IKEA Catalogue

3 MACRO ANALYSIS OF IKEA
The PESTEL analysis (acronym for political, economical, social, technological,
environmental and legal) is a strategic framework we used to identify and analyse
external forces impacting IKEA’s business and growth.
Domestic Solutions for Brexit Strategy
Economical
Economic factors consist of changes in inflation rate and interest rates, shifts in
demand and supply, foreign exchange rates, foreign direct investment and
economic growth patterns (PESTEL Analysis, 2018). IKEA in the UK experienced
adverse economic impact following Brexit as the British pound plunged by 12
percent against the Euro (BBC, 2018). With UK being a major market for IKEA and with
60 percent of IKEA’s goods being produced in Europe, the divorce between both
territories significantly affected UK and Europe business operations on a short-term
and long-term basis. With a lower pound, imported goods became more expensive
and the company observed potential cost increments resulting from new tariffs after
the formal separation.
In dealing with this issue, IKEA UK is actively looking at increasing production of sofas
and mattresses domestically to negate risks and costs of imported goods. The team
would also focus on volume selling through its existing stores to keep prices low for
customers. Further, IKEA is expanding to emerging markets such as South Asia and
China to further develop its global presence and strength in business. Both regions
showed promising economic growth as South Asia and China revealed a projected
CAGR growth of 5.7 percent and 4.6 percent respectively over the next two
decades. As disposable income increases for these regions, bigger numbers are
expected to reflect in furniture and household items expenditure which means more
opportunities for the furniture giant.