IKEA

I also got a flat packed chocolate mousse I put it together this morning it's very easy it's three pieces oh moose like an animal not chocolate mousse like the pudding yeah that's correct it looked really good at first but like the sun rays came in my window and within like 10 minutes it was melted and broke on the kitchen table oh boy is there an analogy about Ikea furniture in there I hope not it was funny though no I don't think so I'm ready if you are I'm ready let's do it who got truth is it you is it you is it you who got the truth now is it you is it you is it you sit it down say it straight another story on the way who got the truth welcome to the fall 2024 season of acquired the podcast about great companies and the stories and playbooks behind them I'm Ben Gilbert I'm David Rosenthal and we are your hosts when you're running an in-person retail establish M you know one thing for sure if people are going

to buy your products they have to be in your store and more time in your store generally means they buy more product so what is a great way to increase time in store meatballs David meatballs meatballs and hot dogs and hot dogs we'll get there so listeners today we dive into Ikea the company that sells over a billion Swedish meatballs a year and a lot of furniture and home wees to go with it Ikea is an 81-year-old company people visit their stores nearly 900 million times a year and it's quirky as hell if you've ever shopped there you're familiar with the Crazy maze of showrooms David I spent 5 hours inside the Seattle store last weekend I went there to prepare for this episode I didn't realize that I was going to spend the whole day there but that's what happens when you go to IKEA God bless you did you uh make use of small land uh I went with a friend who had a kid old enough to take advantage of small land

so yes nice perhaps you know the relationship test of can you make it through Ikea together and that's just at the store then you get home and you have to assemble all that flat packed Furniture you just bought but the furniture it does look good even though it's extremely inexpensive and you do have to build it yourself using the funny diagrams with the funny little man and the funny labels it ends up looking pretty good hell yeah it does and the results of this crazy stew of ingredients is that Ikea has become the world's largest Furniture retailer and one of the largest retailers period today we'll examine why it has worked so well how its founder became the eighth wealthiest person in the world before shifting his ownership into a foundation and how all the little Innovations have just added up and refined the concept along the way so whether it's the poang chair the Lack shelf the Billy bookcase

it is very likely that you have something from Ikea in your house right now this is the story of a mission to create simple well-designed lowcost Furniture accessible to as many people as possible taken to its absolute logical extreme totally well listeners after this episode come discuss it with us on slack and check out aq2 our second show where we just had Luis vanan as a guest the CEO of du lingo his company story is pretty unlikely given most investors assumed you could not build a large business in either the education or language learning Market specifically and Lis has some of the most practical advice I've ever heard for anyone building a consumer startup and have sent it already to a bunch of friends who are building consumer companies so go check it out aq2 available in any podcast player and if you haven't taken the acquired 2024 survey yet please do it is open for another week and we would

greatly appreciate your feedback click the link in the show notes or go to acquire. fm/ survey for your chance to win some sweet meta Ray bands or an acq dad hat o we might need to add a poang chair or something to that actually that'd be extremely economical for us to offer yes it would be cheaper than the rayb bands maybe we'll even throw in some at home assembly for you and really gross it up well as we will discuss later in the episode including you know delivery and everything that comes with e-commerce I don't know if it'll be cheaper or it will certainly be impacting Ikea's margins it's true well before we dive in we want to briefly thank our presenting partner J JP Morgan payments yes just like how we say every company has a story every company story is powered by payments and JP Morgan payments is a part of so many of their Journeys from seed to IPO and Beyond so with that this show is not investment

advice David and I may have investments in the companies we discuss and this show is for informational and entertainment purposes only unfortunately there is literally no possible way for us to have Investments or for any human being to have investments in the companies that we discuss here but we start in the small town of elmut Sweden which is in the province of smand which despite its name is not so small but rather a large rural area in the south of Sweden not too far from Denmark and small land again despite its sort of cutesy friendly Ikea like sounding name it's a pretty tough place it's rural it's agrarian the soil is pretty Barren it's really Rocky there's a lot of forests and Timber and Timber Wood foreshadowing maybe one day what will come out of this province in Sweden it's also cold yeah I mean it's Sweden it's really cold tough place to grow up totally the farmers in small land though

they really have to work hard to scrape out their existence and there's actually a word in small land called Lista which means making du with an absolute minimum of resources appropriate to the province and uh appropriate to Ikea as we shall see and so it is there on a farm in small land in March of 1926 when our protagonist Fodor ingvar comprad or just ingvar as he is known is born and he's born where else for the region on a family farm named tarud in an area about 20 km outside of elmh called aunar which apologies to all of our Swedish friends if we butchered those I listened to a lot of pronunciations to try to get this right now to give you even more of a sense of this land that we're talking about elmh the you know bustling local Metropolis I don't know what the population was in 1926 but in 2010 the population of elmh the big city was 9,000 people and that is including Ikea's major major presence there in

that town today including the first store the Ikea Museum the Ikea Hotel etc etc I'm imagining maybe a thousand people live there at this time maybe and aunar rude the uh area where the farm is in 2010 do you know what its total population is low hundreds 220 people yeah all right so he's in the sticks this is the sticks so how did the comprad family come to small land well if you're perceptive and know your sort of Northern and central European family names you might say comprad is not a Swedish name it's German and actually do you know what Ikea's largest market is still to this day it is not Sweden it's not the US it's not China it's Germany it's Germany ah so ingbar's grandmother and grandfather had immigrated there to small land from Germany only 30 years before ingvar was born so in 1896 and unfortunately it's not a happy story so they bought the farm Elm tude sight unseen when they were in Germany from an

advertisement in a local Hunting magazine and uh people would sort of joke later that this was Ikea's first mail order purchase was the farm and moving to Sweden heyo hey so wait why would you buy a sight up seen Farm in Sweden especially a not very attractive place to farm in Sweden this is like pre-World War I Germany too yes so more to the story here the stated purpose and idea was that they were going to convert the farm from like a agricultural Farm into a Timber Farm into a timber forest ingvar's grandfather hm had been connected to the timber trade in Germany so idea makes sense on paper unfortunately though it doesn't work out and the next year after they immigrate in 1897 ingvar's grandfather hm commits suicide so that leaves his grandmother Francisco alone to raise three kids one of which was just born and manag this Farm she knows nothing about how to farm it's a really difficult Farm to operate

in a rural isolated part of a country that she's not from doesn't speak the language totally rough really really rough and I don't know if this came up in the stuff you were reading something I read alluded to the idea that ingvar's grandfather committed suicide basically out of poverty like his life was so miserable from being totally impoverished that he was clinically depressed and yeah well yes so there's a little more to the story turns out the actual reason for the family's immigration from Germany was more about francisa and hm's marriage and Francisco's family so hm had been from a noble family in Germany or at least a family with historically you know ties to the nobility Francisco was a commoner and I think an illegitimate child born out of wedlock so hm's parents and particularly his mother was not happy about this didn't approve of the marriage and so part of or really probably the whole reason for

their immigration from Germany to Sweden was to escape this this is uh tough so to PL a seed here there is a strong cultural thing in this family of don't be poor figure out a way to earn a keep make wealth deeply ingrained from this yes really really bad situation nonetheless the family perseveres and by the time these children grow up Francisco has turned Elm tude into like a real functional Farm they're getting by it's not going to make them Rich which again like nobody in small end is Rich like they're making it work and they've built themselves into a respected family in the area now the eldest of these children the eldest son France Fodor grows up and marries the daughter of the biggest Merchant in elmh so bringing you know now some Merchant blood into the family when he's 25 francisa asked him and I don't think she asked to come help manage the farm so France Fodor and his new wife Berta they have two young Sons

The Elder of whom is Fodor ingvar comprad our protagonist here they arrive at the farm and this is where ingvar comprad the founder purveyor janitor Soul embodiment of Ikea grows up I mean really we say this on a lot of episodes but ingvar is Ikea as we shall see yeah he is like Jensen and Mark Zuckerberg All in One Singular founder the company wouldn't exist but for his exact personality magnified and multiplied into this huge Behemoth you already see the frugality the we're about to get to the like cleverness of being a merchant the adversity the chip on his shoulder I mean all of it yes yep so when inbar is super young like five years old this Merchant side of his DNA starts to come through and Blossom his aunt the youngest child the third child of francisa helps young ingvar by bulk sets of matchboxes mail order from Stockholm the capital of Sweden ingvar little ingvar 5-year-old then goes around the

countryside selling individual matchboxes to other farms and other families in the area at like a 3X markup from what he got them unit price in the bulk package from stock so he writes later my aunt didn't accept payment for the postage so then I sold the boxes at 2 to three or each or is like a penny to a croner at the time and ween like two to three cents each sometimes even five the whole male order package of 100 cost 88 talk about profit margins I still remember the lovely feeling from that time selling things became somewhat of an obsession for me yeah the seeds are sewn of what one of the greatest retailers of all time right here at age5 totally I mean Sam Walton Jim Sagal Sal Price Jeff Bezos ingred comprad absolutely yep so young inbar he gets a taste of this he's hooked he goes on all throughout his childhood he's ordering bulk items mail order from elsewhere in the country selling all

kinds of stuff out to the residents out in the small in Countryside so like Christmas cards wall decorations garden seeds just like random small Goods ultimately he finds a niche and a good business importing and selling fountain pens from other countries in Europe he's like 10 12 years old at this point he's selling these fountain pens so fast that he decides like oh hey I wish I had some financing to be able to buy some more of these pens I know I could make money I have product Market fit I should raise money I should raise money so he goes to the village in n and he takes out a 500 croner loan from the bank there Swedish croner this is like $63 about at the time this is in 1938 and in $38 $63 is hundreds of dollars today yeah especially for a 12-year-old so imagine your kid walking down the street and going and somehow going back with $500 right that's also part of the story here he finagles like I don't think his

you know grandmother or his parents were helping him with this right so he uses that to import 500 fountain pens from Paris and then I think you know they sell quickly he like repays back you know the the loan pretty quickly and that listeners is the only Capital that ever goes into Ikea that is the only money that ingvar would ever raise we will flash all the way forward to Modern Day ingvar always owned 100% of Ikea he built it into the world's largest furniture store and one of the world's largest retailers period without anybody else owning a single share of the company no outside financing no debt financing nothing nothing they own I think all of their real estate today they own all this I'm sure they probably use construction financing today but you know they have 25 billion euros in the bank like this is it this is the background this is what he comes from 500 croner Loan in 1938 paid back

immediately only Capital that ever goes into the business freaking wild totally crazy totally wild I don't recall exactly like the Walmart story but I mean even that I think Sam was like from family and Banks and other folks taking money yeah his wife's family I believe invested that's right his wife's family the whole thing gets financed off of cash flow from pens yes he literally trades matchboxes to Christmas cards to pens to Furniture to Ikea nuts it's like the the story of the guy who starts with a paperclip and ends up with not just a house but like a city it's not though it's not really trading it's he generates positive cash flow off of the sale of each of those items then reinvests that positive cash flow in buying the inventory for the next thing it's just this like thank God he's had 81 years to do it otherwise you could never grow to something this large financing your future growth only on the

cash flows you've generated so far right it's a good although he is a traitor for a very long time I think that is how he would think of himself it's not like he's getting the better of other folks like he's creating value he's right creating value for suppliers he's creating value for buyers he's performing capitalism here right that's is the definition of capitalism you sell something you have excess cash flows in the form of profit margin you reinvest that in growing your business and he just did that over and over and over again okay so in 19 1943 when ingvar is 17 he's about to go off to the equivalent of college at the school of Commerce in gottenberg which is a much bigger city in Sweden like is actually a city in Sweden and uh ingbar decides that before he goes he wants to officially start a company like a firm to formalize all of his trading activities that he's been doing because

he intends to expand it while he's in gottenberg at school his sort of import export business shall we say and there is one other thing happening during this period of time in ingvar's life we will come back to that later so before he leaves he registers an official trading firm with the county of small land and names it very creatively the natural thing that comes to mind very descriptive term he names it his name and his mailing address ingvar comprad elude aard I k e a Ikea ah I never put together it was like his mailing address I always knew it was the two initials of his name and the farm and the city well I think that was his mailing address ah that makes sense you know this is the countryside here it's not like there's any more to the address than like elard he doesn't have a house number so cool so that's Ikea that's inkar comrades trading firm this is it and he does put the first Ikea logo sign on

like a little shed on the property it's simultaneously labeling the property by address then in addition to saying this is where Ikea does business yes which is all part of the lore I'm not sure how much actually happens in the shed besides he puts the sign up there I think he just stores inventory there before well let's talk about inventory so inbar goes off to the school of Commerce and for the first time there he's able to do what I think he intended which was get access in the school library to real actual trade Publications import export trade papers and trade Publications so he starts writing to the suppliers all over Europe who are listed in these trade Publications and asks if he can become a selling agent of theirs in Sweden now I say agent at this point he's running an actually incredibly Capital light business most things I think he is not taking inventory some of it he is he's

storing some pens and stuff small Goods under his bed while he's at college but a lot of it what he's doing is he's finding an aggregating demand in Sweden and sending purchase orders directly to the manufacturers wherever they are in Sweden or elsewhere and they just fulfill the orders directly to the customers by mail it's pretty awesome so like the first drop shipper yeah he's not doing the shipping me he's just an aggregator for demand he's an agent and he never takes possession of the inventory it's a fulfilled in real time as he gets the order the supplier puts it in the mail it's great yep and again not always you know sometimes he gets a box of 500 pens or whatever like he's doing whatever is going to make him the most money and be the right Arrangement but being an agent is the best way to do this so he starts off you know naturally he continues the pen business he goes from fountain pens to ballpoints that's

a big hit then he gets into wallets cigarette lighters file folders you know all sorts of small goods and at first he's mostly just kind of doing what a lot of other people are doing at this point in time who are Trader agent types he's a traveling salesman he's going back and forth to gottenberg and to small land and he's selling to customers that he meets mostly out in the countryside it's you know hand toand combat it's ringing doors it's calling on his Network then though he gets the idea he's like well I'm getting all my supplier relationships through trade magazines corresponding by mail and then a lot of times when I'm the agent they're fulfilling the orders by mail what if I just get into the mail order business myself these trade Publications are a pretty good way to get business for the suppliers what if I do that so he starts a product catalog and he advertises it in Publications all around

Sweden with the idea being that like oh rather than just what I'm limited to doing myself I can now scale across the whole country and I can aggregate a lot more demand it actually doesn't matter if I don't know these people or I don't go to these parts of Sweden the suppliers don't know them either it's all going to work the same yep and he's also learned at this point that if he can aggregate more and more demand and get higher order volumes he's for sure going to get better prices from these suppliers now here in the call it mid 1940s this is not a new innovation that young ingbar is coming up with it's basically the story of the Sears robot catalog you know 50 years earlier in America this is happening all over the world and there's plenty of other people doing the same thing in Sweden at the time once you had enough scale to say hey I've aggregated a bunch of interesting products you started making

a catalog and you mailed out to everyone and that was your sort of client base I mean it was the e-commerce industry before the e-commerce industry yep anybody could do it it was just about aggregating demand yep so ingvar creates uh this you know catalog of his Wares called Ikea news eventually he publishes Ikea news on its own with its own subscriber base but at first he's just inserting it as an advertising supplement in local farming Publications all around Sweden so by the end of college end of the war like I said he's doing really well like he's doing way better than probably anybody back in small so after school he returns to the farm to Elm tude and he recruits his family to also start helping him with the business and fulfilling these orders and running all the mail and all that stuff and they're still just running it on the farm and then in 1948 angvar makes a fateful but again

not unique decision which is that he decides to add Furniture to his cattle now other competitors of his other rural focused mail order businesses and dealers offered furniture at the time and that's actually why inbar starts doing it too he had been shopping the competition doing the Sam Walton thing he's reading all the advertising supplements of all his competitors and he notices that they start offering Furniture it seems to be working for them they're promoting it more and more and he says well hey I should try that too and he would joke later it was like it was an accident that he found his life calling in the furniture business yep so he does with Furniture what he's doing with all Ikea products at this time which is he goes around he sources some suppliers and he asks them if Ikea can be their agent to sell their Furniture now Furniture isn't exactly like uh fountain pens or wallets it's

big you can't just order a box of 500 armchairs and stuff it under your bed or put it in your little shed on the farm really what you need to run this model is you need local suppliers or at least domestic suppliers within Sweden y well fortunately as we discussed small land is full of Timber and it just so happens that probably because of that there are a number of furniture makers right there in the province so ingvar goes around to local small furniture makers and asks if he can be their agent like hey can I bring you more business they're all like well sure he's like there's one condition which is you'll have to deliver the furniture yourselves is that okay and they're like well that's what we do anyway it's part of our business sure yeah now famously and this is part of the lore about ingvar and probably is uh somewhat exaggerated he loved to tell people that he's dyslexic and it totally

serves this lore of like oh here's this Hard Scrabble country retailer I don't know how dyslexic he really was really this was like a thing that I almost thought I was going to stump you I was because it comes up later in a key moment of Ikea that he's dyslexic and it's why some I don't want to spoil it yet but obviously not only do you know he was dyslexic you're proposing he may not have been that dyslexic well I read some stuff from some former employees that suggested that it was more part of the legend that he cultivated than reality but I actually don't know what you're referring to I'm excited to surprised so it's why the products are named the way they are rather than having model numbers oh this is exactly what I was going to say okay yeah it's like part of the hey I need to have a word for each of these things and not only yeah yeah this exactly what I was about to say I thought that was like oh

is there another Point later okay so where are we going here David well regardless of its veracity or not ingvar does not like remembering product numbers and codes and catalog so he decides that he is going to give a name and not a product code or number to all these Furniture pieces and yes this is the beginning of Ikea product naming conventions do you know though I actually had no idea till I started researching what these sort of General naming conventions are within Ikea today I think so I think different product categories are named after different things like rivers and yes certain Furniture is named after certain it's almost like conference room naming at companies yes so products are usually named after Scandinavian locations I think Swedish locations are used for sofas and coffee tables like the core part of the Line Norwegian locations I think are used for beds Danish locations

for textiles and then some of the smaller Goods like lamps are season lakes and outdoor furniture is Islands I think ah clever they got the whole you know schema here with names so ingbar if he truly was dyslexic would now be having a tough time with all of this so anyway ingbar decides that he's going to start all this off with his you know named pieces of furniture in the Ikea catalog that again are not his furniture he's just sourcing them from local furniture makers like other people are doing he's going to start with a test and he puts three pie pieces from small land in the catalog two armchairs one of which is a armless armchair or so I guess just a chair that is intended for baby nursing dude an armless chair for baby nursing sounds awful sounds like torture like that's the time when you need the arm the most hey man different era different era so he writes the response was unambiguous we sold a huge

amount of this quote unquote test furniture and inar of course he's a traitor has a nose for business he's like great what more can we add so he quickly sources a sofa bed to add to the catalog famous you know Ikea sofabed there it is right in the beginning then a chandelier and then all sorts of other stuff and it's Off to the Races pretty much any piece of furniture or Furniture like HomeGoods that he can get his hands on and advertise in the catalog it sells like hot cakes or maybe meatballs is that too much that's too much anyway so now why is it selling like meatballs here why is there a huge demand before mail order the only way that people out in the countryside could get furniture that wasn't locally made right there or passed down from Generations but still it had to get made and bought at some point in time was through dealers like ingvar used to be like you know traveling salesmen type

people and they had very limited access to inventory they were sourcing like individual pieces probably more often than not you know secondhand estate stuff or maybe they're from a distributor or a third party middleman I mean either way we're talking super limited scale very sparse and unreliable product offerings like you need a baby nursing chair an armless baby nurse whatever you need a dining table like the likelihood that your guy had that in his stock was low and so that's just availability but then also the pricing I mean again we're talking about how everybody here is just basically eeking out a living the traveling salesman agent types you know they're trying to eek out a living too they're trying to make as much money as they can they're not trying to build scale they don't get like oh hey volume drives prices down low prices drive volume it's like no no no no that's what's the maximum margin I

can extract for this very one-off random special sale making totally ingvar though because of his history in small goods and as a importer he's got a very different mindset he knows that oh selling Goods in bulk and bulk orders like it's all the way back to the matchboxes that's how he's approaching the problem he's also young he doesn't have a family like he can just operate in a very different mindset than everyone else here so scale doesn't bother him he's happy to try and drive prices down as low as possible pass that savings along to buyer undercut everyone else get more demand like this is how he operates and even more than that he realizes Furniture is way better than these small Goods because even though you know I could sell cheaper these are still large ticket purchases for people the absolute number of dollars or you know croner that I'm going to make On Any Given piece of furniture even if I'm selling

it at a low margin is like way more than ballpoint pens here right and not only that but it's also selling quickly even though these are high priced items because there's this huge unmet demand in the countryside people are starving for this stuff and even better the logistics and distribution for us for Ikea is just as easy as ever the furniture makers are handling it all themselves this is great let's pour resources into this it is crazy he managed to aggregate demand for something that is very difficult to manage and take invent of and he managed to sell to those customers without having to deal with the really tough inventory problems I mean it truly is like the first drop shipper well as we'll see it works for a while and then it doesn't but for the Moment In Time the furniture makers love it ingvar and the other folks who are doing this has just expanded their Market this is the golden early days for this whole catalog

drop shipping industry H So within a couple months ingvar is getting so many orders from customers and so many furniture makers who want to be in the catalog that he's like okay we got to just focus on furniture he starts hiring a handful more of other folks Beyond just his family to help out but it's still like a fairly lean operation we're talking 10 people or so through the 40s they're still running it out of the farm at elude and then in 1949 ingvar decides to go really big he starts buying regularly every week a supplement in the big National Farmers paper in Sweden which has a circulation of 285,000 copies and I guess we should have talked about this earlier you I'm talking about supplements you know advertising you know I'm realizing that uh a bet a lot of our audience has no idea what I'm talking about like a supplement to a newspaper yes this is here America going back to the Best Buy circular in the

Sunday paper or the target circular or the Sears circular I don't get a newsp anymore but I'm pretty sure this still happens I think this is still a very common advertising Channel totally anyway back to 1949 ingar goes big he commits to regular weekly publication as a supplement in the National Farmers paper so before this when we said people were subscribed to his catalog how did that work it worked like like all these businesses I think did at the time which was if you were a customer you saw something in this advertisement circular in a paper or somehow got exposed to it you then place an order you then get placed on the customer list so I think once ingvar's got your address and knows who you are you're in his CRM so to speak now I think you're getting his catalog directly so in this first weekly supplement he specifically appealed to what he ultimately terms this idea of the many and we'll keep coming back to

this this is super critical to Ikea so in this first national circular that goes out he writes you may have noticed that it is not easy to make ends meat why is this you yourself produce Goods of various kinds milk grain potatoes Etc and I suppose you do not receive too much payment for them no I'm sure you don't and yet everything is so fantastically expensive to great extent that is due to middlemen compare what you receive for a kilo of pork with what the shops ask for it in several areas it is unfortunately true that Goods that may cost one or two Crona to manufacture cost five six or more to buy in this price list we have taken a step in the right direction by offering you Goods at the same price your dealer buys for in some cases lower I mean this is it we'll make it up in volume this is thinnest margins possible for the many people with an obsession in cutting out middlemen yep and what's interesting

here is I think this is the first time where he's by Instinct appealing specifically to the low price aspect like again almost everybody else was appealing to the selection the availability of like oh you can finally get furniture he's now saying like no no I know it's hard for you out there I know you're struggling to make ends me I'm going to give you the absolute lowest prices on this stuff oh yeah this is worth a pause hearken back to our Walmart episode what's the uh sort of perfect triangle of delivering a retail product it's convenience price and selection and what he's basically saying is price price price yes and way better selection than you had in the old model convenience probably not as good but price I know you care about price you are struggling to make ends meet yep a little lat we're going to talk about this amazing document that envar writes in 1976 called The Testament of a

furniture dealer he's so folksy but the very beginning of it the very first thing reads that the mission of the company is to create a better everyday life for the many people the many by offering a wide range of well-designed functional Home Furnishing products at prices so low that as many people as possible will be able to afford them I mean that's it it's all right there in that sense yep now the interesting question though here and for the rest of the episode is like we said ingvar is not the only mail order Furniture Company at this point he has plenty of competitors who are doing the same things and probably catching on to this same idea that low prices are also important but none of them become Ikea and the next reason why none of them become Ikea is none of them have a showroom oh yes but before we tell the showroom chapter of Ikea now is a great time to tell you about our presenting

partner this season JP Morgan payments we've been talking about how Ikea brought Simplicity to a complex and fragmented customer experience this is exactly what JP Morgan is doing for payments businesses don't want complexity or to have to rely on connecting multiple thirdparty hardware and software vendors together or to sacrifice stability and Security in order to grow their Top Line This Is Why JP Morgan invests over $17 billion a year in technology as the endtoend seamless payment solution to handle everything from payment acceptance and processing to security to reconciliation so you can focus on running your business exactly and since we're in Ikea land let's zoom in today on retailers and specifically on a product that most of you are very very familiar with tap to pay obviously there's been a massive shift in the last few years and how consumers expect to seamlessly use their phones to check out well JP Morgan

payments enables this as part of their Omni Channel Solution that's likely been running under the hood in many of the in-person checkout experiences that you've had we've reached this Tipping Point where 50% of global in-person transactions are now contactless and it's totally essential for companies to offer a great tap-to-pay experience I honestly love this and I've been preaching the virtues of tap to pay for years now listeners I can vouch for that David was a very early adopter when we would go on morning runs I think actually back when you lived in Seattle and you'd only bring your watch even when we were going to go get breakfast together afterwards and I thought it's just crazy yes it's great it's great for everyone for merchants they can easily accept debit and credit cards from the NFC enabled digital Wallets on smartphones for employees it's great because they can seamlessly complete

payments from anywhere in the store and of course for customers like us it's great since they get a transparent and secure transaction and pay more conveniently yep for anyone who is at our Chase Center show this is the exact experience we used for the roaming Hawkers selling the hats so you got to experience this firsthand and the results were pretty insane we found out after that they sold 1,500 hats in under 2 hours with a 100% success rate which means zero declines yep so any business retail or otherwise benefits from having a frictionless payment experience listeners can go to jp.com Acquired and learn more about about tap to pay and check out other Payment Solutions driving growth for businesses our thanks to JP Morgan payments okay so David how does the first Ikea showroom come to be so as we alluded to earlier in the early days of this mail order Furniture catalog circular type business model it's the

Golden Era everybody prospers consumers are happy furniture makers are happy there's room for a competition like it's all Green Field everybody's going after new customers nobody's stepping on each other's Turf inevitably though as we get into the early 1950s competition gets more intense among these male order businesses like Ikea and price Wars start y so this is the next chapter and the thing about mail order was yes it enabled scale which enabled selection which enabled low prices but there was no governor on quality and what I mean by that is that anybody who had a mail order business could take attractive looking photos of their furniture and HomeGoods and stick it in their catalog or their circular advertisements and say like oh buy my beautiful looking furniture at this really really attractive price and those photos may or may not have any sort of bearing on the reality of what the furniture actually

was when it arrived not to mention you basically had no recourse cuz at this point there wasn't modern credit card so it's not like you could charge back there wasn't 2024 style returns infrastructure where you could just get your money back by sending something back weeks or months after it was delivered to you and get a full refund nobody was building these big sort of global brands that were trustworthy and so it was just a matter of which small local circular brand convinced you that their picture was worth ordering right I actually don't know what their return policies are I hope they're good but it's like the teu of 1950s Sweden here right like the disconnect after a couple years of this between what you think you're getting and what you're actually getting right starts to widen and so even though ingvar is focused on Quality Furniture at the lowest possible prices the fact that other people aren't

is hurting him because it's hurting consumer trust and I can just deliver low prices if I compromise on quality right so he's searching for way out of what's starting to become a pretty brutal competitive landscape and one night as Legend has it he's working late with one of his early employees a guy named Sven go and they come up with a crazy idea and the crazy idea is what if we had a showroom where people could come and they could touch and see and feel the actual items that we are selling in our catalog and then they could convince themselves like yes this is the quality this is the item that I'm going to get at this price I think if we could just show people they could see with their own eyes touch with their own hands they would see that the quality we're delivering at this price is way better than anyone else out there and it just so happens at this moment in time that the local Furniture joinery in elmh is

about to close he is going to buy the building for 13,000 croner which is about $2,500 at the time we're here in like early 1950s so you know not cheap but not that much money and that $2,500 investment becomes the first Ikea showroom I mean we seriously kid you not listeners the only money this guy Ever Raised was that 500 croner bank loan yeah it's nuts and the funny thing about this it is a showroom it's not like a store our business model continues to be this catalog thing but we a place where you can just kind of touch and feel the furniture I think Tesla does this today or has done it for a while or bonobos or yeah yeah a store in a mall that you can go see the cars or see the pants but you can't take it home right so let's illustrate why this is a completely nutty idea a there's the obvious you can't take it home B the whole point of the mail order business was that buyers and sellers can now access each other

across the whole country all of Sweden as a market all the rural areas everywhere in the country and Sweden is a pretty big geographical country what inbar is doing here they're opening a showroom in One Singular remote part of this country you know in a town with like a thousand people who live there and their business model is to sell to the other towns of a thousand people all over the rest of the country why on Earth would opening one showroom in one little town work here's the thing I mean by God does it work I don't know that the customer base in the town of elul was that important to Ikea itself people come from all over the country to go to the showroom this is wild so ingvar advertises that they're opening this for months leading up to the actual opening which is in March of 1953 so all of his customers and everybody getting the circular advertisements in the weekly paper all across the country they're

hearing about this showroom in elmh on opening day in March of 1953 there are over a thousand people from all all over the country who show up and wait in line wow to get in they take the train they somehow make their way to elmh to just see the furniture they're not even buying anything it's crazy inar and the team like they're so worried about this that they don't know that the floorboards on the second floor of this old joinery are like you know it's like an old building here that are like going to stand up to a thousand people being up there plus all the furniture that they have as you know the showroom they had also advertised in the circulars that they were going to offer free coffee and morning buns to anybody coming to shop yes the very first time there's food at an Ikea is the very first time there's an Ikea that's right there's always always been part of the concept but yeah Ben as you say like

there's no Warehouse there's no flat packed Furniture everybody's just there to like see the stuff and you could also fill out an order form while you're there to then buy it by mail later so inar has a quote about this at that moment the basis of the modern Ikea concept was created and in principle it still applies first and foremost use a catalog to tempt people to come to an exhibition which today is our store come and see us in Elm hoot and convince yourself we wrote on the back of the first catalog two very important words there convince and the other one is exhibition already they were seeing this idea and the fact that he marketed to the whole country and offered food I mean we're not just offering you a store that you can walk into and buy something we are creating an exhibition yes it is an experience it's almost like you're getting a free ticket to this experience this exhibition yes great retailers have

more in common with PT baram than poor retailers totally oh my God so this is I think and ingvar thinks he writes this this is the very first time anywhere in the world that a male order business is combined with a physical show oh so you might think oh Sears in the US obviously that's a mail order business and they have Sears stores no no no they're different like the Sears stores you buy the stuff at the stores and you walk out it's not a showroom here with Ikea for the first time it is that concept you just described Ben it's like we tempt you to come see this exhibition and then you order by mail I don't think anybody had ever done this before because again it was a crazy freaking idea but of course it becomes an enormous success So within the first couple years of the elm hul showroom store it's not a store being open a huge portion of Ikea's catalog subscriber base they've now formalized it as the Ikea catalog about

half of their catalog subscriber base which is hundreds of thousands of people now at this point in time make the pilgrimage to elh and they visit the showroom you know this tiny little village hundreds of thousands of people are now coming there and you might ask yourself what's the big deal with the catalog like why are people so interested in getting a catalog it was really inspirational I mean it hadn't quite made the shift yet but especially in the 60s after Britt Lang took over from engvar cuz ingvar is like everything right now he's like art directing the photography I think he might even be taking the pictures and writing the copy but it turned into this thing with these vibrant beautiful living room settings and people are anticipating the arrival of the Ikea catalog and it positioned Ikea as this brand this lifestyle it Illustrated a life you could be be living if you participated in the Ikea story yep that

really really becomes a thing in the 60s with modernity and when the Target customer becomes the urban and Suburban customer but here even with the rural customer like it still works they lean into this model heavily so they arrange for any Ikea customer to get discount tickets on Swedish Railways to make the pilgrimage to elmood and then they also set up this program where customers who come from another location and commit to Furnishing a whole house they call these the setting up house customers they get they get free dinner at the hotel in elmh that night like this is hokey stuff but to your point PT Barnum yeah that's what this is yep so within a year they pass 1 million croner in sales at this showroom which has got to be by multiples the larg business ever built in elmh in like human history in 1954 so the next year after this has been open they passed 3 million croner in sales I think the exchange rate was

about 5 to one at this point in time of five croner to $1 1955 they double again to 6 million in sales the number of Ikea catalog subscribers around the country passes half a million and all this is done with still less than 30 employees the business still being run out of the combination of the family farm and this one showroom it's wild the scale they get to it's amazing yeah so it's one of these things that you know on the one hand we are how many years into Ikea was founded in 43 and we're approximately in 53 54 here so we're 10 11 years in but the thing that is really working is this thing that just got started the previous year which is the combo of the catalog and the showroom that proves to be this like amazing winning combination that they just realize oh my God we need to scale this yep totally this is I would say like generation three of the IKEA business you know generation one is just small Goods

Trading Company matches and pens generation two is furniture plus catalog now we're here in version three of like Furniture catalog plus showroom and that's what's really exclusive yep but here in the 50s though the Target customer base we referenced this a minute ago and the product mix is still geared towards these rural Farmland families like hey I'm outfitting my farmhouse yep and when you look at the old catalogs you can tell totally it's not this simple Swedish design that we think about as Ikea as today it's like pretty rugged robust heavy Furniture yes so when the 1960s come around Sweden like pretty much all of Europe starts rapidly and inexorably urbanizing the automobile becomes Common Place Farms are closing down young people are moving into cities and suburbs they're taking jobs in factories they're taking white collar jobs other Blue Collar jobs I think there was some stat in the Ikea story

that during the decade between the mid-50s and the mid-60s I think three qus of the farms in Sweden closed down wa it's wild but this is happening all over Europe huh and so the customer base for Ikea and all their competitors starts to majorly majorly shift it's no longer families setting up their Farms are taking over the farm from the Elder Generations it's now like a whole new lifestyle modernity in the cities in the suburbs smaller houses modern houses electricity Apartments not to mention it's kind of impossible to do the traditional thing of just pass down the furniture to the Next Generation which is how most people got their Furniture up into this point because they were living very close to their parents or perhaps taking over the house from their parents totally this is oh I'm getting an apartment in Stockholm I kind of need to start from scratch and the furniture needs to be pretty easy to move or put

together yes yes indeed it does so on the one hand this is like a total EX existential threat to Ikea's business it's like well your customer base is Shifting the products that you are selling are no longer wanted they're going away on the other hand there has never been a bigger opportunity in the history of furniture making and selling throughout all of human history than what is about to happen here and Ikea even though it's currently serving what is effectively the parent generation of these new customers with a little bit of adaptation has the perfect model for these new young urban and Suburban amilies yep but to get there Ben I know you itching to tell this story there's one more element of the Ikea model that needs to fall into place and ironically even though it is totally identified core part of the company today it's a reaction to competition that drives it and that is designing its own furniture

and specifically flat packing it is astonishing that so far in the story they've been shipping like full-sized fully assembled armchairs in order to get them to your house well remember Ikea is not shipping it the suppliers are shipping it but that it's taking up a huge amount think about a flat packed chair that you're ordering versus a fully assembled chair and how much room that takes up in the truck yep in the early days this doesn't really matter to Ikea like hey it's all great like that's my supplier's problem as the business is scaling though this becomes Ikea's problem because it's a limit to SC scaling yep okay so where does flat peeing come from so it's totally intertwined with Ikea taking on the Furniture Design itself and I said it was driven by competition it's not driven by competition because any of the other players do the same thing it's actually the opposite problem Ikea has

become so dominant in Sweden at this point in time that it's monopolizing like a huge portion of all the furniture Mak production output and so the rest of the industry starts organizing against Ikea and Ikea is philosophically trying to drive down prices they want to create the furniture for the many and their competitors are all trying to maximize margin and have kind of small businesses because the whole Furniture landscape in fact to this day is very very fragmented it's tons of players serving Niche local use cases and so you've got the whole Swedish Furniture industry that's pissed at Ikea for going to the furniture manufacturers and saying what's the very best deal you can give me and then turning around to customers and saying I'm going to make very little margin and sell you all of this manufacturer's capacity at extremely low cost so the competitors are feeling it from both sides they're saying okay the

manufacturers have no capacity to manufacture for me and no customers want my stuff because you're selling it cheaper it's freaking wild Ikea does not have a direct competitor today in 2024 there is not a single other globally scaled Furniture business in the world put a pin in it I have a thesis on why oh okay so what do the competitors do they start locking Ikea out of trade fairs trying to limit their access to suppliers they start pressuring Ikea's existing suppliers into not selling to Ikea they say oh we're all collectively going to boycott other orders from you and Ikea is not yet big enough where that fails that actually works and the manufacturers to come to Ikea and say sorry the collective leverage of all your competitors is too large and we're not going to serve you yep competitors even go to the Swedish government and they Lobby the Swedish government to limit Ikea's ability to circulate its

catalog I don't know on what grounds this like the most European thing ever that the regulation should uh this is too good for consumers yes exactly oh man we could make a million jokes about European regulation yeah anyway to your point it starts to work and this becomes a real problem for Ikea so angvar the company they're like all right well how are we going to design our way out of this one and turns out design is the answer so they start going to the suppliers to the furniture makers and they say like okay we hear you that our competition does not want you to give your pieces to us like you're also giving to them what if we give you a new set of designs for different furniture and you make those designs just for us separate line open up separate lines could you do that and most of them say well yeah I think I could do that and this is the beginning of Ikea in-house designed Furniture now the first quote

unquote designer who angvar sets to work on this is a former advertising draftsman named Gillis lungren and ingvar had hired him originally to help ingvar do the set layout in the photo shoots for the catalog as his like assisting lungren starts cranking out sketches of furniture designs for the manufacturers and so then as Legend has it all this is going on and then one night the two of them lungren and inbar are taking down the set from a photo shoot and lungren says while he's putting a table away he's like oh God this thing is so heavy what a huge amount of space it takes up let's just take the legs off the table and put them under the tabletop and then we can store all this stuff better and ingvar is like a bolt of lightning has hit him he's like oh my God I have just received like you know the last commandment from God about how to how to run this business like yes we take the legs off and it

takes up a lot less space my God we can design these things to come off on purpose and then when we have our manufacturers ship the tables to customers they're going to be able to fit a hell of a lot more of them in those trucks yep and it's kind of apocryphal I am sure something along the lines of this Insight happened there were many other companies that were doing flat pack Furniture before this including the company we've talked about multiple times on this episode Sears robu was flat packing in their catalog distribution in America but certainly the company that gets credit for popularizing and growing the volume of flat packed Furniture being shipped 100x a THX around the world is Ikea and it's a nice little story but I think what Ikea does is they go all in on this so the first flat pack product that they design is the max table in the mid1 1950s but by the end of the 1950s flat pack and then self assembly by the

customer is expanded across the entire range like all of Ikea's furniture and obviously some stuff you can't flat pack but like as much as possible and because they had for separate reasons started doing their own designs with manufacturers they can do this yep so flashing forward a little bit to today but it's interesting to look at all the downstream things that happen from Flat packing one it enables this space saving in trucks it enables you to do more volume for the same cost two there's a cost reduction since customers can do the labor and transport before you had to have someone at your company put the chair together and that costs a lot of labor now you're putting that on the customer you're also making it so the customer has the capability to transport the merchandise in a way that they couldn't before they had to have a truck right mail order was the only way to make this happen you're not going to

drive away or get on a bus with a table yep absolutely there's a further cost reduction since it decreases the broken merchandise in transit so there's this third amazing benefit to Flat packing ultimately they pass all this along to the customers meaning now their products are definitely the least expensive on the market for their quality and psychologically it gives this feeling of accomplishment it increases your fondness for whatever object you assembled because of the labor The Blood Sweat and Tears that you just put into it you feel like I made this yeah we almost broke up but we didn't and 4 hours later I have the the cabinet together one of the articles I was reading for research called it the Lego for adults totally that's totally right yeah another great Scandinavian company we'll have to cover it someday I have a fun story for you David on flat pack that I haven't told you yet o light on

me so there's another word for this do you know what it is do you hear it anywhere it's kind of an old school retail or Merchant phrase oo no I don't think I did knockdown o no and it was referred to to as KD so in preparation for this episode I talked to Jim senagal who's the co-founder of Costco CU I was asking about Ikea and the similarities and he said he used to love going to Ikea to look at the KD furniture that they stocked and I thought this was like a brand I was like oh maybe this was like a brand that Ikea used to stock at some point I realized I recall oh no this is like what people used to call the flat packed is KD Furniture that's amazing yeah the interwovenness with Costco is really interesting another research call was with y Bailey who ran Ikea in the US in the late ' 80s and he mentioned that ingvar always looked up to Costco and thought they were like the greatest retailer in the world there's a lot of

shared admiration there oh man we're going to talk about hot dogs in a little bit you think I'm joking I'm not all right let's go okay before we get there though so KD you know this Innovation knockdown flat pack this is also though what enables this shift in the product mix for the new modern young urban and Suburban customer who doesn't want the same kind of furniture can't use the same kind of furniture that their parents were using back on the farmlands so Legend has it that right around this time as the whole Ikea range is Shifting to Flat pack ingvar goes on a trip to the Milan Furniture show in Italy and while he's there one of the suppliers a carpet supplier at the fair offers to take him around the city and you know inbar wants to see how people live and he's like sure I I'll ask a bunch of my employees who work in my Urban modern mechanized Factory here in Milan if you can just go into their homes and so

ingbar goes into their apartments and he's just appalled by like the furniture that he sees there and how different it is from the new modern city living designs he's seeing at the Furniture fair it's all the old rural Farm house big heavy dark furniture that takes up a lot of space and isn't practical in the city and so supposedly this is the moment when inbar really gets religion of like oh this is our new customer and this is our opportunities to design the low price highquality affordable furniture for this target market all these people that are moving to cities for the first time this is modern middle class living yep so we're all familiar with the simple Scandinavian design that Ikea furniture is and it's become extremely popular basically universally adored I just accept it as like the standard of what modern furniture is right the question is is there something intrinsic to simple Scandinavian design

that makes it universally applicable or is it Ikea success that now we all sort of look at it and have some reverence for it cuz it really is beneficial to Ikea that we all like simple designs instead of ornate designs at this point because it makes it work much better for flat pack for reducing cost for making Transportation easy I mean imagine chunky ornate furniture with intricate handcarved designs still being the creme de La Creme of here's what you should have in your house and it's basic and expected it kind of makes the business model work that it's these simple designs yeah I think these things are inextricable I mean I'm not a expert in design history and people who are might contradict me here but I don't think there was necessarily that much about Scandinavian or Swedish design that was particularly light simple minimal before Ikea yeah listeners join us in the slack I'm curious if someone has traced the

lineage of this sort of Scandinavian aesthetic in a pre-1950s world where this sort of comes from like who we all copying because there's definitely some lineage of designers that all this is sort of trying to emulate yeah so Angar writes to this he says a design that was not just good implied unlike what the Milan Factory workers previously had in their homes but also from the start adapted to machine production and thus cheap to produce which Ben is exactly the point you are making with a design of that kind and the innovation of self assembly we could save a great deal of money in the factories and on transport and keep the price down to the customer there it is so entering into the 1960s here and all the demographic change that's happening Ikea is perfectly positioned and it's just explosive growth for the company and to capitalize on it they obviously need to ramp supplier production significantly so

they've had these battles in Sweden with competition they've gotten around that with their own designs but now they need to ramp up so much Sweden itself even if they didn't have these problems just doesn't have enough capacity for all this new furniture that Ikea needs to Source yeah just to illustrate your point about 1955 they did 6 million croner by 61 they did 40 million croner so that's almost a 7x in six years yes so ingbar starts looking around elsewhere in Europe to expand supplier production and then in 1960 ingvar reeds in the Swedish newspaper that the foreign minister of Poland is coming to visit the Stockholm Chamber of Commerce with the express purpose of developing business relationships with Swedish companies and you might be like okay you know doesn't this kind of stuff happen all the time what's the big deal well Poland at the time was a communist country behind the Iron Curtain yep so

this was odd and inbar is like well you know if we could find a way to work with the Communists we could probably lock up a lot of production capacity that nobody else is going to go through the trouble of getting yep and I bet they can also produce things pretty cheaply over there and in pretty high volumes yep so in 1961 Ikea goes to Poland to help local manufacturers state sponsored manufacturers there set up furniture production of the Ikea designs and by the end of the decade of the 60s Poland is producing 50% of Ikea's Furniture including some of the first modern Classics like the Billy bookcase the agla cafe chair it's the sort of wooden sort of curved back oh yeah chair that you know the iconic one yeah that's I think if I have it right I think that design is actually based on like a Polish chair design oh interesting becomes yeah one of the biggest selling products for the company

in history the other thing that they're doing here is Ikea is investing in bringing up these factories they're trying to build really close supplier relationships here and basically make sure that those factories are going to be successful for the long run so they can kind of bet their business on it totally and I mean they get really really intertwined to the point where eventually in the this is a little later in the 70s after Ikea invests a ton in developing uh board onframe quote unquote technology or Sandwich Board construction as it's called This is the Lack table so listeners probably many of you know for those of you who don't you definitely have seen this thing you've probably owned it the lack coffee table or lack shelves or yeah Poland is where they produce this coffee table that they use particle board you know Sandwich Board construction inspired by how doors are made sort of more cheap not solid

wood doors today in 2024 the Lac table retails for $9.99 in America this is a table that you can buy for less than 10 bucks it's astonishing how they've driven price down on some of these things totally astonishing and in fact I think it's worth a little sidebar on the coffee table right now as an example it perfectly illustrates the new consumer Dynamic and demand explosion that AA is about to head into the lack coffee table is the first example of this idea that ingvar starts to develop of the item with the breathtaking price quote unquote and every product that Ikea sells and its range should be high quality Great Value ideally way better on both dimensions than any competition have beautiful form I think that's a part of it too is it's supposed to have the form and design it's not just build quality but actually the form is should be elegant to look at yes but over and above just kind of like the standard

products in the range Ikea should always have a few products that are these breathtaking price products and these products should also be high quality but they should be priced at least 50% below any competitive or substitutive products out there and ideally like well less than 50% I mean a $10 table today that's breathtaking that's astonishing and so inar says like it's our job to figure out you know start with that end goal in mind and then design backwards from that of like how are we going to make that happen and he would later write and describe the whole idea is based on the substantial price difference the easily understood price by the consumer we don't lose on the deal nor do we make much profit but at least we make a little and in the end that's what matters we can't actually lose money on these profits and thus we need to design like not just what the furniture looks like the manufacturing process the transport

process the raw material sourcing process like everything end to end about how are we going to sell the product is the whole supply chain yes a $10 coffee table and so the way they do it at least in the case of the Lac is like we're going to wholesale reinvent the manufacturing technology process for this we're not going to make a solid wood coffee table we're going to use use board onf frame construction and what are the raw inputs for that well we can use the leftover scrap wood chips and then eventually now I think it's like Pulp material from the timber that's actually going to be like 90 plus% of the material that goes into the product is our waste products from our other things that we're making a that's super cheap B it's super lightweight even though they're pretty solid and sturdy and then see we can just scale this indefinitely today Ikea sells almost 20 million lack tables every year and has been for

decades I mean they've sold hundreds of millions of these things so like you can optimize the freaking crap out of your whole supply chain to do this that is wild I think they have multiple SKS at that scale so later once he like Charlie Munger got turned onto the virtues of Costco ingvar would hilariously formalize this this idea this Manifesto in 1995 as the hot dog product policy because in 1995 they copied Costco and they start selling hot dogs in the stores okay so I brought this up with Jim when I was talking about similarities between Costco and Ikea he did not believe that Ikea copied the Costco hot dog and here was his rationale there's no way it's 100% a copy I don't believe him I know Ikea started doing it 1995 there is a rich Swedish tradition in Hot Dogs Swedish hot dog carts are freaking everywhere I don't think you had to look at Costco to observe we could probably sell hot dogs at a

Swedish store Jim is a very um kind and uh generous Soul despite being one of the greatest retailers of all time so I'm just going to chalk this one up to that the IKEA hot dogs today are priced at $1 which is cheaper than the buck 50 at Costco well no David the buck 50 is a combo that's what I was going to say I think though you can only get the buck 50 combo at Costco yeah I mean I don't know if you could walk up and try to order a hot dog that's less than a dollar but it is $1.50 for a hot dog and a drink and there's no menu item of just a hot dog right we talked about all this on the episode like part of how they do this is including the drink it's a bundling yeah anyway I refuse to believe that the ability to buy just a hot dog at Ikea is not a nod to the Costco deal because Ikea also has the hot dog and drink combo for 150 and it's right after checkout just like Cosco's is and it entered the store about a decade after

Costco started selling the hot dog there's no way there's no freaking way that ingbar wasn't just like all right we got to copy the hot dog yeah the even more amazing thing is he codifies this into the official policy of the company which is we must have at least at first it's 10 quote unquote hot dog products across the range he later UPS it to 20 and it's yes it's like the Lack table it's an impossible price for ideally one product in every category that we sell that is just it's criminal not to buy this thing yeah and the fact that they just keep whittling it down you're over year over year a great example of this is the poing chair yes another hot dog product absolutely I think they've sold 30 million of these since 1976 they've just been bcal about optimizing so the initial poing chair which was originally called the poem not the poong I didn't know that in inflation adjusted dollars was $350 in

1988 by 2016 they had it down below $100 and it's effectively flattened out it's now $30 but with a little bit more inflation it's astonishing you can get this chair that is a living room chair for $130 comparable chairs are like $2 to $3,000 right you're not going to buy a poing chair and have anybody mistake it for a Herman Miller recliner no but that's not what they're trying to be but it's pretty darn close for the delta in price I mean a Herman Miller recliner is what $5,000 I think something like that yeah maybe this performs the same function but you're not going to aesthetically mistake it for a Herman Miller chair oh I guess my point is like the delta in the design Aesthetics is also way closer than $477 yes that's a great point it has this WOW price when you drive home with it and you set it up you can Marvel at the fact that it only cost you $130 yes okay which brings us to the

other I think really uniquely Ikea piece of this hot dog policy that even Costco doesn't really have I just love it the hot dog policy Ikea thanks to the catalog controls all parts of the demand and the supply chain they control the supply chain obviously as we've been talking about but the catalog for decades is the primary marketing and demand driving channel so it's not like they're having to buy advertising they fully control the marketing channel and so they can use these hot dog products strategically and promote them in each market in the catalog to then drive the visits to stores Drive the huge demands position them with other products then they do the layouts in the showrooms you know it's just it's genius it all works together it's kind of amazing that because in many ways they are their own customer acquisition Channel with the catalog that they never turned into a customer acquisition Channel for other

businesses they should sell advertising I mean it's the Amazon Play right of once you reach scale and you have enough customer eyeballs you can staple on a near 100% margin advertising business for free and I flipped through decades worth of Ikea catalogs unless I miss something I never noticed like an emergent advertising business in there yeah it's interesting but that doesn't actually surprise me I think bvar probably have viewed that as a shortterm optimization and that is like antithetical to how he wants to run the business y so now what's also interesting though is like this element that I was just saying of they control the whole demand and supply chain is no longer true in the internet world like in the catalog World absolutely was true in the internet world no and the who whoa no spoilers no spoilers okay okay we're getting way ahead of ourselves so I'm going to take us back to 1958

there's a few more key pieces is the puzzle that needs to come together but first this is a great time to talk about friend of the show stat Zig so as we've been talking about Ikea's big innovation was finding a way to make high-quality well-designed Furniture available to anyone at crazy affordable prices and you know the three ways they did this sweating design and functionality having a radically different delivery model and offering great prices through crazy scale which we are sort of getting to here in the story now it might not seem this way at first but stat is sort of doing the same thing for their category okay lay it on me here all right and bear with me listeners you probably know the rough story of stat Sig by now but here's a quick refresher they were founded by a team of Engineers at meta who wanted to build a complete set of data and Engineering tools like those that powered the growth at

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Enterprise customers plus the team is just awesome there so great to get started go to stats.com acquired or click the link in the show notes and just remember to tell them that Ben and David sent you okay so David I'm taking us back here to the late 50s where we have a few more pieces of the puzzle of modern Ikea that kind of are coming together so in 1958 they expanded remember we said there was just like some cold food and coffee yeah they uh expanded that they added hot food they added self-service it's more like you see today this is all at the showroom in Elm h y exactly and the philosophy behind this is the margin should never exceed 10% at the restaurant they want to use it to attract customers to retain and Delight but they want to make their money on furniture and it's kind of like David these hot dog items you're talking about they don't want to lose money just like Costco they're sort of opposed to Lost

leaders I don't know if it's as religious but they are looking to make money on everything they sell I think it's equally religious for different reasons I think Costco was about not insulting your customers I think at Ikea it's ingvar just his background and being religiously opposed to losing money right is unbelievably Frugal oh man we got to tell that amazing story we heard in the research he was doing a store visit somewhere in Europe in Germany yeah I think it was in Germany at night and uh the store manager is like okay you know come on in I'm going to turn the lights on he's like dear God don't turn the lights on do you know how much that costs and it wasn't a store manager it was like a really Junior person yeah that's right do you know how much it costs I'm going to use this flashlight and they spend hours going through the store with flashlights and because he's also like obsessive about

details and a micromanager he finds like 30 little things wrong all with a flashlight and you know asks for all of them to be fixed by morning amazing but this whole restaurant thing they really find religion on this is here because we need to make it worth your while to come all the way to this store it has to be an attraction they develop this phrase it's tough to do business on an empty stomach and so it's early days it's not like prolonging time in store the way that it is today but it is hey we want to add a Disneyland effect and add perceived value to your trip here yep today restaurants just to flash all the way forward it is technically the world's sixth largest restaurant chain measured by number of customers in 2017 they had 700 million people per year eat at their restaurants now I think that's not duplicated like if I eat multiple times per year that might be counting me otherwise it's kind of unfathomable does

10% of the world really eat in Ikeas even more wild they're only 476 Ikeas in the world today so whether that's duplicated or not 700 million customers across only 476 locations is wild totally wild 30% of people who visit Ikea do so just to eat I love it a lot of Meatballs I have done that many times in my life most recently in downtown San Francisco I don't have many of these stories and I was trying to figure out why like I was talking to my wife and she was talking about oh my God I loved getting the catalog growing up and oh I've furnished so many apartments in Ikea and and I was kind of thinking like actually until the last few years I haven't really and like I've never eaten it on Ikea just to eat lunch and I kind of realized Ohio did not get an Ikea for a really long time like I grew up without an Ikea near me and even when I went to college in Columbus they got one in Cincinnati but it was until after I

left Columbus that they got one there so until I got to Seattle I don't think I had ever experienced Ikea and the Seattle Ikea is so great yeah well I have a question for you then what year did your family leave Delaware 96 you grew up very close to an Ikea and you just didn't realize it oh really because Ikea has been part of my life pretty much my whole life and again I didn't realize why the first Us store was in Plymouth Meeting Pennsylvania right outside Philadelphia which opened in 1985 I was born in 1984 I grew up with you know Billy bookcases and all this stuff like it's just been a constant my entire life I mean I went to the small land I played in the ball pit all this stuff all right it is funny how I've developed an appreciation as an adult but it was not like a formative thing like for you and so many others all right so into the 1960s David they open a bigger store where yes so

they actually had opened a showroom in Norway in Sweden's nextdoor neighbor country to be able to sell in in Norway but that was you know same concept as the AL hoop showroom not really a store by the mid-60s though all of this you know new Urban consumer all really really taking off in June of 1965 Ikea opens its second showroom location very different than the original this one is almost 500,000 Square ft what yeah that's like even still probably their biggest store or among their biggest few I think it is still I believe the flagship ship IKEA store cuz even today they're like 3 400,000 when they build new stores it is a circular building inspired by the Guggenheim Museum in New York City whoa I think even this one is no longer circular that does not last in in the Ikea Playbook it costs 17 million croner to build or roughly $3 million compared with the original Alm Hood location that

ingvar bought for 13,000 croner God they must have done so much business out of that catalog and that little you know those two tiny showrooms in order to LEAP to this and spend all that money on this store well by this time the business was call it about a 100 million croner a year by the mid-60s when this second store is opening so 20 million USD at the time so a $3 million USD investment in this store is you know a lot cuz I know what their profit margins were but like a big investment but they could handle it so it's probably like a year or two of all of their profits go into this yes most importantly though is the location it is on the outskirts of Stockholm the biggest and the capital city of Sweden and for the first time they actually stock items in the store by now flat pack is really rocking enroll in like they're trying to fit as much in the store for customers to buy Cash and Carry Out themselves and

this is the first real modern IKEA on the first day that they open it in June of 1965 they have 18,000 customers come through and then in that first year that store alone does 70 million croner in sales so it doubles the company's Revenue they also at this store for the first time now have the setup where customers fetch the products themselves from the warehouse yes and a few more elements of this Stockholm store that you might recognize if you are an Ikea customer today it's located on the outskirts of the city with good highways leading to it and lots and lots and lots of parking spaces its opening hours are 11:00 a.m. to 7 p.m. so that both you as the customer and the employees the co-workers there are not battling morning rush hour to get there when you know who's going to be shopping at 9:00 a.m. in the outskirts of the city anyway but it's open late after work so you finish you know work you finish your

shift at the factory you finish your white color job whatever you're doing great hop on the bus hop in your car go on over to Ikea buy some furniture and yes Ben as you say you can buy and carry away the flat packed Furniture right there the fact that you don't need employees to go and fetch things for you you can just grab off of shelf yourself after you kind of wind through showrooms it's like further compounding their cost structure Advantage totally so then this is tragic but ends up being great for the company five years later this beautiful design Guggenheim Museum inspired store in 197 one night the neon IKEA sign on top of the building catches fire and the building burns down I don't know if it totally burns down but it's you know major major damage I believe the Insurance claim resulting from this was at the time the largest Insurance claim in Swedish National History o but I think this is really part of the

culture of Ikea the company and certainly ingvar's mindset is like every challenge is an opportunity when they reopen the store a year later it's got the full customer self-service checkout that you know of Ikea today where like yes there are you know co-workers there helping you out but like you're Wheeling the stuff up you're scanning the stuff you're putting it through it's got more capacity for more and larger flat packed items in the warehouse and this is really the beginning of the end of the mail order business here I mean it's still exists obviously for a long time but the share of the business that is mail order versus Cash and Carry in the stores goes way way way down two they add a children's playroom at the front of the store with a ball pit for kids kids to be entertained while your parents shop because Lord knows you know how on Earth are you going to do your Ikea shopping with your crazy little

kiddos running around which is also a genius way to prolong time in store I mean you're just going to buy more stuff if your kids are looked after I will say the small land at the Seattle store the idea is a little bit better than the execution it was a 2hour wait once you get there to get your kid into the small land and they only allowed five kids at a time it was sort of odd like I was all built up for oh small land's going to be this amazing thing I suspect this is something that you know hey a different era when we were growing up like things were uh it worked a little better and uh you can't get away with these days totally like one person watching 40 kids or something yeah drop your kid off go knock yourself out come back with 10 fingers 10 toes yeah can't do that today yep and then finally number three in the newly redesigned Stockholm store yes they had opened a restaurant at Alm hul

at the showroom a couple years ahead of time but this was the real like cafeteria the real cafeteria like we know and love it today with the traditional smallin style menu yes and so this is basically it there is a lot that happens after this but the core concept of the store and why the business model works and all that is pretty baked here by the mid-60s yep and certainly by 1971 and this sort of V2 two of the Stockholm store yeah so across the 60s they open more Denmark and Norway stores in the 70s they open in Japan Australia Austria Canada Germany Hong Kong and Singapore in 75 they enter Japan for the first time they try real hard for 12 years to make it work but it fails and they withdraw in 1986 a few of the reasons are the furniture is too big they just didn't understand the needs of that market well self assembly was kind of an anathema to Japanese culture and the delivery industry hadn't really been built out in

the way that they need it to be there's like a necessary precondition to Ikea entering a market which is there's robust delivery services to make it work if you're going to rely on the catalog model otherwise people have to be able to drive to the stores and use the store concept where you grab it off the warehouse put it in your big car drive home in these dense urban areas in Japan that's not really possible and so they pull out after 12 years they did eventually go back in in 2006 and make a bunch of changes to make it work today but I think Japan was kind of this after they saw success in all these other markets it was a little bit of humble pie for them not seeing it work there and I think it spooked them a little bit for further Global expansion yep it is amazing in the 70s really until they go to Japan I'm laughing using the word uh well we'll come back to another reason why I shouldn't be laughing using the

word it's almost like they did Blitz scaling you know across Europe and even Beyond Europe in the 70s I mean they went all throughout Continental Europe they expanded to Canada Australia Singapore I mean inbar totally got conviction that the newly redesigned store in Stockholm was it and we were going to copy paste it and bring it everywhere and they're rapidly scaling with profit dollars right they're not raising money to do this yeah as we've talked about have very thin profit margins and so what it means is they're just doing tons and tons and tons of volume to enable them to do their future growth with their current profit dollars yep it's hard to get consistent Revenue data on the company because it's a private Company still is a private company but by the 1980s they're doing $2 billion a year in Revenue so call it 15 20 years to scale from 20 million to 2 billion it's incredible yeah it's

interesting it's a company that is rapidly scaling at the same time that in their DNA they're unbelievably Thrifty you kind of wouldn't expect both of these things to be true of the same company totally this is the same guy like just to quote the Testament of a furniture dealer this is like one of my favorite paragraphs ingvar writes it is not all that difficult to reach set targets if you do not have to count the cost any designer can design a desk that will cost 5,000 croner but only the most skilled can design a a good functional desk that will cost 100 croner expensive solutions to any kind of problem are usually the work of mediocrity we have no respect for the solution until we know what it costs an Ikea product without a price tag is always wrong it is just as wrong when a government does not tell the taxpayers what a free school lunch costs proportion before choosing a solution set it in relation

to the cost only then can you fully determine its worth it's amazing that this level of thriftiness and paying attention to the details is also the same company that is in a decade expanding all over the globe Y and it's totally what enables it to happen because it's almost like Warren Buffett you know in the Berkshire haway episodes where as a young man he's like I cannot spend any money because any money that leaves my bank account will not compound it's the same thing here with Ikea they view all of the profits that they are making as like compounded value of future investment here that's an interesting way to think about it so in the 70s during this you know decade of Blitz scaling if you will for Ikea ingbar is in his early 50s and for a couple reasons as the company is doing this massive scaling outside of Sweden he starts to become really concerned about succession and what will happen to Ikea when he

inevitably dies although he would live for another 40 years after this he lives to be 91 Sweden at the time had high and Rising wealth and inheritance taxes so inheritance taxes for large Estates of which the comprad and estate and Ikea as an asset would definitely be one was over 60% and on top of that there was an annual wealth tax in Sweden at the time which was 2 .5% of your calculated wealth annually and your calculated wealth included all of the working capital in any companies you own whoa really like it's the illiquid ownership of the company plus the working capital in it yes especially sitting there in the early 70s knowing you're about to embark on this journey from you know call it couple hundred million croner Revenue business to a multi-billion dollar Revenue business oh his net worth would eventually rise to something around $60 billion yeah there it wasn't even just going to be

like enough Capital to pay that 2 and a half% annual tax side note by the way in the mid 2000s Sweden ended up abolishing completely both the wealth tax and the inheritance tax so actually at the end of his life huh ingvar moves back to small land moves back to Sweden oh wow I didn't realize that was part of it yeah and he dies in Sweden any anyway this kicks off for angvar and the comrads a whole Saga of wealth succession corporate planning that ultimately has a huge impact on the company so in 1973 which is the first year that IA expands outside of Scandinavia ingvar and his family immigrate to Denmark first to avoid the wealth tax and then a couple years later in 1978 they settle in Switzerland now ingvar actually has multiple goals here though it's not just avoiding taxes although I mean he'll be the first to admit taxes was the like first and primary motivation here in addition to that and I think this really

really was genuine he's concerned with ensuring Ikea's continuity and survival and there are multiple parts that one he wanted Ikea to be completely independent from anyone country's political fate the political history of Europe that envar lived through and that we're going to talk about later is Case in point here right like he has lived through not knowing that countries are going to continue to exist and he doesn't want any of that to risk Ikea two he also doesn't want anything that would happen within his family to risk Ikea so by this point he has three relatively young sons and he doesn't want to set up a dynamic where the three of them are fighting over over control or selling off Ikea or etc etc tearing it apart and then I think C he also wants to ensure that Ikea keeps its focus on the long term and not the short term and for him that meant specifically having a huge fear of what would happen if it ever

were a publicly traded company he thought that like it is just like totally incompatible to be publicly traded and have shareholders and be long-term focused I heard a funny quote indirectly from someone who told me that ingvar once said going public is a little like wetting your pants it's warm and comfortable for a few minutes but then after that oh my God what a fxy dude yeah wow so ultimately after a lot of international lawyers get involved they decide that what they're going to do is set up aelf self owned Foundation based in the Netherlands so this is like echo of our Nova Nordisk episode here and the reason they choose the Netherlands is that Dutch foundations are at least according to the lawyers the most bulletproof and hardest to change the bylaws of and they're going to divide Ikea into two quote unquote spheres one of which is going to be the physical sphere and Company and that is the

actual stores the operator of the stores yep operator of the stores and the other one is going to be the quote unquote mental sphere which is the brand and concept of Ikea and this is where you end up with this crazy structure where Ikea is two companies today it is Inca Holdings which is the physical sphere the technically largest franchise operator of Ikea stores they own and operate 400 of the 476 Ikea stores in the world today and that is owned by the Dutch Inca Foundation which is a charitable Foundation is actual charitable foundation and then you have the mental company the brand company which is inter Ikea systems and Inter owns the Ikea brand the concept and then they license the Ikea brand and concept to everyone else who operates the stores as a franchise operator of which today Inca is by far largest and in return for that licensing of the brand and concept inter Ikea gets a royalty of 3% of gross sales

from every store so I'm going to say all of this again in different words just because it is impossibly hard to parse the first time you can essentially think of it as a franchiser franchisee relationship the franchisor who owns the brand the IP all that is inter Ikea systems they work with a company called Inca who has the privilege of operating the stores and getting access to the intellectual property in exchange for a 3% royalty on their revenue so every year inter Ikea systems and this changes a little bit over time but inter Ikea systems the parent company designs furniture and works with manufacturers to have it made and upkeeps the brand and all the corporate stuff designs the catalog etc etc sells that furniture to Inca or any of the other franchises and the reason there's other franchises is because you want specialized franchises in different markets where you don't understand the local culture so that's

kind of why there's Inca for a lot of the like Western Europe and English-speaking world and then there's specific franchises that are not Inca for other parts but just simplify it for now cuz Inca is like 90% of the stores and then Inca buys that for furniture from inter Ikea Holdings pays 3% of Revenue and then runs the stores y now David I simplified out the part about the foundations that own each of them I think we should come back to that later because there's some interesting nuances there but that's sort of the structure they devise here yep and then ultimate Foundation owners for both of these two separate companies they get set up the comprod family at least after ingvar dies the comprad family will be involved but does not have ultimate control or voting power over either of these companies so today certain of the brothers are on the board of certain companies all three of them are on the

board of one company or the other but they are far from a majority and they cannot even if all three of them get together influence or control the decisions of either company and that was super important to ingbar yep it's pretty interesting and I believe the Ina company and Foundation still rolls up to a Dutch parent and the inter holding company I believe is a lonstein foundation that owns it it's all like this sort of spread around to ensure this sort of political continuity of the company it's almost sort like Bitcoin maximalist people who have ripped up their keys into different parts and put it in different safe deposit boxes all around the world that exactly what ingbar is doing here that's a good analogy yes you are correct Inca the franchisee who operates the stores rolls up to a Netherlands based charitable Foundation where inter Ikea systems the kind of parent that owns the IP rolls up

to a lickstein based Enterprise Foundation different like non-charitable is an Enterprise self- owning Foundation based in lickstein which for those wondering what lickstein is it is a country that is sort of landlocked and sandwiched in between Austria and Switzerland with a very small population but it happens to be very good for establishing entities like this from a tax and treaty perspective yeah and you said to a sort of Enterprise Foundation I think was the word you used not a charitable Foundation the purpose this is like a circular function in computer science the stated purpose and goal and activities of that Foundation is to ensure the continued operations and success of Ikea yes to secure the independence and longevity of the Ikea concept and the financial reserves needed to ensure this that is the purpose of the foundation which is so interesting again the Inca Foundation is

a charitable foundation and they do disperse I think now like 2300 million euros a year in charitable donations around the world and it's to things you would expect it's climate it's poverty it's charitable causes but yeah to your point the inter Ikea Holdings the foundation at the top of that is literally to ensure Ikea's continuity it is like a Fort Knox for Ikea fascinating okay so the structure is going to shift a little bit as I mentioned like they'll rename things they'll break some things apart they'll shift who's responsible for What on the edges but that's largely the structure that is in place going forward yep so once this is all done and envar and the family no longer directly own the company in 1976 he writes this document that is intended to serve as sort of a like forever operating system of the company it's almost like the Bezos leadership principles yes exactly ex that's exactly

what it was like and he titles it The Testament of a furniture dealer as we've talked about and literally like he's treating this like it's his last will in Testament even though he stays involved in the business for another 42 years and handson the whole time it's an amazing document we'll link to it in the show notes like you should go read it it's on the Ikea website it's really cool so it has nine Testaments or sort of Commandments and you already read one which was the mortal sin of wasting resources at Ikea the first one though number one the product range our identity we shall offer a wide range of well-designed functional Home Furnishing products at prices so low that as many people as possible will be able to afford them talked about that earlier our products must be functional and wellmade but quality must never be an end in and of itself it must be adjusted to the consumer's needs this is

fascinating he continues a tabletop for example needs a harder wearing surface than a shelf in a bookcase in the first example a more expensive finish offers the consumer long-lasting utility whereas in the latter it just hurts the customer by adding to the price quality must always be adapted to the consumer's interests in the long term no effort must be spared to ensure our prices are perceived to be low there shall always be a substantial price difference compared to our competitors and we shall always have the best value for money offers in every function every product area must include breathtaking offers this is before the hot dog analogy in '95 it's great it makes so much sense it's so great the analog to software companies is engineering for engineering sake there's many examples of sort of architecting the perfect system that's like wildly Overkill anyone who's put together Ikea furniture knows anything

that's not seen like things that on the bottom that face the floor or that face the wall are not finished and often times like the back of shelving units or the back of Cabinetry is like thin flimsy you don't need it to be structurally stable so it's not they wanted to cut a corner there and make it as cheap as possible because they view that as a value for you the customer it's not that they don't care or that it's sloppy they care a lot right it's said it would be insulting to spend money on it yes exactly this is the polar opposite Viewpoint of the Apple Steve Jobs the insides must be beautiful yes but it's actually a lot closer in philosophy than you would think it is intentionality about it yes nowhere in either company is their sloppiness but at Ikea it's we are going to intentionally make the backside and the insides not beautiful so that it is a higher value to you as a customer yeah

there's so much good stuff in this document just to illustrate ingvar's personality the fact that he wrote this is well here it is bear in mind that time is your most important resource you can do so much in 10 minutes 10 minutes once gone are gone for good you can never get them back 10 minutes are not just a sixth of your hourly pay 10 minutes are a piece of yourself divide your life into 10-minute units and sacrifice as few of them as possible in meaningless activity it's so I'm so glad that you brought this up I wasn't going to put this in the episode but I totally highlighted that reading it and I was like wow I need to think about that in my life totally and there's so many times where we're like 10 minutes away from a call that you and I are jumping on or 10 minutes away from recording an episode and I'm like I'm amazed in the amount I could get done in those 10 minutes when I really was forced to and

it's such a good point like if you actually force yourself hey just go focus and get 10 minutes of work done you can be astonishingly productive in 10 minutes totally I hadn't thought about this but um maybe Ikea and apple are more spiritually aligned than I even realized Ikea and apple are very similar in a way that I will get to later oh okay I love it okay and then another similarity analogy the last Testament number nine is just so early Jeff Bezos shareholder letter like that we can't not read it the title of the Testament is most things still remain to be done a glorious future exclamation mark so he writes the feeling of having finished something is an effective sleeping pill a person who retires feeling that he has done his bit will quickly wither away a company which feels that it has reached its goal will quickly stagnate and lose its Vitality happiness is not reaching your goal happiness is being on the way

it is our wonderful fate to be just at the beginning in all areas we will move ahead only by constantly asking ourselves how what we are doing today can be done better tomorrow the positive Joy of Discovery must be our inspiration in the future too oh I share this Affliction 100% me too I feel for ingvar that this is his like view on life because anytime anything awesome happens I'm like immediately onto the next thing and unwilling to ackn like it doesn't give me happiness that something great happened what gives me happiness is working toward the next great thing if we ever just decided all right we made all the good episodes were done I'd be miserable I was going to laugh I mean like this is the story of acquired D I think you know it's so funny but more on the personal life advice from this too like Angar I think is living proof of this I mean the man lives to be 91 he clearly didn't think he was going to

live to be anywhere near that age and the stories we heard of him visiting stores being super engaged in board meetings making decisions making product decisions up until the last weeks of his life at 91 years old or I think he is totally right you know he writes a person who retires feeling that he has done his bit will quickly wither away that is like no more perfect example of that exist than ingbar himself yeah happiness for him was making things a little bit better if he has nothing to make better what's his reason for being yep totally so this is the mindset that ingvar and the company are going into the 80s with and the 80s is just continuing this compounding so 1981 they open stores in France and Spain 1983 they go to Saudi Arabia 1984 they go to Belgium 1987 they go to the UK 1989 they go to Italy and along the way in 1985 as we talked about they opened the first Us store outside Philadelphia in

Plymouth Meeting right by King of Prussia frequented it often as a child outfitted my bedroom and my family room and everywhere else the interesting thing about the us though which I was so surprised reading because again Ikea has just been part of my life forever it actually doesn't work that well for a really long time yeah it opens with a bang in 1985 they do this like incredible marketing campaign in the Philadelphia area part of it actually was figuring out how it should be pronounced because in Europe it was eeka the way you would pronounce it as a Swedish person is Ika and the ad campaign they decided Americans are just going to pronounce it Ikea so let's lean into it so it was an i and a picture of a key- and so coming soon I Ika and people sort of knew about it cuz it had been in Canada for 9 years I think it had started in Nova Scotia and actually I happen to know the founders of Costco

made a special trip up to one of the Canadian Ikeas even before the founding of Costco because they had so much respect for Ikea as a brand they admired they like wanted to go and see it and experience it oh that's amazing yeah isn't that crazy so like people in the US especially merchants and people knew of Ikea from its Canada presence so it's opening the pent up demand in Philadelphia from the cacophony of factors leading to the excitement around it was insane there was over a one mile long line to get into the store they ran out of merchandise on opening day and they actually had to run radio ads apologizing and announcing that they were restocking the store as fast as they can whoa that's wild that said a failure of Ikea corporate as they were expanding around the US was assuming that the US was homogeneous and so I think they expanded to 10 or 12 stores and it wasn't going great relative to

their other markets and I think it's because they sort of misunderstood that the US has really different needs in really different parts of the country yeah that would make sense I mean in in Europe not to say all European countries are homogeneous but any given European country is a lot more homogeneous than all of the United States of America and there was also some just basic US market specific stuff I love this uh softer sofas Americans like to sit in the sofa whereas Europeans sit on the sofa oh really is that part of it yep yep so the sofas are softer in America you sink into them whereas in Europe you know yeah funny yeah around this time I think when they were observing the US stores were not in great shape they were open to the idea of individuals franchising Ikea stores now they had this structure in place they thought maybe this is an interesting thing for former longtime Ikea employees to do to

sort of open up a store so they did an experiment starting in Seattle and the sort of idea from ingvar was if you have your own wallet on the floor how do you do compared to the corporately owned stores and it was this essentially like a bake off and a test to see if the bureaucracy was hurting them or if they had too many layers of management or if they had more Innovative marketing ideas which the independently owned stores specifically the Seattle one absolutely did created their own marketing campaigns and like it became pretty Divergent the Seattle store was actually a leased old Boeing Warehouse that ended up being laid out pretty differently than other Ikea stores and so you kind of get what you ask for if you want different ideas the concept is going to end up being pretty different so they only opened one or two more despite the fact that the locally owned stores well the Seattle store actually did way

better would think it was the highest performing Us store and beat all the corporate owned ones despite doing another deal in San Diego and another one in Houston eventually they kind of wanted to bring the learnings back to the Mothership to kind of have them all be homogeneous and so all the US stores are now operated by Inca but for anyone in Seattle that during the 12 years of independent ownership VIs in that store it actually was a pretty different thing with very different marketing materials than anyone else in the US was getting was it in the same location uh that the current one is down in Ron I think that where the original Ikea was is now the parking lot and they've shifted and built this new shiny building next to it man I spent so much time in that store when I first moved to Seattle to work for maona I mean I was moving across country as a young person on my fourth and fifth apartment since graduating from

school three years earlier wow man I was so squarely in The Sweet Spot for Ikea at that moment in my life it was almost a weekly pilgrimage that I did to that IKEA store wow and I used to love going to the Asis section like I would always start there at the end and be like okay what can I get a deal on here cuz as is is like returns and yeah broken stuff or showroom floor stuff that they're getting rid of yeah yeah it's like when I enter a Lululemon I always go right to the back and look at the clearance rack yep even though Lululemon's clearance is horrible they're like 15% off or something oh man sometimes in the Ikea AIS section you can get some Screaming deals I mean they would argue everything is a screaming deal but to this point of like the reason they were doing this Seattle specific thing the individual franchising this like ingvar was obsessed with reducing bureaucracy I get the sense this is still an ongoing ble

today now that they're a bigger company in figuring out how to be as lean and Scrappy as they were you know when you have more committees and more lawyers and more traditional corporate leaders from other companies and all that coming in this sort of thing is a helpful antibody against that totally there's one other thing that happens in 1985 in Ike land meatballs baby it's like the final piece of the puzzle they add meatballs to the the menu now this is what's funny you would think this would be like the capping of his career the end of the story you know it's um 1985 they add meatballs the concept is perfected in 1986 ingbar is 60 years old he steps down as president of the IKEA store operation of Ina it's the reverse Morris Chang isn't that the year he started tsmc he was 59 something like that that's right yes he steps down as President in 1986 I don't think anything changed whatsoever in his daily

activities I think he was doing exactly the same things that he was always doing and uh his successor a guy named Andre mberg does say there I think for 12 13 years maybe he would leave at the end of the 90s to go become president of Home Depot's planned European expansion which then ends up not happening and so he would leave Home Depot but yeah I think he was constantly clashing with inar like hey I'm the president here no no no there's only one president at Ikea even if not in name and that was ingbar do you know what Anders mberg is doing now oh I do not Anders is on the board of directors for the Ikea Foundation interesting yep well there couldn't have been that many hard feelings then right yeah which is the foundation on the Inca side of the tree the franchisee side amazing with two of the Suns two compra Brothers yep and I think the third son is on the inter board yes yep exactly so that takes us

into the 9s basically the compounding story continues unabated in 1994 they enter Taiwan in the spring of 1998 they enter China they expect that China will become a obviously huge huge market for them which it does by the end of the 9s Ikea is A10 billion annual revenue business that rocking and rolling seriously there is another thing that happens in the 90s that we have to talk about on this episode and happened way earlier in ingvar's life but this is the moment where it really intersects the Ikea Story the news comes out that in his youth ingvar was a part of a Nazi and fascist movement in Sweden which in some ways is not surprising I mean his grandparents had immigrated from Germany had very strong feelings had lived this horrible life and ingvar very much looked up to his grandma and sort of looked to her for political moral social guidance and so unfortunately ingvar was a part of this Swedish fascist movement

it was like sort of uh provable that he was attending meetings helping to organize raised funds recruited members he stayed close to this Swedish leader even after the war in as late as 1950 wrote a letter that he was proud of his involvement the N of all this is in 1994 when this came out he immediately came out and said that his fascist activities were a part of my life which I bitterly regret and the most stupid mistake of my life he was direct about it in fact the first employee of Ikea was a Jewish Refugee who had fled Austria in 1943 so there's a lot of complex stuff going around here but the thing that is definitely admitted to proven is that he was a recruiter organizer for the Swedish fascist movement during the Nazi regime yep the extent of his involvement in the Swedish fascist movement after the war actually didn't come out then in the 90s came out later in the 2000s and angvar I think rightly took a lot of

flak for not fully disclosing how long that went on yeah he had a friendship with the Swedish fascist party leader who would go on to be this pretty horrible vocal Holocaust denier and ingvar maintained that friendship and even at the end of his life went on the record and said this person was a great man so you know on the one hand you want to say look he apologized and it was 50 years earlier and he was 17 at the time can't a person make a mistake when they were younger and AD a mistake and move on on the other hand you could imagine wanting to give him more forgiveness if he hadn't continued to stand by the Holocaust and I your guy maintain that friendship or just came cleaning about that whole thing initially totally or with his vast vast resources made a big contribution to a holocaust museum or the families or something yeah this is one of these things that covering these old European companies like you can't

avoid this totally my heart dropped and was also not surprising when we first started doing the research and had no idea and came across it's not hard to find this you come across it for the first time and you're like ah crap yep so coming out of the 90s coming out of the 90s in 2000 Ikea starts their next big geographical growth initiative which is Russia so they reach a deal with the Russian government that Ikea is going to enter Russia and they're going to use the market which they expect to be really big for Ikea to also pilot the quote unquote Mega mea all capital shopping center concept which I think was actually like the brand name of this shopping center that they then later roll out to other places around the world and the idea is Ikea RIT large has so much capital and so much resources at this point we've always owned our own real estate and we think that's a key part of securing that future we have so

much more cash resources now what if we also invest in like large retail centers around the IKEA store which they hadn't really done before and the idea this is kind of genius and not novel now because so many other folks do it we surround the Ikea with lots of partial competitors because Ikea sells so much stuff in its range that yes there could be a Home Depot there or yes there could be a Bed Bath and Beyond there you know I'm using American terms here obviously these are not Russian stores and we compete with them partially I didn't realize Russia is where they started the strategy yeah Russia's where they started but because it's now this retail Center if even only say 10% of the people that are coming go there for call it Bed Bath and Beyond might also visit Ikea well then that's a found extra 10% customers for us so they pilot this in Russia which is interesting and I think it works pretty

well unfortunately for Ikea and everything that would happen in Russia over the next 20 years they end up completely exiting the market in March of 2022 after Russia invades Ukraine so they had 17 stores total in Russia 14 of which were these Mega complexes they close all the Ikea stores they sell off the 14 Mega complexes to the um Russian I think supermarket chain gazprom bank so they end up fully exiting the market after 20 years but it does become pretty large for them and sort of Pilots this Mega retail Center idea yeah I mean as much as 20 years later they had to sell it all off or in some cases I imagine they didn't get a return they just had to like close up shop it does lead them to this Insight which is we've been building these Disneylands out in the potato fields and I've a few people refer to the potato fields and and I read it in a few places and then everything Springs up around we should

probably benefit from the fact that everyone is springing up around it to try to take advantage of the fact that people are driving out for their day at Ikea and so they want to be everyone's landlords who are drafting off the success of Ikea creating a whole bunch of traffic to this area I think it's a pretty major strategy of theirs now whenever they open a new store to own as much real estate as possible around it and help develop it yep I mean G I think about here in the Bay Area the Emeryville store cross the bay in the East Bay I don't know how much of the emmeryville complex they own but there is so much retail all around that yes it would be genius for Ikea to participate in it yep so another thing that happens around this era it's sort of the mid to late 990s is they really codify these principles with what they call Democratic design they had always believed in optimizing Form and Function

like they wanted things to have Beauty but also incredible purpose but they added three more pillars so they now have these five pillars so you've got form function quality sustainability and low price and we've talked about the quality we've talked about again quality is not maximum quality it's appropriate amount of quality for the object low price we've talked a lot about sustainability they weren't extremely early this is before anybody's mentioning ESG or anybody like most people are mentioning climate they are making heavy Investments even in the late 90s when it was kind of viewed as heretical they probably wouldn't have been able to do it if they were a public company but starting to invest in renewable energy and other things and now this is like a huge if you go to ikea.com it gets a lot of real estate and everything they do is their sustainability efforts but their goal is to optimize across these five vectors

and weigh the tradeoff in between them and so their idea of democratic design is that everyone regardless of their income can access well-designed products to improve everyday life and every time they iterate on a product every year they should be further optimizing some set of the products in the range to get a little cheaper or find a little better way to manufacture it or develop some way to serve more customers with the same product to get a little bit better scale economies or to do something in a slightly Greener way you could imagine a fivepoint diagram where they have sort of a score on each of these five they want the total area to be as high as possible for everything they do across those five vectors you sound like a uh Mackenzie could told now I am confident that diagram has a name and I am proud that I don't know it yes me too I've seen him before and I don't know what it's called and I don't want to know but

yeah that is democratic design jumping forward to 2007 they hit 20 billion in Revenue in 2007 up from you know call it 10 in 99 2000 so growth is really still going here and then they hit a rough patch part of that obviously is the fincial crisis in 2008 and onwards but it's also e-commerce so Ikea makes the like considered and deliberate decision here in the mid-2000s as e-commerce is taking off not to participate or at least to participate only as minimally as is required which you can understand it is against every other element of their DNA totally and I'm sure is still to this day very much less profitable for Ikea than in store visits I bet e-commerce is not a profitable business for them I suspect that is right if you just think about all the ways in which they whle price down every single place they could make a deal with a customer and say hey how about you do a little bit of work

and we don't we'll give you a better price and the customer says okay you know it's picking it out yourself in the warehouse It's assembling it yourself at home it's driving it to your house it's oh I don't need the to look good you know it's every single way in which the customer makes the deal with Ikea to yeah lower the price a little bit e-commerce blows it all up the overhead the cost structure required for e-commerce I mean shipping things to your house having the delivery Network figuring out a whole new supply chain like should it come from the store every time should it not come from the store every time should we box them differently should we use third party Logistics should we use our own etc etc it goes in the opposite direction as everything they've been trying to optimize for the last 50 years totally and even more than that we alluded to this much earlier in the episode it also

breaks the beautiful sort of closed loop ecosystem of controlling both the demand and the supply chains in an internet e-commerce post catalog World Ikea no longer controls the demand chain in the way that they did before right so for the next four years between 2007 and 2010 revenue is basically flat growth falls off a cliff like zero growth for four years in 2011 they do start growing again Revenue hits 25 billion euros they enter Latin America so they're starting to open up new markets again yeah but 2014 they decide to shift strategy but not to start doing e-commerce the strategy shift is to start opening small stores in cities starting in Hamburg Germany they have now embraced this and launched in dozens of cities yep including San Francisco yeah it's this smaller set of products so is pretty interesting observing this trend toward urbanization and Trend toward buying online as of 2014 they still don't

really have e-commerce yep and on the one hand maybe that's the right strategy maybe they never should have done e-commerce I don't really know because they're not a public company and because they don't break out segments we don't really get to know if e-commerce is a profitable business for them what we do know is that over time their revenue keeps growing at least if you look at Inca the operator of these stores their operating profit does not in fact over the last several years it's been declining so as a percentage of their revenue the operating profit of these stores is going down and David I think where you're sort of going with this is they really start going down once Ikea does meaning start investing in e-commerce starting in 2018 is when they really put their foot on the gas and today 2024 e-commerce is 26% of Revenue right so it is what their customers want so you can't bury your head and say look

forever we're not going to do e-commerce because it doesn't really fit with our model if it's what your customers want and the fact that 26% of people are doing it today clearly you do have to go do that but I'm not sure yet that they have a profitable way to do that with their model I mean simply just inferring from the financial statements they don't because revenue is growing e-commerce share is growing and operating income is flat to declining yeah my only skepticism on it is like before truly issuing judgment there is maybe there's something we're missing since we don't have full financials and we're just looking at Inca which is the franchisee that operates the stores maybe there's I don't know but yeah I mean you and I ran the numbers I'll pull up the spreadsheet real quick starting in7 Revenue continues to grow on the order of 5ish perc per year but their operating margin drops from 8% 6% 5% and

kind of hovers in this 3 to 5% range the last few years yep so something is happening that is making them less profitable yep and seems like a fair assumption it's e-commerce y 2018 two big things happen one they enter India to ingvar passes away in January 2018 at age 91 and you know like we said he's working right up to the end one sort of poignant story we heard in the research is you know after one of the last board meetings that he was part of he sort of took the rest of the board members and management aside and said I'm so jealous of you you know he knows he's coming to the end of his life that you get to keep working in Ikea and running this business and I don't it's like this was his life yep absolutely so 2021 they finally discontinu the catalog it's a sad sad time at Peak 220 million copies were printed across 69 different versions 32 languages and 50 markets I mean they really used to have their own

proprietary relationship with customers and in this new era on the internet anytime that I have a thought oh I I need to go buy something I Google it I look at a bunch of retailers I am not specifically Ikea's customer in the way that in 1970 you would have been an Ikea catalog subscriber and they don't really have a way to engage people as strongly as they once did I mean email marketing is just not the same as what the Ikea catalog was no not the same kind of catalog now on the one hand they're competing on equal footing on the other hand I've spent thousands of dollars at IKEA over the last few years since moving to a new house having a baby yesterday morning I bought $700 worth of Ikea merchandise in part to prepare for this episode but in part I needed stuff right I mean hell I've got the Ikea high chair that have used across two kids now yep oh yeah my son's crib is Ikea oh and by the way that $700 was spent on

e-commerce oh you didn't spend that on your trip to the store no I I had two big Ikea transactions in the last week I mean wouldn't have gone to the store if I wasn't preparing for this episode but the stuff that I bought online that was stuff I needed and I probably wasn't going to go to the store to buy it man so you willfully and intentionally cost Ikea margins literally took money out of their Foundation profits I could have taken more time and gone to the store but this episode would have been worse I wouldn't have had as much time to research oh there we go this is like the version of you know when you uh Google for products you want you know click on the organic results don't click on the ad result even though it's the top of the page to save your you know favorite know company's money don't buy IKEA online go to the store if you love ikia yeah at some point it'd be great to talk to somebody at the company about this

I'm sure they don't like lose but they don't make as much money I maybe they do lose money on online orders I don't know I don't know ingvar isn't alive anymore I don't know it's true I will say a thing that illustrates every Point we've been making on this episode really really well is so they bought task rabbit for a small amount 50 to 75 million somewhere in there a few years ago yep 2017 and I checked the little box like provide me an estimate of what it would cost for a task rabbit to come to my house and assemble all this stuff 350 bucks on a $700 order so half of your purchase yeah that is the perfect encapsulation of how much money customers save by the Ikea flat pack pickup yourself at the warehouse model in fact it's more than that because I think it was like 30 bucks or 50 bucks in a delivery fee so call it $400 that you're saving by buying something the Ikea Way versus a fully

assembled delivered at your house thing I'm saving over a third of the total purchase price by doing it the Ikea Way versus the traditional way which I'm laughing brings up what for me was the ultimate Ikea Hack for many years of my life I think I talked before on The Meta episode about how much I love Facebook Marketplace and Craigslist before that y I decided probably I don't know 10 15 years ago hey iea Furniture despite the fact that you have to assemble it yourself and whatnot like it actually is pretty durable on the one hand it gets the rep of like disposable but if you take care of it it'll last a long time even through a disassembly in a move oh I can attest to that not just through the move really cuz my whole thing with it is to me it feels like once you assemble it it is good but then when you disassemble it and put it together somewhere else it always feels like it's a little Wiggly no well my hack for

quite a number of apartments and houses was just buy secondhand IKEA on Craigslist in Facebook Marketplace and be cool with it oh so you could successfully move the Ikea and it wouldn't yep not so much to save money but more to save on the assembly that was the reason I was doing it huh and they hold their resale value pretty well well first of all they can't really go down in value so they're fully depreciated when you buy them for a $10 Lack table right I was not buying lack tables on H Craigslist but there are some things that are super durable and some things that aren't like a lot of the press board stuff once you pull it apart I wouldn't expect to be able to put it back together but they do now sell like1 thousand dining tables made out of solid oak first of all I didn't realize you could get just the materials to make that for $1,000 that's like A4 or $5,000 table at other retailers but

something like that I expect to survive moves very well I think it's just it's unfair to say everything from this retailer is throw away or everything from this retailer is infinitely durable neither are true yeah what I really used to do my hack with was the hemness line hemness bookcases we have had so many hemness book cases in our homes over the years you know Jenny did a PhD so she has lots of books Lord knows I have tons of books now as uh my vocation our vocation and hemness bookcases like they'll last if you take care of them and you can disassemble reassemble fascinating all right should I take us through to the uh state of the business today and then we'll get into into the analysis let's do it awesome but before we do that we have one more of our favorite companies to tell you about the climate aligned AI infrastructure company cruso yes cruso is the vertically integrated Cloud platform

built specifically for AI workloads and was recently named the gold standard of AI Cloud providers by Dylan Patel over at semi analysis cruso is just such a cool story they build and operate Enterprise grade GPU data centers that are specifically designed for AI workloads and each one is powered by lowcost stranded energy that otherwise goes to waste or Worse gets emitted as greenhouse gases yep they've totally reimagined the traditional data center AR architecture to support the huge Power Cooling and compute density needs of AI and kind of like Ikea they've done it all with a focus on getting the lowest cost of inputs possible in this case energy which enables them to offer better prices to customers which leads to signing more long-term contracts which leads to cruso building more capacity faster which just makes the whole flywheel spin over and over again and it's not just better on cost it's

also super fast and reliable thanks to Innovations across virtualization working and other areas of the stack they can do things like boot up a VM in under 90 seconds totally power demand in gpus is increasing dramatically which means that one the traditional data center design and Engineering of the hyperscalers is no longer optimal and two energy not compute is actually becoming the limiting factor in scaling AI so kuso's infrastructure unlike the hyperscalers is built from the groundup for gpus with elements like high density racks and direct liquid to chip cooling which enables them to support the most demanding AI workloads that traditional data centers just cannot yep and because cruso can build with this unique access to stranded energy they're able to bring massive amounts of compute online all at once they currently have 15 gaw in their development Pipeline and their coming abene Texas facility alone has over 1.2

gaws planned which will make it one of the largest clusters in the entire world yeah it's just an amazing company the net of all this is cruso can provide nuclear levels of power for less cost than other Cloud providers and with low or in some cases actually negative emissions David and I are super proud to be working with them and also to both be investors to learn more about cruso go to cruso doai acquired that's crus so.

acquired or click the link in the show notes and just tell them that Ben and David sent you our thanks to cruso all right so the IKEA business today we'll start with a quick refresher on structure there's two branches of Ikea to think about there's inter Ikea systems this is the corporate entity that owns the brand and the IP and as of 2016 they also do all the product development supply chain all that stuff so they own sort of all the inventory and the franchisees take possession of it almost on like a realtime basis as they need it so inter Ikea does three things franchise the range which is the products and Supply which is supply chain and the way that I would sort of think about this is there are like two things in one one they're a company that designs and makes products to sell to franchises and two they're a license or that takes a 3% rake effectively on all sales which it's pretty fair totally 3%

of your revenue for the Ikea brand and concept that seems very fair but also like if you're selling razor thin margins it's actually a huge percent percentage of your profit pool it's kind of like Payment Processing you're like oh what's 3% and then you look at the profits on a retailer and you're like whoa I'm shipping half my profits to yeah what did you say um operating income margin is these days like six 7% if I remember right that's high it's like four or five% four or five okay so yeah they're taking basically half of your operating income yeah on the other hand like are these really different companies like there's not really a deal between the two that's yeah and there's actually a specific tax reason right why it's a royalty on sales from what I could tell I'm not a tax expert I think royalties are tax deductible so by shipping money around between two entities instead of having it just be

one simple C Corp that runs the whole company they are actually able to deduct those royalties off their taxes yeah it is helpful for tax purposes that parent company did $27 billion in sales of goods and they made $1.4 billion from franchise fees that number pencils pretty well Ikea as a whole did $47 billion in Revenue so when you think about it the parent company sells $27 billion of goods to the franchises who then have their own Topline of 47 billion you can kind of start to understand the margin structure a little bit and then they get that call it one and a half two billion is sort of effective cash flow back in the royalty of that $47 billion total revenue that's exactly right okay so where does money go when it comes up to the inter Ikea Foundation this is again the parent company the one who owns the IP the one who develops the product range all this stuff but they don't operate the stores

that company is owned by the inter Ikea foundation in lonstein the main purpose as we talked about is to ensure the independence and the longevity of the Ikea concept and to own and govern the Ikea group the inter Ikea Foundation is a self-owned entity that's a new thing that I didn't know existed is the Nova Nordisk Foundation also sounding familiar to me yeah and there is no nor can there be any individual beneficiary funds held by the foundation can only be used in accordance with the foundation's purpose which again the purpose is ensuring the future of Ikea so David you were doing some napkin math on this what sort of cash do you think is held by the inter Ikea foundation in lonstein right so it was reported around 2011 that it had roughly 15 billion euros in assets and that does not include the value of the company so that's just like cash and marketable securities call it sitting you know on the balance sheet of this

foundation in the 13 years since then if you can sort of infer from the financial statements and I think they actually do disclose now how much the operating holding company sends in cash up to the foundation every year it's like a billion euros in cash every year that gets sent to the inter Ikea foundation so just add 13 more billion euros in cash every year you're up to call it close to 30 billion EUR in assets there that's assuming no investment return compounding but 2011 to today is among the best investment returns in history assuming they were just at Market beta totally and it's like 50 billion is seems like a wildly conservative estimate for the amount of Assets in this Foundation you know arguably closer to 100 we don't know it's not a charitable Foundation let's be super clear this is an Enterprise foundation and their purpose is to ensure the continuity of Ikea what do you do with 50 plus billion dollars well

you start investing in retail centers right this is not including the ownership of inter Ikea itself the company this is in addition to the value of your ownership of that Enterprise this is like a remember we were joking at the arena show that the Forbes uh net worth estimations of Taylor Swift are laughable because they're just looking at like what is her bank account you know and they're not Enterprise valuing Taylor Swift this is like the bank account of foundation not valuing inter Ikea the company at anything it's fascinating yes one of the largest entities in the world by assets and then if you include the value of Ikea I mean my God what do you value Ikea at as a company yeah it's funny I had done some napkin math on if I were to buy all of Ikea including inter and Inca what would I value it at maybe now was a good time to share that so the whole company does something like 45 billion a year it's

growing at about 5% per year but operating income at least for the moment is not growing right there's another company out there that grows at about 5% a year that has a net income margin that Bops around the 3% range that's also a retailer and that company is Walmart ooh Walmart is valued at about 1.1x sales so you could value all of Ikea again this would be inter plus Inca plus the other franchises at about 5060 billion that feels low to me just given the durability and defensibility of Ikea but uh you could also make an argument that it's fair yeah but call it 50 to 100 I don't really care about slicing it inter versus Inca I think this is all silly but it is interesting to think like there's a cash pile that the inter Ikea Foundation has to ensure the continuity of Ikea that is approximately equal in value to all of Ikea itself right yes that cash pile is almost certainly between 50 and 100 billion euros dollars

whatever you want to say similarly the value of Ikea is somewhere between 50 to 100 billion euros dollars yes totally fascinating so then flipping over to the Inca side of the house this is the largest franchisee with 90% of stores that is the 400 different Ikea stores out of the what did you say it was 470 total 76 I think that they operate they also have what they call Inca centers which is this shopping center concept we talked about they have 44 of those experience oriented shopping centers across Europe and China and more are on the way and they're also applying that concept to the small City stores here so like interestingly in San Francisco the Ikea here in downtown San Francisco Ikea bought the building it's not just like they leased some space in downtown San Francisco it was actually an empty building it was empty for a long long time on Market Street they bought the whole thing they put Ikea in and now

they're putting other tenants into this complex so they're like Ikea is participating in San Francisco downtown urban renewal which is kind of wild but like I think it's all part of this hey we need to make some Investments with all this cash yep so they have this arm Inca Investments that basically allows them to invest in other companies that they think will in some way be additive to their core business so it's like effectively super large scale corporate Venture and then their owner this is again the franchisee that operates 90% of the stores Inca's owner is the stitching Inca Foundation based in the Netherlands the other one was lickstein this one's the Netherlands and this one is an actual charitable Foundation that has a specific focus on climate and poverty and with this one Inca sends about 15% of their net income up to that charity and then they use the other 85% for reinvesting in the business so call

it two to 300 million EUR a year that Inca actually ships up to their charitable foundation and from what we can tell it seems like the charitable Foundation then does about 200 million euros of Grant making every year so hard to know exactly what the endowment size is of the stitching Inca foundations net of the asset itself like any estimates that float around kind of include the Enterprise value of Inca but there exists some cash pile there that probably grows modestly because they're doing so much donating out of the endowment all that reminds me there's another big cash pile that we forgot about oh the actual balance sheet the balance sheet of Inca yeah Inca has 25 billion in cash on hand yeah cash is not the constraint here no and that cash again is at Inca totally separate from that call it 50 to 100 billion of cash and securities we can estimate that is over at inter yeah anyway one way to

think about this company is basically as like the birkshire hathway of Europe yeah if you wanted to sum some things together and just pick some midpoints let's say you got $75 billion for the Enterprise Value the whole kitten Kaboodle then you've got another 25 billion on the balance sheet so call it 100 billion for the IKEA business then let's say another 75 billion for the inter Ikea foundation's cash pile so that's 175 and then the question is what is the cash size of the endowment that the stitching Inca found Foundation has I'm going to guess it's smaller 10ish billion but we're still approaching $200 billion here in value all created with no equity investment no debt investment I mean this is just 81 years of selling things that provide value to customers and reinvesting the dollars to do that again on a grander scale I truly don't think there is anything like this in the entire world yeah I wonder if that's

true this this is the only business like that and if we Define it as like $200 billion scale built from nothing with no investment exclusively investing the cash flows of the business for growth like there's been no inorganic growth right no material in organic growth I mean with Berkshire they traded a paperclip for a house many times with lvmh they did the same thing he had like three years where he turned some small amount of money into $600 million to get the whole thing started if remembering our lvmh episode correctly yep but lvmh certainly Capital both from Bernard and the family and other sources went into the business Burkshire maybe you could make more of an argument it was trading paper clips but either way it was all inorganic growth right AES is a pretty good I mean it's been around twice as long that's a good point doesn't have as much cash is worth the same or maybe arguably more right but doesn't have the

ludicrous cash pile that Ikea has meta didn't use much of their cash otherwise you could say met as this example but they have a lot of other Mark is not the only shareholder the way that ingvar was and it took Venture Capital to build that business yeah and debt Capital as we talked about y that to me is like the most impressive thing about this whole business is that it was just one foot in front of another take your money keep plowing it into the next thing yep more stats on the business today they have 216,000 employees they call them co-workers it's a slight decrease year-over-year from last year Ikea is in 63 markets worldwide last year they welcomed 860 million people to the store sometimes they say store visits sometimes they say visitors so I don't know if it's 860 million unique people or 860 million times a person walked into the door but whatever either way it's crazy the demographic of their

customer base is 20 to 36 so there is an age where you kind of like churn out of Ikea and they know this this is measured in a bunch of external surveys I'm surprised to hear you talking about how you're doing so much active buying right now perhaps because you have your first child it's a nursery and yeah I've totally aged out as much as I love Ikea and it's been such a huge part of my life for a long time now that we're on to kid number two we're reusing a lot of stuff I don't actually buy from there that much anymore there's a great study that Ernest did that we'll link to in the show notes that shows Ikea's Peak customer age is 24 it's like they start churning after that it's interesting to see the distribution like kraton barrels Peak AG is 31 West Elm is 33 William Sonoma is 33 then you start to get into like Restoration Hardware is 44 Pier 1 Imports is 45 Home Depot is 48 Lowe's is

54 this is like the cycle of life I love it you go from sort of the Ikea semi self- construction or believe self-construction to then the I'm just buying consumer Furniture to then no I'm actually building this stuff myself yes exactly well you go from Furnishing your apartment to Furnishing your home to fixing your home yeah that sounds right yeah so geography Europe is still their core 71% of sales even still come from Europe even with the US is a huge and developed market and Germany is still bigger than the US I think 71% is products in stores 26% is e-commerce 3% is services to customers I assume that basically means task rabbit I assume so yep the majority of the revenue is still products sold in stores growth is pretty slow 5% or so not so different than Walmart I I decided I wanted to do a sales per foot analysis the same way that we did in our Costco episode it's a private company they don't break it out

and they're Limited in what they have to report to you but if you assume all their revenue is spread over their 473 stores and you estimate it's about 300,000 foot per store that gives you €320 a foot which is like I don't know 350 bucks a foot or something like that yeah yeah yeah Restoration Hardware is 900 okay William Sonoma is 1,300 but if you ever been to a William Sonoma store that makes sense it's overpriced and it's very small these are also small stores too I mean well Restoration Hardware is huge complexes but few of them and their these weird palaces it's a crazy business have you been to the one in San Francisco no it's freaking wild you would think it's like a tech company headquarters but no it's the Restoration Hardware building really yeah they've been on quite the transformation sort of going up Market over the last couple decades Lazy Boy is uh $157 a foot none of this is on a

spectrum of like bad to good cuz Ikea is intentionally not trying to maximize their dollar per foot here right there are trade-offs they willing to make instead of maximizing that now let's compare it to the companies we mentioned on our Costco episode Costco is $1800 a foot they are trying to maximize their dollar per foot Walmart is about 600 Target is about $450 and then these like crazy businesses just to compare it to the all-time greatest Tiffany is $3,000 a foot for jewelry and apple is $5,500 much smaller footprint yeah I should remember this from our Hermes episode do they report sales per square foot I don't remember I don't think we talked about it I don't think we talked about it either it doesn't feel like a thing they would report but I got to imagine though that is as high if not higher than Apple you think it's higher than Tiffany yeah yeah you might be right we've spent a lot of time in our

mes stores recently we have can attest some of the behavior that uh we have observed in there you're raising their price per foot no I think I'm lowering their price per foot it's interesting I don't really know how to think about this 350 number like they have a huge amount of square footage they intentionally try to sell things as inexpensive as possible the ultimate maximization function is it's almost like it's not margin dollars I think it's like number of items sold profitably at all they want to sell more things to more people yeah I think it comes back to this concept of the many which again maybe is a little hokey but like I actually think it is true they've built hundred billion dollar business on the idea of the many it's not hokey at all yeah it is the many that is the optimization and so I think you're totally right I don't think they're trying to optimize sales per square foot

at all I think it's just like the square feet are all in function of the many right and they own all the real estate so like it's not like they're paying rent they choose the location strategically and then they become a landlord to other people in these new Mega shopping centers yeah the optimization function is they want to provide as much value to as many people in the world as possible here's another reason why this metric doesn't make any sense at all for Ikea with the exception of Costco which is its own thing none of those other businesses also have their warehouses in their stores right right so then the last thing in the sort of snapshot of the business today is the market today in 2024 with7 billion doar in Revenue Ikea holds only a five 7% market share this is an astonishingly fragmented Market it was when inar started the company and it is today still right which is so wild and they

are by far the largest player yep I mean even if you look around where else do people get furniture that gets the job done looks good enough and is a good value to them Target Amazon Wayfair but then you start to get quick into like more expensive CB2 Pottery Barn I mean I get Walmart sells Furniture but oh yeah I've been choing at the bit all episode to talk about this this is like the craziest thing to me about this whole story Ikea has proved beyond a shadow of a doubt that furniture and Home Furnishings is an extremely large extremely Global very attractive Market one two I and a whole set of other retail companies Costco probably being foremost among them have also shown that becoming a scale Global player in a consumer Market is a good position to be in Ikea has no competitors in the vent diagram of those two things they are the only globally scaled furniture and Home Furnishings company that's

crazy yeah okay so I'm foreshadowing power as we move into analysis here power is going to be our next thing we examine but just to name it this company is scale economies and so now that they have reached escape velocity like they're through the takeoff phase in Hamilton's parin you can't compete directly with them because there's no chance that you could beat them on price or on quality for price so it's almost like if there was going to be an Ikea competitor they would have needed to start 50 to8 80 years ago a direct Ikea competitor so the most credible way to compete with them is doing something different I mean probably the best competitive strategy is Wayfair something that's born on the internet that does something with a completely different cost structure than they're capable of Wayfair is not a high margin business but they have built the whole business around the idea that they

sell online whereas Ikea needs to figure out how to do that which say we've talked about e-commerce is a challenge for Ikea if you make it your strength yes but uh you really got to squint today to see Wayfair becoming a global business on the scale of Ikea Wayfair is A5 billion doll market cap company yeah yeah long way to go now it's interesting as I was saying that part of the reason I'm think like that's so crazy but you're right like let's think through how would you actually compete with Ikea if you wanted to build a globally scaled Furniture BR well an obvious one that pops out to me is okay give the low and low medium ends to Ikea and then compete at the top end like Restoration Hardware is doing the issue with that though about going global is that tastes at the high end are way more heterogeneous and fragmented especially across geography y than they are at the middle and low ends

yep that's a great point you can't have a narrow product range yep so you have a more expensive overhead in producing a wide variety of SKS yep probably the most credible competitor from my perspective with me as a customer is Target yep I probably would look at target.com and see if there are cuz they partner with all these designers they have like a reasonable sense of taste it's not like high-end furniture and never will be and it's not the best designs but it's like okay this is going to get the job done for a commodity thing in my house they don't just sell Furniture but you know Target's a$ 70 billion company I don't think it's Global in the way that Ikea is again it's like to your point competing on just furniture and competing at global scale uh that's tough tough nut to crack yep I totally agree with you that within the us or in North America Target feels like the closest competitor to Ikea however

exactly that Target is a North American it is not a global company yep so we're pretty squarely in power here normally when we try to assess power we say what is it that enables the business to achieve persistent differential returns or put another way be more profitable than their closest competitor and do so sustainably we're asking a slightly different question here which is what enables this business to own this Market to almost uniquely exist yeah yeah when no one else is really competing with them directly or at least competing with them across everything they do yeah I'm trying to think if we've encountered a business like this before you would have to counterposition them because no one else can outscale economies them maybe Amazon would be the most credible because they have the scale if they were to make a real run at it I assume there's an Amazon Basics line of furniture yep Amazon definitely has

Furniture there's not switching costs from a customer perspective it's funny I'm thinking through that now like yes Amazon definitely has Furniture Amazon is more or less Global more so every day but there's a supply side scale economies moat here for Ikea which is how on Earth if you're Amazon even if you're just a retailer you're not designing or sourcing any of this furniture yourself how on Earth are you going to do the logistics around the world in the way that Ikea does right not to mention at this point Ikea I think 10% of their Furniture is actually made inh house at Ikea they own their own manufacturer yes and specifically they own their own manufacturing for their highest volume and most strategic products for the hot dog products H yeah normally when we do a Power analysis we're like looking at the competitors yeah there's nobody to look at here right I guess we should assess it versus

Target in North America and I think it really is just local competitors in any given market right they're not in the same segment as William Sonoma or Restoration Hardware any of these other Furniture companies who by the way also are not Global yeah ultimately it's scale economies everything about this is the same scale economies as Costco they take every dollar that they're not shipping up to the foundation one of the two foundations and they're not using to try to figure out e-commerce and they try to deploy it in how do we further increase our fixed cost base to reduce variable costs like what are the ways in which we can design it better or manufacture it better or invest in another Factory or something to reduce the price for customers over time yep and I think that really is the only one that matters I was tempted to say like oh Brand's important here too and like yeah the Ikea brand great but compared

to scale economies well and the definition of branding is that you're willing to pay more for it because it's from that brand right the definition of the Ikea brand is you're paying less yeah right so right it's scale economies it should be cheaper every time because of scale economies yep that's it and the interesting thing is Cash really isn't the constraint this is a lot like the big Tech compan it's kind of like what we were talking about with meta they have way more cash than they could ever strategically deploy and so the way for them to obtain more power is just grow even more but they're already using their cash maximally to the extent that they can grow without ruining some part of the business and so time is kind of their constraint because time needs to march on in order for them to grow at whatever the rate they feel they can optimally which also kind of comes back to their Wackadoo crazy structure that

inar set up right to make it as durable as possible you know there's a a method to his madness here yep time is is arguably the thing that the company is most optimized for yep so one question I have for you right before we move to Playbook is what is Ikea is it primarily a store like a retailer or Merchant or is it a furniture brand that happens to have vertically integrated stores I always thought about it as like oh it's kind of Costco esque because they're in locations kind of like Costco and in some ways their business model and their obsession with thin margins and serving many people in high volume as Costco esque but they're not a merchant really I think they're a merchant at hard and angvar was a merchant at heart in the same way that Sam Walton and Jim senagal and salul price and Jeff Bezos were INR it's the whole PT Barnum aspect that we were talking about with the early days it's

the showroom right shop the competition incorporate their best ideas yep that was Theos and I think also that's where this focus on value for the many I this a very Merchant retail type idea you're right but the way that it actually manifests is this vertically integrated furniture and home wear's brand that happens to have a really great experience for you to go and buy their products yes which is funny most Merchants that are vertically integrated are focused on higher margins they are not H that's an interesting point like apple this is the way in which Ikea is a lot like apple an Apple store sells Apple products and a few other things an Ikea store sells Ikea products and a few other things but Ikea is focused on minimizing margins and apple is focused on maximizing margins yes super interesting okay Playbook we've talked about some of this already but just underscore this crazy corporate

structure basically only helps them when I was first digging into it I was like oh this is going to have lots of trade-offs and pros and cons I mean in the way that it helps them it minimizes taxes protects them from takeovers ensures their durability they have the benefits of being a nonprofit corporation there's no shareholders to appease which enables longer term thinking they're protected from transitions of government power you know the tax savings the European Parliament green party estimated that they saved a billion dollars in taxes between 2009 and 2014 alone there's all these benefits not to mention it neutralized what probably was real realistically the biggest risk to the business which was now or future family squabbles in generations to come that's just off the table absolutely the only way in which it hurts them is access to Capital but they don't need money right I mean can

you come up with another way that the corporate structure is a con I mean it's a con for society I guess it deprives people from the tax dollars that they would have to pay otherwise or the participation as a Index Fund holder or Equity holder in like the building of this business right oh that's true but yeah I mean that's kind of where my mind was going of like well maybe there's some like reputational hit to the company by having this crazy structure and for a long time people believed it was you know tax Dodge which it may also be but at the end of the day with Ikea's customer B like it doesn't matter nobody knows or cares about that it's kind of true if imagine they're 10 times more successful and they are worth a trillion dollars well that's a real shame that the public is deprived from being an owner of all that value creation right yeah fascinating the other big Playbook theme here is all of this is basically

only possible because ingvar built a business by reinvesting solely the business's own cash flows all this other stuff kind of does rely on that if there had been external capital and thus de facto external stakeholders even if it was debt capital along the way it's hard to imagine history playing out like this right Costco managed to make it work even though they raised a bunch of money yep but they're not structured like this right but they can make a lot of the same sort of long-term thinking decisions and in fact Costco even runs on thinner margins Ikea's gross margins are like mid 30% and Costco's are 13% yep there is definitely this thing that we've talked about a few times frugality as an edge they originally built in the potato felds as a way to save money but it ended up kind of creating and inspiring their business model that they need to create this destination experience yeah the culture of frugality

is interesting trying to buy materials at a discount minimal sales staff no finishes on unseen Services flat packing no one has assistance I think actually the CEO is the only person at the company with an assistant no one flies first class they print on both sides of the paper oh yeah and the assistant thing the CEO may have an administrative assistant these days but for years ingvar had an assistant but it wasn't an assistant like an administrative assistant it was like his you know sort of Chief of Staff like coo didn't he become CEO after yeah exactly but it kind of does actually beg this so frugality as an edge but could they run leaner why is it that Costco can have 133% gross margins but Ikea marks their goods up more is Ikea bloated is the fixed cost of running the business business has it just gotten high to the point where you need high gross margins in order to pay for all that overhead I

think there's an explanation here which is that Costco let's put Kirkland aside Costco is selling other companies products so therefore at least with the non- Kirkland products Costco can take a lower margin because they're reselling those products they don't have to develop them whereas Ikea is designing developing producing so they should have a lot higher overhead they should have a lot higher fixed cost base yeah exactly huh still feels like a big gap whereas like in Costco there's actually again Kirkland aside third party products in Costco there are two margins happening there's Costco's gross margin but then there's also the suppliers gross margin yeah that's the right way to think about it we're looking at sum of two margins when we're comparing Ikea and Costco yeah you're right yep fair this is kind of a funny one they lean into Sweden super hard most companies that go International try to embrace the local

market and let their origin Fade Into the background but that's just the opposite of the strategy that Ikea runs I mean in the meatballs there's this little Swedish flag that sticks out of the top of them every time you buy them you walk into the store and it says Hey HJ which is so funny Ikea has become the greatest Swedish Ambassador so true so David you're G to love this because it's like it's from the complete other side of the spectrum here's what Ikea does they sell a sense of place oh wow heres and ikia separated at Birth there we go there we go for listeners that haven't listen to lvmh and Hermes episodes this borrows from the luxury Playbook and luxury companies sell a sense of place and mark their goods up 10 to 13x on the cost of materials for that sense of place and Ikea does the complete opposite Ben you got a mic drop there we should just end the season right there it's not gonna

get any better than that no it is not Ika sells a s some place amazing amazing I do have one more which is not nearly as poetic but I'll just finish my section off they have a very contrarian view on working capital and this didn't really come up in the story because I couldn't really find the right place for it but most companies common wisdom is you should keep your inventory low and you should minimize the amount of your Capital that's locked up in working capital and Ikea has a very different optimization function theirs is about cost for the end consumer and ensuring availability of products at all times to keep customer confidence high so they're willing to do things like build up excess inventories during certain periods if it means getting a favorable rate from a manufacturer who might have extra capacity as long as it means eventually their customers will save money when they do buy it and I think a

huge part of this is the foundation ownership and the other part of it is the scale and the timelessness of their product lines they sell these things forever so they know they'll eventually sell through that inventory so if there's a good price on it yeah give me a th sure the Billy book case is never going out of style right honestly if I describe a billy bookcase to you there's not a simpler way I could describe it it is straight lines with no facade the simplest bookcase that you could draw on a piece of paper that's the Billy bookcase that's the Lack shelf that's the Lack table so in their reporting you kind of dig into it you see pretty high levels of working capital tied up but they just don't care capital is not a problem they can't deploy the capital that they have and so they may as well use it strategically and the other benefit that dovet Tales out of this is they get to be really really supplier

friendly they can do things like Net 30 Terms when the rest of the industry is on net 60 or net 90 because they're just not cash constrained so they sort of invest in the relationship with their manufacturers and that's why they have what is it now 1,600 suppliers 55 countries and the average supplier relationship is 11 years long yep to pick up on that point I was just thinking about what is my biggest complaint about Ikea and as a customer over several decades of my life when have I been most frustrated with the company it's when I go to the store and they don't have what I want in stock and I'm sure they know this too that is my number one biggest complaint biggest negative experience I would ever have as an Ikea customer so like yeah tying up more working capital and inventory for the sake of the value to the customer very worthwhile investment yep okay one more I wanted to add on this same vein

that similarly didn't have the right place to put it in the story is there supply chain and just how really really smart and strategic oh yeah didn't you read a whole book yep there was like three or four books that we read but you read a whole book on their supply chain yes so there's a book called strategic Outsourcing and category management Lessons Learned at Ikea by Magnus Carlson and Magnus was a senior executive in Ikea supply chain for 25 years this book is awesome this is like the luxury strategy for supply chain I haven't read that many supply chain sort of business school textbooks but you hadn't read that many luxury books before either I hadn't read that many luxury books either I can vouch this thing is amazing if you are at all interested either for like your own edification or if it's relevant to your bus in supply chain like Buy and read this book it is so good and it talks a

lot about how they like became more and more strategic in their supply chain and specifically their sourcing over time at Ikea and it's the kind of stuff you talked about of like hey you would think ordinarily we want to squeeze our suppliers on terms but actually what we really care about is continuity of Supply depth of a relationship with these Manu facturers let's do the opposite and embrace them that was sort of like one level and then the next big transformation is when they stopped thinking about sourcing and supply chain in terms of individual products and moved instead to like product packages Suites of products and then whole categories they could say like oh rather than sourcing the poang armchair that's a bad example because I'm sure they make that in-house now but like whatever let's take like a whole set of armchairs that are pretty similar and let's bid that out globally rather than in

individual markets and then that'll let us you know a sure get the best price and then pass that on in value to Consumers but B build the deepest and most strategic relationship with the suppliers who are going to make that for us and then we can also transfer technology to them too so stuff like the board onframe construction they've done dozens and doz dozens of these technology advancements in fabrication Factory layouts you all sorts of stuff over the years and they transfer that to their supplier Partners so it's super cool then stuff like their Distribution Center strategy so you would think topologically almost like Costco the stores are the warehouses well over time they found that oh actually it doesn't totally make sense that we keep 100% of our products stocked at all of our stores instead let's Focus to my what I was talking about my complaint let's make sure that the 50% of our products that account for

90% of our sales are like really in stock at all of our stores and then for the second half of our product catalog that accounts for the tail end of the power law you know 10% of sales let's do that across pan geographical distribution centers and keep actually a minimum of that in the stores with constant restocking so that we can maximize the space for the products that we know people going to want got me lots of really really really great stuff fascinating stuff you can only do with 81 years of history and a lot of scale and a lot of money a lot of cash yeah right all right David the quintessence the quintessence I've been thinking about this one this is our new yeah for anyone who didn't listen to The Meta episode David and I renamed this section because we've been struggling with how do we land the plane what's the end of an episode look like and David you came up with this term the

quintessence yeah we boil it down after all this work we've done on the company this long recording like what is the essence what is the quintessential factor of this company I had been planning to say this idea of the many and I think that there's a reason ingvar had it as Testament number one in Testament of a furniture dealer but man the more we talk about this I really think it's something a little more meta quote unquote which is like this is an N of one company there is no other company in the world like this it is so esoteric in so many ways there is nothing else like this out there yeah or put differently I think mine is the combination of never taking a single outside shareholder plus ingvar's personality and the desire to serve the many equals this company yep all of those are necessary conditions and there's many more too but those are really necessary in order to create what Ikea

ended up becoming and the structure that it ends up with I guess maybe to put an even finer point that this is an N of1 company the N of1 term is a little overused you know post zero to one and you know yeah pet and like we make the argument all the time like every company we cover on acquired is unique meta is an N of1 company Amazon is an N of1 company you know etc etc but that's the point that's all true I think this is like even another level all the big tech companies yes they are all unique yes they are all individual but they're all big tech companies there just is no other Ikea there's nothing like it that's interesting no other vertically integrated retailer brand of this scale in any category yep huh it's Apple but if they serve the many instead of the few y well I guess arguably they do serve the many but they have very high margins right well but they specifically could serve five times more people than

they do serve if they were willing to foro margins and maybe eventually they will they might be on a path to that that's a good point this company is Apple if they decided to also be Android essentially like we're GNA own the whole Market it seems like your definition is a brand that is vertically integrated that is at $50 billion a year scale and serves philosophically the many yep H in some ways that's what Tesla is aiming to be I mean these are not high margin cars they're sold at the price where they can be the bestselling car in America it's hard to compete globally on EVS since the US and China are becoming pretty fragmented ecosystems yeah but everything about Tesla is rate manufacturing Drive prices as low as you can vertically integr they don't sell through anything else there's no Channel there's no middlemen yeah but like a brand of consumer good that is vertically integrated and sold at low

margin to the many globally yeah I'm just having a really tough time thinking about it like I could think of retailers for sure yeah super fascinating all right we have reached it the contestants of Ikea yes I think so I'm so glad we did this it was in many ways sort of off theall it's like this private weird structure nobody can invest in it totally and I will tell you like for there some reason I'm just like not as fired up about it as compared to a Costco or an AES but like you study it it's really interesting and it totally is n of one yep I think the future to me is like not quite as clear as some of these other companies I think there's like certainly a lot of question marks around what do they look like in an e-commerce world and a world that's shifting to urbanization and a world where they're now a big company yep what are they going to do with all this cash etc etc right that's the reason watching

them is going to be fun over the next decade or two yep all right carve outs all right I've got two one is a show on Netflix called detroiters I think a previous carve out of mine was the show I think you should leave with Tim Robinson this is his first show with his buddy who's sort of the I think he's like a co-producer he appears in I think you should leave also it's a little bit more story driven and less skit driven than I think you should leave but it's like totally the same Tim Robinson sense of humor it has me like dying laughing so I highly recommend detroiters the second one I have a device I just recently bought the new super thin 11in iPad Pro oh how is it it is awesome oh I've been it's so sexy there's something like really amazing about the pro emotion scrolling on a big screen where when I'm just sitting there and it feels impossibly thin I mean I know that's a marketing slogan but like you feel it in your

hands and you're like how how is there an all day battery life in this and the screen is much more enjoyable to sit and read things on it on there than looking at my computer in fact in particular for each of these episodes now I read the worldly Partners research on the company we're covering from friend of the show Arvin and I was able to read the whole thing take it in and a much more like enoy way when reading it on the iPad versus sitting on my computer scrolling like it's just it feels really good and by the way we'll link to that research in the show notes for anyone who wants to go read 50 to 100 Pages analyzing in a very structured way the business of Ikea listen to four hours and then read another 50 to 100 pages but yeah I love it this iPad is like so great I'm so tempted because you know I mean we both have the iPad minis that we got for when we do things live with guests yeah this

is too big to use on stage oh oh no I was going to say the iPad minis suck and the thing that's worst about them is the screen it's awful Apple doesn't love it at all yeah yeah like they really suck it's a terrible product we need it for that specific use case and it was fine when it came out but it just feels like the leftover parts bin now I almost bought the new one and I'm like it's the same screen it's like last year's dead end processor from the iPhones it's just a weird Franken device the size is very compelling I wish it had the iPad Pro screen I wish it was thin it doesn't have to be thin but like try I wish it had a new processor I I don't know I just it's a bummer and they don't care and it's clear yeah they don't care I don't even know why they make it but I mean I'm glad they do because we can use it for our use case but like right yeah anyway all right I also have two carve

outs my first one is a recar out admittedly but I've been enjoying so much this season the QB school I thought that was where you're going man it is so awesome to have the QB School specifically but stuff like this on YouTube where you know for folks who don't know this is a YouTube channel called the QB School jto Sullivan who was a journeyman NFL quarterback for a decade he breaks down film of quarterback performances every week like breaks down the actual film from the whole you know as they would do it in a NFL quarterback's room like the all 22 quote unquote camera angle where you see all 22 players on the field as opposed to what you see when you're watching highlights are watching a game when I first started watching and I had it as my car out the first time I was like oh it's just cool to see this like I don't understand 90% of what he's talking about I Now understand a lot more and

it's so awesome that consumers like I'm never going to play football again and certainly never going to play in the NFL but being able to appreciate and understand what quarterbacks are doing and what teams are doing and players are doing at this professional level just increases my enjoyment so much more and especially this season when there's so many quarterback narratives going on I don't even listen to The Talking Heads anymore talk about XY you know Anthony Richardson or Bryce young or whatever because like even if those Talking Heads were NFL players and they know what's happening they need to dumb it down for the mass audience I'd rather just watch the film with JT ah dude I feel like that with Tom Brady he just like sits there in silence cuz whatever is going on in his head is not at the right level for what needs to be said and it's like I want to know what's going on in your head y anyway really enjoying it it's

been great this season and then my second carve out another Sports media related one was did you watch Ice Cub's performance during the World Series at the Dodgers game I did not oh man it was so good I mean I'm a Giants fan so it sort of pains me to say this but so Ice Cube I think it was game two of the World Series at Dodger Stadium performed at the start of the game and he just walks out from the center field fence and then performs two songs wraps two songs while walking to home plate it's just him and a cameraman whoa and like I mean you and I now have like performed in an arena and we know what that is like and one person Ice Cube with no backing vocals live on a mic walking the length of a baseball field up to home plate and just holding the stadium in the palm of his hands it's like one of the most incredible performances I've ever seen all right I gotta watch it in broad daylight yeah

it's awesome Ice Cube Ice Cube well listeners thank you so much for going on this journey with us a huge thank you to our partners JP Morgan payments stat Sig and cruso please check out the link in the show notes to learn more about any of those companies and their fantastic products that we talked about earlier in the episode we want to give three special thank yous to Jim senagal the co-founder and former CEO of Costco for his chat about Ikea as we were doing the research to Bjorn Bailey the former president of Ikea us and to Lars Johan yimer who is the chairman of the board of Inca group is that right David or I guess it's the Ikea group within Inca yes I think that's right is of Ikea Group which I think is the sort of operating entity within Inca Holdings y the Inca side of the company and you read all of leading by Design right that's sort of the most canonical sort of autobiographical book ah yes this is

the confusing one the updated version of the book is called the Ikea Story the first edition of the book is titled leading by Design but it's the same book yeah and it probably has the best detailed account of the blowby blow that we went through anyway if you like this episode go check out our episodes on Costco on Walmart or on Amazon or Hermes or Hermes that's true that wasn't on my piece of favor here because uh I did not expect it to come up that way after this episode come discuss it on slack check out acq 2 with Louis Fon on from Dual lingo it would be super fun find aq2 in any podcast player and seriously I'm sending it to anyone I know running a consumer startup he's I mean there's just so many practical lessons if you haven't taken the survey yet please do we'd really appreciate it takes 3 to 5 minutes acquire. fm/ survey and you might win meta Ray bands or an acq dad hat or David might mail you a poing

perhaps with uh some assembly so thank you David for volunteering that on air I'll truck it across country awesome well with that listeners we'll see you next time we'll see you next time who got the truth is it you is it you is it you who got the truth now huh