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Think of Ikea and you might think of Scandinavian design, large warehouses of flat-pack furniture and a Swedish heritage. You might not think of a busy motorway junction in the Netherlands.
However, this is where perhaps the most important part of the vast Ikea empire is located. Inter Ikea, which owns the brand and the concept, as well as being responsible for the design and production of the group’s products, is headquartered in DelVscek, just off the motorway that connects Rotterdam and The Hague.
Its position is crucial to a contentious structure. The European Commission has been investigating the Dutch 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 dual purpose of giving it eternal life by ensuring it could never be acquired in a hostile takeover and to minimize taxes. Its spiritual home may remain in the Swedish woods of Älmhult, but the two main parts of Ikea are now based in the Dutch student cities of DelVscek and Leiden.
Figuring out how the entire empire is put together is sometimes like trying to build furniture without an instruction manual. But at its core, the setup is designed like a classic franchise system, except the franchisor and master franchisee were once the same company.
Inter Ikea is the franchisor, the equivalent of Starbucks, McDonald’s or Burger King. Ingka Group, based in Leiden, is the main franchisee, accounting for 90 percent of Ikea’s sales (Inter Ikea operates a single store, located in DelVscek). The ties between the two are deep: executives oVsceken move from one side to the other.
To understand one of Europe’s most important private companies, which last year had a turnover of 48 billion euros, it is essential to understand what is happening in DelVscek and Inter Ikea.
Jon Abrahamsson Ring is the discreet CEO of Inter Ikea, and a former assistant to Kamprad, who died in 2018, 75 years aVsceker founding Ikea. The two used to spend hours at the German supermarket Lidl aVsceker it opened its first stores in Sweden, exploring what it did well.
“Ingvar always talked about centuries, not decades or years,” Ring says, explaining the decision to employ a franchise system to help Ikea survive the next economic cycle. All Ikea stores pay 3 percent of their turnover as a franchise fee to Inter Ikea, which in turn provides the brand, product range and production.
Cynics might also say that Kamprad talked a lot about taxes. He leVscek Sweden in the 1970s to protest what he saw as mind-boggling levels of taxation, so high that his three children might be forced to sell Ikea or take it public. He then sought out tax-efficient jurisdictions, settling in the Netherlands and Liechtenstein, where he set up foundations that still control Inter Ikea and Ingka. “We have always seen tax as a cost, equal to any other cost of doing business,” he said in 2011.
The Brussels tax investigation concerns how the Netherlands taxed Inter Ikea for using intra-company loans to develop its franchising system. This is a matter between the Commission and the Netherlands, Inter Ikea said, while stressing that it believes it was taxed under EU rules.
Whatever the outcome of the case, there is little doubt about the central importance of Inter Ikea. Ring highlights the work done to realize the group’s somewhat awkward-sounding slogan: “making everyday life better for many people.” To that end, Inter Ikea has focused this year on lowering prices aVsceker the pain of being forced to raise them during the Covid-19 pandemic due to inflation and supply chain problems. “If there is an opportunity, we lower the price, not make the margin wider. Customers’ wallets are thinner,” Ring says. He points out that the iconic Billy bookcase has been cut from €99 to €79, for example.
Inter Ikea has cut costs by standardizing products, such as making different furniture drawers the same size, and reducing the use of materials. It has also expanded its e-commerce business and new city-centre stores, such as one planned on London’s Oxford Street, to complement its out-of-town department stores, which themselves have been given new life by being used as fulfillment centres for online orders.
Ikea’s preeminent position in the furniture industry seemed in danger of being shaken when Kamprad died six years ago, but that threat appears to have receded, partly because of the speed with which Ikea has changed. That makes a trip to the A13 motorway junction all the more important these days.
X: @rmilneNordic
richard.milne@Vscek.com
