AMDP Investment Porposal Rough Draft

 

To: AMDP Investors

From: Anders Marshall

Date: March 5, 2024

Subject: IKEA Investment Proposal

IKEA is an environmentally and socially friendly company that improves everyone affiliated with it. The Swedish company is headquartered in Delft, Netherlands and has been recognized as the most influential furniture company in the world. It has been positively reviewed by critics and whenever problems do arise (as infrequent as they are), they are swiftly dealt with in a highly socially acceptable manner. This company would be a perfect investment as they are known, loved, and not going anywhere. 

Key Terms

Triple Bottom Line is a corporal framework that suggests that companies should prioritize the Three P’s when modeling their business: profit, people, and planet. Profit emphasizes making money ethically and ensuring that the company’s profits help the surrounding community: through paying taxes on time and supporting small businesses in the area. People includes everyone connected to the company: employees, vendors, and customers, making sure that they are treated equally and justly. Planet entails committing the company to more environmentally friendly practices, even if it slightly reduces profits, for the greater good (Kenton). 

Corporate Social Responsibility refers to four key concepts: environmental, ethical, philanthropic, and financial responsibility. Environmental responsibility prioritizes emission and pollution reduction through recycling measures and conscious planning. Ethical responsibility encourages equality within companies and with their partners, treating all people fairly regardless of gender, age, race, sexual orientation, and much more. Philanthropic responsibility aims to improve the surrounding community, contributing funds to help support society. Financial responsibility is the final, but most essential aspect of corporate social responsibility (Fernando). It ensures that there is social awareness and diversity within the workforce while also requiring the company to be transparent with their financial decisions to prevent potential fraud. 

Social enterprises are businesses that focus on helping improve society or the environment while simultaneously achieving financial goals. Companies will often partner with nonprofit organizations, homeless shelters, or charities to help improve the lives of those in need (Investopedia Team). Other ways to help improve the lives of others is by committing a deal with the public depending on how much profit the make: such as companies promising to give a pair of shoes to those in need for every pair of shoes purchased, or doing a large funding project depending on the amount of returns made in a time window. 

Carbon footprint is the amount of negative gasses an individual or company produces through activities like transportation, energy usage, or deforestation. Carbon emissions are measured by calculating the quantity of gasses that are released into the atmosphere through these actions (The Nature Conservancy Team) . It is vital to reduce the amount of carbon emissions people and companies are producing to help combat climate change, rising temperatures, and ecological disruptions that are caused by these negligent activities. 

Describe the Enterprise – IKEA

IKEA, a company known across the world for its unique furnishing options, affordable appliances, and excellent meatballs, is a highly eco-friendly company with an objective to constantly improve while reducing their carbon footprint. In 1943, 17 year old Ingvar Kamprad founded IKEA in Småland, Sweden, selling small items like wallets and pens to the local residents. Five years later, Ingvar’s father gave him a small loan to help expand his company (IKEA). From there, he began producing furniture and grew his company to the major enterprise that is known and loved today.  

IKEA’s main strategy is making the customers’ lives easier. They do this through a multitude of ways: having easy-to-read catalogs of all the products, making the store easily navigable, and having coffee-shops and restaurants within the stores. Nearly every household in Sweden is sent an IKEA catalog for families to see what products have been added to the store. In other parts of the world, IKEA has their catalogs easily accessible online, where customers can be up to date on what products they want to purchase before going to the store. The company is aware that going to a furniture store is an investment of a day, so they try to relieve the stress by allowing customers to see all the available products before having to make the endeavor. The stores are designed for the customers to complete a loop of the entire store, where there are different sections, such as the bedroom area fitted with beds, closets, and nightstands, the living room area with couches, chairs, and lamps, and the kitchen area, with full size kitchen models to show the customers all the different options they have (Isaksson and Suljanovic). The concept of having full room models helps the customers envision what they might want out of the product. While some companies focus on having as many products as possible in a space, IKEA utilizes their space with the intent of showing the customer what the products would look like in a house environment. After spending a few hours walking through all the different sections of the store, customers are met with Swedish coffee-shops and restaurants within the store to relax and discuss housing plans. The shops are designed in all stores to help the customers unwind and disconnect from furniture shopping, while not having to leave the store itself. 

When it comes to financial track record, IKEA is exceptional at maintaining a stable growth rate and is phenomenal at bouncing back from global economic fluctuations. For the past 20 years, IKEA has consistently grown with the only instance of a decrease being in FY20 (Fiscal Year 2020) due to COVID-19 reducing the amount of global sales. With that said, the following year IKEA quickly adapted and had more sales than any year prior. As of 2023, IKEA had an annual revenue of €47.6 billion ($51.68 billion), and it is expected to continue to increase (Statista Research Department). 

Climate Change – IKEA’s Statements

IKEA is highly eco-conscious, stating that they “are committed to reduce more greenhouse emissions” by FY23. Their objective is to reduce their GHG emissions in materials by 50%, food ingredients by 50%, production by 80%, public transport by 70%, retail and other operations by 80%, co-worker travel by 50%, customer travel and home deliveries by 50%, product usage at home by 70%, and product end-of-life by 30%  by FY30 from the baseline of FY16. So far, they have been extremely successful, producing the same amount or less carbon emissions compared to FY16 (IKEA). 

Given that IKEA is the world’s largest consumer of wood, one would expect the company to have a horrible carbon footprint, but IKEA is a strong advocate for reforestation and effectively growing trees to help reduce CO2 emissions and give work opportunities to communities in developing countries. In the Thua Thien Hue province of Vietnam, IKEA partnered with the local forestry companies to help with their lumber production. Around 65% of the forest plantations are run by smallholders and communities within Vietnam to help the surrounding community improve. IKEA has a long-term objective to help improve the environment and much like the trees that they’ve planted in Vietnam, are growing slowly but efficiently (IKEA). 

Industry Reviews – Forbes & Medium

Forbes’s analysis on IKEA’s sustainability objective explains how IKEA is paving the way for other companies to become more successful while being more sustainable. The article written by Clara Ludmir goes into depth about the different sustainability projects IKEA has committed to to help improve the environment. One project that has been highly received by the public is the buyback and resell service, where customers can resell their old IKEA furniture to the company for new customers to purchase. This helps with reducing the amount of products that need to be produced annually. The first year of the service, 105,000 items got a second life, and by 2022, 230,000 items were reused through the buyback and resell service (Ludmir). The article did not give criticism to the company, but instead highly praised the company for the efforts put into helping improve the environment through traditional measures as well as giving customers an opportunity to help by reselling their old furniture to those who will use it.

Andy Lau from Medium analyzes IKEA’s ethical compass and determines whether the company is upholding ethical standards or not. There were two stories that were especially significant in the article. The first was based in Germany, where it had been publicized in 1992 that IKEA’s best-selling bookcase produced lacquer emissions that were above the German legal limit. Upon this discovery, IKEA immediately halted their bookcase productions, losing the company $7 million. The stakeholders explained that they “valued ethical practices over money” and would rather solve the environmental problem than make a profit. The second story was in 1994 when IKEA was exposed for working with suppliers who promoted child labor. When this was announced, IKEA revised their supplying contracts, threatening any company that employed children to be terminated from future trading. They also appointed third-party agencies to ensure the child labor policies were being upheld by their suppliers (Lau). In total, Lau had a positive reception of IKEA and believed that the company was not only environmentally ethical, but socially as well, valuing the lives of the people and planet over money. 

Considering the Company

Given the data presented, I would recommend investing in IKEA as it is a secure company that is constantly growing. They are extremely conscious about their carbon footprint and have openly announced (as well as demonstrated) that they want  to reduce their carbon footprint. When it comes to profits, IKEA is as solid as a rock. Being the largest furniture retailer in the world, the company is constantly growing and expanding internationally. Their revenue has been steadily increasing and it has no indication of slowing down. For their public reception, IKEA is loved by and criticized by none. Whenever there is a problem, IKEA is quick to announce their mistake and correct it swiftly and effectively. The company is efficient at ensuring every customer is satisfied and that they have a strong public image. There is every reason to invest in IKEA right now, it is a strong company that is as reliable as its furniture.

 

Works Cited

 

Fernando, J. Corporate Social Responsibility (CSR) explained with examples, Investopedia. Available at: https://www.investopedia.com/terms/c/corp-social-responsibility.asp 

IKEA. Our history IKEA. Available at: https://www.ikea.com/us/en/this-is-ikea/about-us/from-humble-origins-to-global-brand-a-brief-history-of-ikea-pubad29a981  

IKEA. Climate footprint across the IKEA value chain – Ikea Global IKEA. Available at: https://www.ikea.com/global/en/our-business/people-planet/value-chain-climate-footprint/

IKEA. Climate-oriented forest management - ikea global IKEA. Available at: https://www.ikea.com/global/en/our-business/people-planet/forest-management/

Investopedia Team. Social enterprise: What it is, how it works, and examples, Investopedia. Available at: https://www.investopedia.com/terms/s/social-enterprise.asp  

Isaksson, R. and Suljanovic, M. (2006) The IKEA Experience, Bachelor Thesis. Available at: http://www.diva-portal.org/smash/get/diva2:1032639/FULLTEXT01.pdf 

Kenton, W. Triple bottom line, Investopedia. Available at: https://www.investopedia.com/terms/t/triple-bottom-line.asp 

Lau, A. (2020) Is IKEA ethical and sustainable?, Medium. Available at: https://medium.com/discourse/is-ikea-ethical-and-sustainable-6121b334e77e 

Ludmir, C. (2023) How sustainability and affordability can go hand-in-hand: The case of Ikea, Forbes. Available at: https://www.forbes.com/sites/claraludmir/2023/11/24/how-sustainability-and-affordability-can-go-hand-in-hand-the-case-of-ikea/?sh=1628357b2e09  

Statista Research Department (2024) IKEA annual revenue 2023, Statista. Available at: https://www.statista.com/statistics/264433/annual-sales-of-ikea-worldwide/.

The Nature Conservancy Team What is your carbon footprint? The Nature Conservancy. Available at: https://www.nature.org/en-us/get-involved/how-to-help/carbon-footprint-calculator/#:~:text=A%20carbon%20footprint%20is%20the,highest%20rates%20in%20the%20world.