Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How IKEA Built a Secret Profit Machine Through Supply Chain Ownership
Transcript
- Lucas: Most people walk into IKEA and see affordable furniture in flat boxes. But the real genius isn't in the Billy bookcase or the meatballs. It's in how the company is actually owned and structured. Luna: You're talking about the whole foundation thing, right? The one that makes the company technically not owned by anyone? Lucas: Exactly. IKEA is often called a 'not for profit' but that's misleading. It's a for-profit business that's structured through a complex web of trusts and foundations. And at the centre of it is a company called Interogo Foundation — a Liechtenstein-based entity that controls the IKEA brand and collects a royalty on every single sale. Luna: Wait — so every time you buy a Malm dresser, a percentage of that money goes to a foundation in a tiny European principality? Lucas: Yes. And that's the part most customers never see. Interogo owns the IKEA brand and trademarks. It licenses them to a Dutch company called IKEA Systems, which is the franchisor. IKEA Systems then franchises the brand to 12 different groups of franchisees — the biggest one being Ingka Group, which operates most of the stores. So there's a royalty fee flowing upward at every level. Luna: So IKEA the brand makes money without actually running any stores. That's like a double dip. Lucas: It is. Interogo collects a royalty from IKEA Systems, which collects a royalty from Ingka Group. The exact percentages aren't public, but analysts estimate the total royalty is around three percent of sales. With global IKEA sales around forty-five billion euros, that's over a billion euros a year flowing to the foundation. Luna: That's a lot of meatballs. But why go through all this complexity? Why not just own the stores directly? Lucas: Founder Ingvar Kamprad was famously paranoid about taxes and about losing control. In the 1980s, he restructured the company to make it 'hostile takeover proof' and tax-efficient. The foundation structure means IKEA pays lower corporate tax than a standard public company would, and it also keeps the company private — no shareholders demanding quarterly results. Luna: But isn't there a trade-off? I mean, if you're not accountable to public markets, you can make long-term bets, but you also lack that discipline. Lucas: That's the argument. But I'd say IKEA's track record shows the trade-off hasn't hurt them. They've invested heavily in renewable energy, in supply chain automation, in expanding to new markets like India and South America. Things a public company might struggle to justify to analysts. Luna: Let's talk about the supply chain ownership piece. IKEA doesn't just own stores — they own factories, forests, even shipping containers, right? Lucas: Right. Ingka Group owns around 40 percent of IKEA's production. They have their own sawmills, their own board factories, their own logistics network. That vertical integration gives them huge cost advantages. A competitor like Walmart or Target has to buy furniture from third parties and mark it up. IKEA makes its own stuff. Luna: So the flat-pack design isn't just about saving space in your car. It's about saving money on shipping and assembly. Lucas: Exactly. The flat-pack concept reduces shipping volume by about 60 percent compared to assembled furniture. That means fewer trucks, lower fuel costs, less damage. It's a supply chain innovation as much as a product innovation. And Kamprad understood that from the beginning. Luna: And then there's the whole thing about cash flow. Customers pay at the register, but IKEA pays suppliers later. That's a classic negative working capital model. Lucas: Retail 101. But IKEA takes it further. They also have a huge furniture rental program now in some markets — you lease the furniture, they keep the ownership. That generates recurring revenue and even tighter control over the product lifecycle. Luna: So the real money isn't in selling you a sofa once. It's in owning the whole chain from tree to your living room. Lucas: And beyond. They even own the recycling. When you return an old IKEA sofa, they'll refurbish it or recycle the materials. So nothing leaves their system. Luna: Speaking of systems, let's talk about the foundation structure after Kamprad's death in 2018. Was there any fear the whole thing would unravel? Lucas: There was concern. But it held. The Interogo Foundation is governed by a charter that forbids any sale of IKEA or any change in the brand's purpose. The Kamprad family still has influence — his sons sit on the foundation board — but they don't own the company in the traditional sense. It's a perpetual structure. Luna: So it's like a trust that can't be broken. That's pretty clever for a guy who started selling matches by bicycle at age 17. Lucas: Kamprad was a genius at thinking beyond his own lifetime. Most entrepreneurs build a business to sell or to pass to their kids. He built a structure that could outlast any one person. Luna: But isn't there a downside? Some critics say the foundation structure is designed mainly to avoid taxes. IKEA has faced investigations in Europe over its tax arrangements. Lucas: That's true. In 2016, the European Commission investigated IKEA's tax deals in the Netherlands. And there's been criticism that the foundation structure allows profits to be shifted to low-tax jurisdictions. But the company argues it complies with all laws and that the structure is about long-term independence, not tax evasion. Luna: Still, it's a fine line. And it's worth noting that IKEA has been moving some of its operations to more transparent jurisdictions in recent years. Lucas: Yeah. In 2021, they moved the core of their brand licensing from Liechtenstein to the Netherlands, partly in response to regulatory pressure. So the structure evolves. Luna: Let's talk about what other companies can learn from this. Not every business can replicate the IKEA model, but are there takeaways? Lucas: Absolutely. The biggest lesson is the power of separating brand ownership from operations. Many companies treat their brand as just a logo. IKEA treats it as an asset that can be licensed, protected, and monetized independently. Luna: And the supply chain ownership. Most retailers outsource production to China and call it a day. IKEA goes deep. Lucas: Right. Vertical integration gives you margin control and resilience. During the pandemic, when global shipping was a mess, IKEA had its own container ships. They could move products when competitors couldn't. Luna: But that takes massive capital. Not every company has that kind of balance sheet. Lucas: True. But you can start small. A furniture maker might buy a small lumber yard. A clothing brand might invest in a fabric mill. The principle is the same — control a piece of your input. Luna: And the franchise model — using other people's capital to expand while you collect royalty — that's not just for fast food. Lucas: Exactly. IKEA franchises to a few large operators, not thousands of mom and pops. That keeps quality control tight. But the royalty stream is essentially passive income for the brand owner. Luna: One more thing — the long-term thinking. Kamprad said, 'You can do a lot in ten years. But in twenty years, you can do anything.' That patience is built into the structure. Lucas: Right. And that's the hardest thing to copy. Most CEOs are measured quarterly. Kamprad designed a system that measured success in decades. When you're not worried about the next earnings call, you can invest in things like forestland that take thirty years to mature. Luna: So the IKEA story is really about design — not just of furniture, but of the business itself. Lucas: Exactly. They designed the company the way they design a sofa: with every piece serving a purpose, and the whole thing built to last. Luna: If these conversations have moved your work forward in some small way, we should mention that this show exists because of a small group of listeners who chip in monthly through buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a tiny thing — no ads, no sponsors, just people who find value here and want to keep it going. It funds the research, the hosting, the whole operation. Luna: And it means we can keep digging into stories like this one without worrying about commercial breaks. So thank you to those who do. Lucas: Alright — back to IKEA. One question I've been thinking about: could this model work for a tech company? Imagine a software company that separates its brand from its codebase through a foundation. Luna: Interesting. But software changes fast. A foundation might lock in decisions that become obsolete. IKEA's structure works because furniture is relatively stable. Lucas: That's a fair point. But there are examples — the Linux Foundation owns the brand, while companies like Red Hat build products around it. It's not the same, but there are parallels. Luna: So the IKEA model is a case study in strategic patience. But it also raises a question: at what point does complexity become a liability? Lucas: That's the tension. Every layer of structure adds legal and administrative cost. For most companies, a simple ownership structure is better. But if you're building something meant to outlast you, Kamprad's approach is worth studying. Luna: And it's worth remembering that at the heart of it all is a simple mission: affordable furniture for the many. The structure serves that mission, not the other way around. Lucas: That's the key. The structure is a tool, not the goal. Kamprad never lost sight of why he started the business. And that's maybe the most important lesson of all.