was real. Ikea had a ton of customers waiting to buy furniture, but no way to supply them, and Ingvar had to act fast in order for Ikea to survive. Firstly, he made sure to reward the few suppliers who were still helping him out. Whereas most furniture dealers took around 3 or 4 months to pay their suppliers, Ingvar made sure they were paid within 10 days at most, and treated like royalty. Secondly, Ikea started making its own designs. Many furniture dealers refused to work with suppliers who sold them the same products they sold to Ikea. But Ingvar realised if IKEA made some minor adjustments, they could claim it was an entirely different product and win some suppliers back. And finally, Ingvar secured an emergency supply of wooden chairs to be made in Poland. Just a few years later, Poland became one of IKEA's key suppliers, because it was completely out of reach from IKEA's Swedish enemies back home. Thanks to all this, IKEA was able to dodge a potentially devastating attack from its competition. In Ingvar's words, the boycott only made IKEA stronger. And now, they had a stable foundation of suppliers to rely on, and unique designs unlike anything else on the market. And all of this, would lead to a very unusual breakthrough. One day when Ingvar finished photographing one of Ikea's new tables, as they were packing it back up, one of his employees had difficulty fitting it into his car. He noted that the table used up a lot of empty space, so he suggested something that would change Ikea's course forever. Why not take off the legs? Shortly after, they got their first prototype. You could screw and unscrew the table's legs into position easily, and Ingvar instantly realised how beneficial this would be to Ikea. Selling items sold in pieces that are flattened to make transport easier, or flat pack furniture as they called it, would be another turning point for IKEA. Because now they could take a piece of furniture apart, IKEA's packaging became much more compact. This meant the furniture could be stored and transported more efficiently and cheaply, they spent less on packaging materials, and there was much less chance of an item being damaged in transit. In other words, flat packing instantly cut the company's costs and made distribution faster and safer. And remember, prior to the 1950s you'd normally be waiting a while for your furniture to be made and delivered, but now you could take it home with you the same day. It was win-win. Plus, all of this had another positive effect on IKEA's customers. Researchers discovered a cognitive bias which they called the IKEA effect, where they realised consumers value products more highly if they've been partially involved in making them. Because many of IKEA's furniture pieces now came in parts, customers actually had to build them at home. and by physically putting the items together themselves, they had a sense of pride and ownership over the item, which meant more of an emotional attachment to it, and so they valued the item more highly. For IKEA, this meant their customers had a higher level of loyalty to the brand. And so finally, after a decade of battling with their competitors stuck in their old ways, IKEA had evolved beyond their influence. Ingvar knew that IKEA was now perfectly positioned for rapid expansion, and his plans were more ambitious and stranger than ever before. Before we get to the next chapter, it's time to answer a question I get a lot. How do I make these videos? Well, a big part of that is down to today's sponsor, Storyblocks. A curated stock library with everything you need to create high quality video all in one place. I've been using Storyblocks to help make my videos for years now, and it has over a million 4K and HD video clips, templates, songs, sound effects, images, and more. So for example, say you're making a video about space. You can literally just type space in their search bar and get countless great cinematic clips for your video. You could then even change your search to music to find the perfect song to match. Honestly, it's been such a time saver for me, and so if you're a content creator, I highly recommend checking it out. And unlike most other stock footage, instead of paying for every single clip, which is expensive, you get unlimited downloads with the Storyblock subscription. So you can download whatever you want with no extra fees. So to get started with unlimited stock media downloads at one set price, head to storyblocks.com slash magnates or click the link in the description. After Ikea's success with their first store, Ingvar had decided to open a new store that was bigger and better in every way. For the location, Ingvar chose Stockholm, the capital of Sweden. But instead of a spot in the heart of the city, he picked a location way outside, basically in the countryside. This way Ingvar got a massive discount on real estate, so the Ikea store could be huge. It was about the size of 8 and a half football fields, and had 3 separate floors. But if Ingvar was going to take on such a massive project, he needed to perfect Ikea's concept, and this is where he showed his true brilliance. Ingvar designed the store in a way that exploited every aspect of his customer's psychology. It worked like this. When a customer entered IKEA, they took a slip of paper to write down a code for every item they were going to buy, so they didn't have to carry anything around the shop. Despite its vast size, the store had just one entrance and one exit, which wasn't always the easiest to find. People could wander around the different areas for a while, but generally, everything flowed in a single direction, as customers were guided through the entire store in a one-way path. It was almost like a bit of a maze, with curves every 50 feet to keep customers intrigued about what would be coming up next. This also meant you were basically forced to look through all departments and see every item in the store before reaching the exit. You don't just pop in and buy one thing, you see everything they have to offer, encouraging impulse buys for things you hadn't even planned to purchase. With this in mind, Ingvar designed the layout in three main stages. First it was the showroom, which was meant for bigger expensive things like kitchen and bedroom furniture. Then came the market line, which was meant for smaller cheaper items like silverware and decorations. And finally, there was the warehouse, where customers picked out the packages with the codes they wrote down and paid for them. However, whilst Ingvar's design seems innocently logical on the surface, there are three brilliant psychological tricks going on behind the scenes. Firstly, every exhibit inside the store exploited something called the Gruen effect, which means a display's layout and lighting are designed to draw people in and make them take their time wandering around. The more time customers spent inside Ikea, the more likely it was that they made an impulse decision to buy some piece of furniture. In fact, research suggests that the majority of purchases at Ikea are unplanned. Secondly, since the store was so huge and it only flowed in one direction, it meant that customers better write down the code for the more expensive products at the beginning right away, because otherwise they'd have to walk all the way to the end and start the entire maze again from scratch. which could take hours. And thirdly, since more expensive items were at the beginning of the store, by the time customers got to the cheaper items near the end, the price of a new decoration seemed like a bargain compared to that of a massive dining table. Again, this price anchoring leads to more impulse purchases. As a result of all this, Ikea became more of an experience than a typical shop. You could spend hours there. However, Ingvar did notice one problem. In the mornings, Ikea was usually full of customers, but business always slowed down after lunchtime. when customers went out for a meal. But what if people didn't leave to get food? Then they could spend all day there. Ingvar figured that by opening a restaurant inside IKEA, the food sales would not only generate extra money, but people would stay at IKEA for more time. And even better, if the food was good, people might come in just for a bite to eat, and end up buying some furniture as well. With these strategies in place, IKEA was making more money than ever. But Ingvar also had a stroke of good luck. You see, at the time, IKEA was considered the cheapest furniture business in Sweden. But low prices can often lead people to thinking a product is of low quality as well. But when an impartial Swedish design laboratory gave every item a quality test, comparing IKEA products with more expensive competitors, the results were astounding. IKEA actually had superior quality across the board. Previously, IKEA's quality had been stigmatized because of its lower prices. But thanks to this report, IKEA was now seen as both the financially sound and the more tasteful option. Because of this, when IKEA's next new store opened in 1965, more than 18,000 people showed up on its first day. Ingvar's expansion plan was working better than he could have ever dreamed, and IKEA was growing like never before. By 1973, IKEA was making tens of millions every year and had over a thousand employees. Although, oddly enough, Ingvar still ran it like a small family business. The main office was in an old barn on the family farm. And yet, they now had a successful formula they could replicate anywhere. However, Ingvar wanted IKEA to live forever, long after he was gone, and this would lead to a very controversial plan. Ingvar's dream was for his children to inherit the business, but Sweden's inheritance taxes were extremely high, so instead, Ingvar hired an army of lawyers from all over the world. Their mission was to make IKEA independent of any single country, and protect it from any harmful outsiders trying to take it over. It took IKEA's lawyers more than 7 years of making shell companies, foundations and trusts in every tax haven in the world, but in the end IKEA's corporate structure became an impenetrable and untaxable labyrinth. The original IKEA company became owned by a holding company whose profits are moved to a tax exempt nonprofit. who later indirectly moves its money into the stitching INGKA foundation which is based in the Netherlands. Completely apart from this is a trust which owns a Dutch holding company, which owns another holding company in Luxembourg, which owns IKEA's intellectual property. If you're thinking all of this sounds very confusing, you're right, and that's just a grossly oversimplified version. The point is that IKEA's complicated structure has led to controversy, with many accusing the company of reorganising itself in order to avoid paying taxes. Today, 50 years after this restructuring took place, place, the foundation Ingvar created is technically the fourth largest charity in the world. But either way, in the time it took IKEA to become a tax exempt Dutch charity, Ingvar was busy replicating the success in his first stores across the rest of the world, and perfecting the formula even more each time. By the end of the 70s, there were more than 20 new IKEA stores in countries like Canada, Switzerland and Australia, and Ingvar's plans for the 80s were even more ambitious. However, Ingvar wasn't prepared for what was coming next. The dark shadow of his past was catching up to him, and it would launch him into the biggest controversies of his life. Before we get to the next chapter, I want to help you save time and money with today's video sponsor, ShipStation. ShipStation integrates everywhere you sell online, including Amazon, Etsy, eBay, Shopify, and more. 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During the 80s, Ikea was growing at its fastest rate ever. But Ingvar still saw everyone involved in the company as family. He was famous for meeting employees with a big bear hug, getting to know as many of them as he could, and all round being loved by everybody. However, not many people outside of Ikea personally knew Ingvar. He was just the owner of some giant Swedish furniture company. So, when a journalist discovered that Ingvar had been an avid Nazi enthusiast in his youth, his entire reputation was at stake. In 1994, the journalist reached out to Ingvar for comment, to which Ingvar wrote back saying he was willing to talk openly about everything. After all, Ingvar was indoctrinated into Nazi ideology through his grandmother but he was too young to think independently. Now that the terrible reality of the Third Reich was public information, he'd changed his views completely. So Ingvar thought that by being totally transparent about everything, any controversy would go away once people heard his story. However, the journalist had come across two documents alleging that Ingvar had attended a fascist meeting as late as 1958. At that point, WWII had been over for a decade, and Ingvar was 32 years old. This was no longer a story about an innocent boy who had been indoctrinated by his family, it was a story about a mature businessman who might just be an active Nazi. And when the story broke out, newspapers in all of Europe circulated the rumour. IKEA went into crisis mode, and demanded answers from its founder. Ingvar wrote an open letter to everyone, openly explaining the story of his indoctrination, his involvement with the Swedish Nazi party, expressing his regrets, and begging for everyone's forgiveness. As for the accusation that he was an active Nazi, Ingvar disproved it by saying that 1958, the year of the alleged meeting, had been the year when IKEA's first store was being heavily renovated. He was simply too busy with work to worry about politics. In fact, Ingvar had not attended any such meeting. And despite the news fiasco this initial story caused, Ingvar had done one thing correctly. He was honest about everything, and when people heard his version of the story, the controversy died down. At least, that was until 1998. This time, another news story broke out alleging that Ingvar had financed the start of IKEA by borrowing Nazi money. Again, another barrage of headlines rolled out in the newspapers, but Ingvar didn't really care about the claim that he'd borrowed money from the Nazis. He was furious that anyone thought he'd borrowed money at all. In his words, they could have accused me of murder, but not of borrowing money. In the entire lifespan of IKEA, Ingvar had never taken out a loan, so the claim was totally false. This time though, IKEA's employees didn't demand answers. Instead, they offered their full support for Ingvar, and he was so grateful that he broke down in tears. However, rumours of Ingvar's involvement with the Nazis never completely went away. For example, throughout his life he had remained acquainted with a Swedish Nazi activist and Holocaust denier, and Ingvar even invited him to his wedding and called him a great man. It's also known that in the 80s, some of Ikea's suppliers in East Germany were using forced labour, and it's very likely that Ikea's executives were aware of it, and did nothing to intervene. But either way, despite the controversies surrounding Ingvar's past, Ikea was on its way to conquering the world. Throughout the 90s, Ikea built more than 70 new megastores, and became one of the world's strongest brands. And in 2008, Ikea took the throne as the world's largest furniture retailer. Ikea's success, and the fact the company had remained private, meant Ingvar became one of the richest people in the world. And yet, he still maintained his frugal lifestyle. He lived in the same house, drove the same old Volvo for 20 years, and always flew economy. Ingvar passed away at 91 years old in 2018. Today, Ikea has well over 450 locations, and so it's not surprising that some crazy stories have happened at Ikea stores. There's a few troubling ones, like when a 12 year old boy ran away from home and got lost in an IKEA for 6 days. But there's also some heartwarming stories too, like the couple who met for the first time at their local IKEA, and decided to have their wedding there as well. Whatever you think of IKEA, there's no denying it's one of the most fascinating companies around. They've sparked several important retail innovations that other companies around the world now use, and the story of Ingvar's family goes to show what endless perseverance can achieve. But if you want to hear the story of another Scandinavian company that makes you build what you buy, you have to check out the messed up history of LEGO. Just click the thumbnail on screen now, and I'll see you there in a second. Cheers.

Ikea has a remarkably uplifting story, and there's tons of genius business strategies along the way, but there is also a darker side to Ikea, and the man who started it. Ikea's beloved founder has ties to the Nazi party, and the company has been accused of avoiding billions in taxes, and even using forced labour. And, quite suspiciously, Ikea is essentially the 4th largest charity in the world.

in the world. This is the crazy true story of Ikea, and it begins with a horrible tragedy. In the 1890s, Achim Kamprad, a German from an aristocratic family, fell in love with a lower class woman named Franziska.

To Akim's parents, marrying a woman from a lower class was unacceptable, so he and Franziska moved to a tiny village in Sweden to begin a completely new life. With his last penny, Akim bought a 450 acre farm where he, Franziska, and their children could make a living by selling their harvests. But apart from the land, a modest house and a few dogs, they had nothing else. And so after a year in Sweden, Akim was in desperate need of a loan. Unfortunately, the local bank refused to give it to him.

That's when his dark side overpowered him. No one was there to witness this, but the story goes that when Akim returned home, he took his gun, shot his dogs, and then himself. As for his 27 year old widow, Franziska, she hardly spoke any Swedish, hadn't made any friends yet, and she was pregnant at the time, so she had three helpless children to feed and care for. Franziska was completely alone in the world, but she was a brave and energetic woman. and despite her grief, she took on the challenge of a lifetime and made a success of the farm.

Her bills were paid, and her children were well fed and well educated. After decades of unrelenting perseverance, Franziska became a respected member of her community. Her three children were starting their own families, and in 1926, her favourite grandson was born, Ingvar Kamprad. The boy who would later go on to found IKEA and become one of the richest men in the world. Growing up, Ingvar's family didn't have much money.

but he still enjoyed his childhood on the farm. Francisca showered him with love, and he liked playing with the animals and catching fish in a nearby pond. And even at just 6 years old, he was starting to show a knack for entrepreneurship.

With the help of his aunt, Ingvar bought a case of 100 matchboxes for 88 Swedish cents. His first customer was his grandmother Francisca, who bought a matchbox for 3 cents. And by selling at that price to people in the local area, Ingvar more than tripled his investment to 3 Swedish kronor. Around 35 American cents at the time.

It wasn't much, but this lit a spark inside Ingvar, and he became obsessed with buying things as cheaply as he could and selling them for a profit. As Ingvar was growing up, he sold Christmas cards, candy, wall hangings and lingonberries. Each time he'd then reinvest the money into more goods to sell, making more and more profit each time. Seeing his entrepreneurial attitude for buying and selling, Ingvar's father gave him a small loan to start a mini fishing business. And by the time he was 11, Ingvar had made enough money to buy himself a racing bike and a typewriter.

For every new business, Ingvar's first customer was Franziska, and she always gave Ingvar the courage to make bigger moves, like when he borrowed around 600 kroner so that he could import 500 Parisian fountain pens. And now that he was a natural salesman, he made his biggest profit yet. However, Franziska's influence on Ingvar was not all positive.

You see, Franziska came from a German state called Sudetenland. which after WWI became part of Czechoslovakia. But Franziska was a German who did not feel identified nationally with Czechoslovakia, so the happiest day of her life was actually when Nazi Germany annexed Czechoslovakia in 1938. From Franziska's point of view, the Nazis were reuniting Germans with Germans, so they were like saviours to her. Unfortunately, Franziska was so passionate about the Nazis that her politics rubbed off on Ingvar. He was too young to form his own opinions, and plus the horrifying realities about the Nazi regime hadn't come to light yet.

So Ingvar was totally indoctrinated into the Nazi ideology by his family. In his teen years, he even recruited a few friends into the Swedish Nazi party, and later on, this would come back to haunt him. It was also in his teen years that Ingvar moved to a boarding school.

He often struggled with his classwork, especially because he had dyslexia. But whilst at school, Ingvar was continuing his business, by selling watches, pens, belts and wallets to his schoolmates. This one man operation was looking like a real business, so Ingvar figured, why not make it a real business?

As a graduation gift, Ingvar's father gave him the money for the firm's registration fee, and so in 1943, the trading company IKEA was officially created. Ingvar was just 17 at the time, and the business had no physical shop. It was a simple mail order company, buying cheap goods and reselling them at a higher price, just like Ingvar had done all through his childhood. In fact, this tiny shed near his home, was the only is where he kept packages that were to be picked up for delivery. As for the name, that was pretty simple too.

The I and K in IKEA stand for Ingvar Akhambraad, the E stands for Elm to Rood, the name of the family farm, and the A stands for Agunarud, the nearby village. So, how exactly did IKEA go from this shed to a billion dollar business empire? In the first days of Ikea, Ingvar was as energetic as ever.

He imported all the products that had sold well from his youth, like pens and watches, and then upgraded the business by adding even more products. Ikea was doing okay, but Ingvar's education still wasn't complete. Right after graduating, he began studying business and commerce, and his parents agreed to take over some of IKEA's workload for the time being.

In business school, Ingvar was able to take his natural talent for entrepreneurship and fill in the gaps of things he didn't know yet. For example, ever since his childhood, Ingvar had wondered why many products were so cheap to make, but so expensive to buy. He knew from experience that the manufacturing cost of a regular pen was less than one Swedish cent, but buying it from a grocery store cost 10 cents. It wasn't that one particular grocery store was just charging a massive premium, if that was the case other stores would just lower their prices and steal their customers.

Ingvar figured the problem was that most businesses focused all their efforts on efficient production and manufacturing, but very little effort was focused on distribution. Ingvar realised Ikea's success rested on how efficiently their distribution was set up, finding the most cost efficient way to get products from factories to customers. After all, Ikea was importing the same products as everyone else.

so the only way to get an advantage over the competition was simply to be a more efficient business. This was tough at first. All while running IKEA from a distance with the help of his family, Ingvar studied business, worked as a store clerk, and even did military training.

So the business was anything but efficient, and Ingvar worked extremely long hours day and night. But after 5 years of this, Ingvar finally had the freedom to run IKEA full time, and he wanted to go bigger. So in 1948, he decided to add furniture to his product line. This was great timing, as after WWII, the Swedish government built lots of new affordable housing that all needed furnishing. Demand for cheap furniture was high, and so furniture sales soon overtook the other small items Ingvar was selling.

Plus, there were a handful of small furniture makers in the area, so it was easy enough to buy it from them in bulk, and then sell the individual pieces for a profit. What wasn't easy for Ingvar, was keeping track of all the different items he was ordering. You see, because of Ingvar's dyslexia, he couldn't keep track of all the different codes for the individual items.

So instead, he decided to give them more memorable names. For example, bathroom items were named after Swedish bodies of water, desks and chairs were given male Scandinavian names, and children's products were given the names of Scandinavian mammals and birds. When Ingvar sent out a brochure advertising Ikea's new furniture offerings with these eye-catching names, a lot of mail orders came in. As IKEA expanded, the family farm was cleared out in order to manage the workload, and every member of the Kamprad family helped out however they could.

The family was a business, and the business was a family. Before long, Ingvar had hired a staff of 8 people, and he greeted everyone with a hug and considered them his family as well. IKEA's foray into furniture was a massive success, and it was growing steadily, but there was a massive problem on the horizon. You see, IKEA was a mail order business. They would mail out brochures advertising their products, and then customers could mail them back with an order.

The problem was that IKEA was just one of hundreds of mail order retailers that also sold furniture, and they all bought it from the same suppliers. With so many sellers in a single market, IKEA and other businesses had virtually no way to stand out other than lowering their prices. But this meant IKEA's profit margins were getting dangerously thin.

The only way to mitigate this was to cut costs, but that meant the quality of the furniture suffered, and mail order furniture was getting a terrible reputation. Ingvar knew that if IKEA didn't evolve soon, its days were numbered. But that's when he remembered what he learned back in business school. If Ingvar could design a more cost-effective distribution pipeline than its competitors, IKEA could cut costs without sacrificing quality.

This way they could lower their prices and still make a big profit. To do this, Ingvar reimagined IKEA's entire business model. First, he bought a large rundown department store for around $1600. It was a steal.

And after paying $75,000 for renovations, Ingvar beautifully designed the store with Ikea's main furniture offerings. Then, Ingvar cancelled most of Ikea's product lines, and sent out an advertising brochure announcing that they were now exclusively a furniture and domestic products business. This would simplify the supply chain massively. Ingvar's new distribution strategy was now in motion.

Ikea would mail out catalogues just like they used to, but customers would actually come to the store to buy a piece of furniture. Because of this, Ikea no longer had to worry about shipping. which reduced their distribution costs massively, and thus let Ingvar achieve his initial goal, maintain quality, lower prices, and still make a big profit. No other furniture business had combined mail order with a retail location, so IKEA was pioneering a new and risky strategy. But on opening day in 1953, Ingvar saw a line of more than a thousand customers lined up outside IKEA.

He was actually worried that the Swedish buns he was giving out for free wouldn't be nearly enough for everyone. or worse, that the rundown building he'd bought would collapse under the weight of so many people. Thankfully though, the building held, and more buns were cooked just in time. Ingvar described that day as one long rush of constant and joyous work, and since Ikea's consistent quality and lower prices were irresistible to customers, the following days didn't disappoint either.

The Ikea store became something of a local tourist attraction, with people coming in from all over Sweden. Ingvar even built a hotel with a pool right next to it. It also helped that people had been sceptical of ordering low priced furniture from mail order catalogues, so allowing people to come and see it themselves in store was hugely popular. But by still sending out mail order catalogues, Ikea could still reach customers in a very wide area, and thus Ingvar's gamble was a big success.

But on a larger scale, Ikea was still just one player in a massive industry, and the biggest furniture retailers saw Ikea's new methods as a threat. Ingvar didn't know it yet, But IKEA had just made some powerful enemies. In the mid 1950s, IKEA was growing at record pace, and to a large group of Swedish furniture dealers, this was alarming.

All of IKEA's competitors still used the standard mail order model, which meant they couldn't match IKEA's prices without becoming unprofitable. Because of this, the National Association of Furniture Dealers tried everything they could to destroy IKEA before it outgrew them. Now at the time, trade fairs were a crucial part of how IKEA and other furniture dealers got customers.

Most of them just showed off brochures of their furniture, but Ingvar actually brought it with him, and since his prices were unbeatable, customers always flopped to Ikea's stands. Because of this, the other furniture dealers tried to use their influence to disrupt Ikea in any way they could. Firstly, they complained that trade fairs were just for showing items, not selling them like Ikea did, and so they managed to get Ikea banned from selling anything at the trade fairs.

But Ingvar responded by creating subsidiary companies and selling furniture through them instead. The furniture dealer's counter move was to ban all selling at trade fairs. But Ingvar answered by showing off how much lower Ikea's prices were compared to theirs. The furniture dealers then banned every exhibit from showing prices, to which Ingvar responded by setting up his own trade fairs in Sweden's largest cities.

It got to the point where the furniture dealers got Ikea, and even Ingvar personally, banned from attending or hosting any trade fairs. But even then, Ingvar still had them beat. He snuck into a trade fair rolled up inside of a carpet. And so, despite every attempt to destroy IKEA, the furniture dealers were unable to stop Ingvar, he was always too crafty for them.

They compared IKEA to a monster with 7 heads, every time they cut one off, another one grew in its place. And IKEA was now growing incredibly fast, so before it could eclipse them all, the furniture dealers delivered one final, and potentially deadly attack to IKEA. In a letter to all Swedish furniture suppliers, the National Association of Furniture Dealers put it plain and simple.

If you sell to IKEA, we will no longer buy from you. In an instant, furniture suppliers began cutting ties with IKEA. They could either sell to one small but growing company, or to the entire industry. And the choice was obvious for the vast majority of suppliers. Only a few furniture suppliers remained loyal to IKEA, but even they used fake addresses, removed the logos from their vehicles, and made secret deliveries in the middle of the night in order to avoid associating themselves publicly with IKEA.

This time, the threat was real. Ikea had a ton of customers waiting to buy furniture, but no way to supply them, and Ingvar had to act fast in order for Ikea to survive. Firstly, he made sure to reward the few suppliers who were still helping him out. Whereas most furniture dealers took around 3 or 4 months to pay their suppliers, Ingvar made sure they were paid within 10 days at most, and treated like royalty. Secondly, Ikea started making its own designs.

Many furniture dealers refused to work with suppliers who sold them the same products they sold to Ikea. But Ingvar realised if IKEA made some minor adjustments, they could claim it was an entirely different product and win some suppliers back. And finally, Ingvar secured an emergency supply of wooden chairs to be made in Poland. Just a few years later, Poland became one of IKEA's key suppliers, because it was completely out of reach from IKEA's Swedish enemies back home.

Thanks to all this, IKEA was able to dodge a potentially devastating attack from its competition. In Ingvar's words, the boycott only made IKEA stronger. And now, they had a stable foundation of suppliers to rely on, and unique designs unlike anything else on the market. And all of this, would lead to a very unusual breakthrough.

One day when Ingvar finished photographing one of Ikea's new tables, as they were packing it back up, one of his employees had difficulty fitting it into his car. He noted that the table used up a lot of empty space, so he suggested something that would change Ikea's course forever. Why not take off the legs?

Shortly after, they got their first prototype. You could screw and unscrew the table's legs into position easily, and Ingvar instantly realised how beneficial this would be to Ikea. Selling items sold in pieces that are flattened to make transport easier, or flat pack furniture as they called it, would be another turning point for IKEA. Because now they could take a piece of furniture apart, IKEA's packaging became much more compact.

This meant the furniture could be stored and transported more efficiently and cheaply, they spent less on packaging materials, and there was much less chance of an item being damaged in transit. In other words, flat packing instantly cut the company's costs and made distribution faster and safer. And remember, prior to the 1950s you'd normally be waiting a while for your furniture to be made and delivered, but now you could take it home with you the same day. It was win-win. Plus, all of this had another positive effect on IKEA's customers.

Researchers discovered a cognitive bias which they called the IKEA effect, where they realised consumers value products more highly if they've been partially involved in making them. Because many of IKEA's furniture pieces now came in parts, customers actually had to build them at home. and by physically putting the items together themselves, they had a sense of pride and ownership over the item, which meant more of an emotional attachment to it, and so they valued the item more highly. For IKEA, this meant their customers had a higher level of loyalty to the brand.

And so finally, after a decade of battling with their competitors stuck in their old ways, IKEA had evolved beyond their influence. Ingvar knew that IKEA was now perfectly positioned for rapid expansion, and his plans were more ambitious and stranger than ever before. Before we get to the next chapter, it's time to answer a question I get a lot. How do I make these videos?

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After Ikea's success with their first store, Ingvar had decided to open a new store that was bigger and better in every way. For the location, Ingvar chose Stockholm, the capital of Sweden. But instead of a spot in the heart of the city, he picked a location way outside, basically in the countryside. This way Ingvar got a massive discount on real estate, so the Ikea store could be huge.

It was about the size of 8 and a half football fields, and had 3 separate floors. But if Ingvar was going to take on such a massive project, he needed to perfect Ikea's concept, and this is where he showed his true brilliance. Ingvar designed the store in a way that exploited every aspect of his customer's psychology. It worked like this.

When a customer entered IKEA, they took a slip of paper to write down a code for every item they were going to buy, so they didn't have to carry anything around the shop. Despite its vast size, the store had just one entrance and one exit, which wasn't always the easiest to find. People could wander around the different areas for a while, but generally, everything flowed in a single direction, as customers were guided through the entire store in a one-way path. It was almost like a bit of a maze, with curves every 50 feet to keep customers intrigued about what would be coming up next. This also meant you were basically forced to look through all departments and see every item in the store before reaching the exit.

You don't just pop in and buy one thing, you see everything they have to offer, encouraging impulse buys for things you hadn't even planned to purchase. With this in mind, Ingvar designed the layout in three main stages. First it was the showroom, which was meant for bigger expensive things like kitchen and bedroom furniture. Then came the market line, which was meant for smaller cheaper items like silverware and decorations.

And finally, there was the warehouse, where customers picked out the packages with the codes they wrote down and paid for them. However, whilst Ingvar's design seems innocently logical on the surface, there are three brilliant psychological tricks going on behind the scenes. Firstly, every exhibit inside the store exploited something called the Gruen effect, which means a display's layout and lighting are designed to draw people in and make them take their time wandering around. The more time customers spent inside Ikea, the more likely it was that they made an impulse decision to buy some piece of furniture. In fact, research suggests that the majority of purchases at Ikea are unplanned.

Secondly, since the store was so huge and it only flowed in one direction, it meant that customers better write down the code for the more expensive products at the beginning right away, because otherwise they'd have to walk all the way to the end and start the entire maze again from scratch. which could take hours. And thirdly, since more expensive items were at the beginning of the store, by the time customers got to the cheaper items near the end, the price of a new decoration seemed like a bargain compared to that of a massive dining table.

Again, this price anchoring leads to more impulse purchases. As a result of all this, Ikea became more of an experience than a typical shop. You could spend hours there. However, Ingvar did notice one problem.

In the mornings, Ikea was usually full of customers, but business always slowed down after lunchtime. when customers went out for a meal. But what if people didn't leave to get food? Then they could spend all day there.

Ingvar figured that by opening a restaurant inside IKEA, the food sales would not only generate extra money, but people would stay at IKEA for more time. And even better, if the food was good, people might come in just for a bite to eat, and end up buying some furniture as well. With these strategies in place, IKEA was making more money than ever. But Ingvar also had a stroke of good luck. You see, at the time, IKEA was considered the cheapest furniture business in Sweden.

But low prices can often lead people to thinking a product is of low quality as well. But when an impartial Swedish design laboratory gave every item a quality test, comparing IKEA products with more expensive competitors, the results were astounding. IKEA actually had superior quality across the board. Previously, IKEA's quality had been stigmatized because of its lower prices. But thanks to this report, IKEA was now seen as both the financially sound and the more tasteful option.

Because of this, when IKEA's next new store opened in 1965, more than 18,000 people showed up on its first day. Ingvar's expansion plan was working better than he could have ever dreamed, and IKEA was growing like never before. By 1973, IKEA was making tens of millions every year and had over a thousand employees.

Although, oddly enough, Ingvar still ran it like a small family business. The main office was in an old barn on the family farm. And yet, they now had a successful formula they could replicate anywhere. However, Ingvar wanted IKEA to live forever, long after he was gone, and this would lead to a very controversial plan.

Ingvar's dream was for his children to inherit the business, but Sweden's inheritance taxes were extremely high, so instead, Ingvar hired an army of lawyers from all over the world. Their mission was to make IKEA independent of any single country, and protect it from any harmful outsiders trying to take it over. It took IKEA's lawyers more than 7 years of making shell companies, foundations and trusts in every tax haven in the world, but in the end IKEA's corporate structure became an impenetrable and untaxable labyrinth.

The original IKEA company became owned by a holding company whose profits are moved to a tax exempt nonprofit. who later indirectly moves its money into the stitching INGKA foundation which is based in the Netherlands. Completely apart from this is a trust which owns a Dutch holding company, which owns another holding company in Luxembourg, which owns IKEA's intellectual property.

If you're thinking all of this sounds very confusing, you're right, and that's just a grossly oversimplified version. The point is that IKEA's complicated structure has led to controversy, with many accusing the company of reorganising itself in order to avoid paying taxes. Today, 50 years after this restructuring took place, place, the foundation Ingvar created is technically the fourth largest charity in the world. But either way, in the time it took IKEA to become a tax exempt Dutch charity, Ingvar was busy replicating the success in his first stores across the rest of the world, and perfecting the formula even more each time. By the end of the 70s, there were more than 20 new IKEA stores in countries like Canada, Switzerland and Australia, and Ingvar's plans for the 80s were even more ambitious.

However, Ingvar wasn't prepared for what was coming next. The dark shadow of his past was catching up to him, and it would launch him into the biggest controversies of his life. Before we get to the next chapter, I want to help you save time and money with today's video sponsor, ShipStation. ShipStation integrates everywhere you sell online, including Amazon, Etsy, eBay, Shopify, and more. ShipStation then makes it easy to automate shipping tasks and manage your business's orders in one simple dashboard.

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But Ingvar still saw everyone involved in the company as family. He was famous for meeting employees with a big bear hug, getting to know as many of them as he could, and all round being loved by everybody. However, not many people outside of Ikea personally knew Ingvar.

He was just the owner of some giant Swedish furniture company. So, when a journalist discovered that Ingvar had been an avid Nazi enthusiast in his youth, his entire reputation was at stake. In 1994, the journalist reached out to Ingvar for comment, to which Ingvar wrote back saying he was willing to talk openly about everything.

After all, Ingvar was indoctrinated into Nazi ideology through his grandmother but he was too young to think independently. Now that the terrible reality of the Third Reich was public information, he'd changed his views completely. So Ingvar thought that by being totally transparent about everything, any controversy would go away once people heard his story.

However, the journalist had come across two documents alleging that Ingvar had attended a fascist meeting as late as 1958. At that point, WWII had been over for a decade, and Ingvar was 32 years old. This was no longer a story about an innocent boy who had been indoctrinated by his family, it was a story about a mature businessman who might just be an active Nazi. And when the story broke out, newspapers in all of Europe circulated the rumour.

IKEA went into crisis mode, and demanded answers from its founder. Ingvar wrote an open letter to everyone, openly explaining the story of his indoctrination, his involvement with the Swedish Nazi party, expressing his regrets, and begging for everyone's forgiveness. As for the accusation that he was an active Nazi, Ingvar disproved it by saying that 1958, the year of the alleged meeting, had been the year when IKEA's first store was being heavily renovated.

He was simply too busy with work to worry about politics. In fact, Ingvar had not attended any such meeting. And despite the news fiasco this initial story caused, Ingvar had done one thing correctly.

He was honest about everything, and when people heard his version of the story, the controversy died down. At least, that was until 1998. This time, another news story broke out alleging that Ingvar had financed the start of IKEA by borrowing Nazi money. Again, another barrage of headlines rolled out in the newspapers, but Ingvar didn't really care about the claim that he'd borrowed money from the Nazis.

He was furious that anyone thought he'd borrowed money at all. In his words, they could have accused me of murder, but not of borrowing money. In the entire lifespan of IKEA, Ingvar had never taken out a loan, so the claim was totally false. This time though, IKEA's employees didn't demand answers.

Instead, they offered their full support for Ingvar, and he was so grateful that he broke down in tears. However, rumours of Ingvar's involvement with the Nazis never completely went away. For example, throughout his life he had remained acquainted with a Swedish Nazi activist and Holocaust denier, and Ingvar even invited him to his wedding and called him a great man.

It's also known that in the 80s, some of Ikea's suppliers in East Germany were using forced labour, and it's very likely that Ikea's executives were aware of it, and did nothing to intervene. But either way, despite the controversies surrounding Ingvar's past, Ikea was on its way to conquering the world. Throughout the 90s, Ikea built more than 70 new megastores, and became one of the world's strongest brands.

And in 2008, Ikea took the throne as the world's largest furniture retailer. Ikea's success, and the fact the company had remained private, meant Ingvar became one of the richest people in the world. And yet, he still maintained his frugal lifestyle.

He lived in the same house, drove the same old Volvo for 20 years, and always flew economy. Ingvar passed away at 91 years old in 2018. Today, Ikea has well over 450 locations, and so it's not surprising that some crazy stories have happened at Ikea stores. There's a few troubling ones, like when a 12 year old boy ran away from home and got lost in an IKEA for 6 days.

But there's also some heartwarming stories too, like the couple who met for the first time at their local IKEA, and decided to have their wedding there as well. Whatever you think of IKEA, there's no denying it's one of the most fascinating companies around. They've sparked several important retail innovations that other companies around the world now use, and the story of Ingvar's family goes to show what endless perseverance can achieve.

But if you want to hear the story of another Scandinavian company that makes you build what you buy, you have to check out the messed up history of LEGO. Just click the thumbnail on screen now, and I'll see you there in a second. Cheers.

Transcript for:The Evolution and Impact of IKEA

Transcript for:
The Evolution and Impact of IKEA