With this year’s string of IPOs still parading before investors like prim debutantes at lavish coming out parties, successful stock debuts are managing to surpass all expectations. It’s no wonder that more and more private companies are enticed to dunk into a public money trough that seems to be overflowing with investment dollars these days.
One company that would be a shoe-in to easily outperform just about any IPO out there is the Swedish ready-to-assemble furniture store chain IKEA. With 298 stores in 26 countries generating €27.6 billion – over USD $37.3 billion – in annual sales, it boggles the mind to think of why its owners are still refusing to cash-out, which they certainly could do in a very impressive way.
It seems that more than just the IKEA brand of products and services is innovative; its brand of business seems to be also.
Let’s first get an idea of the company’s size and prosperity. Founded in Sweden in 1943, the bulk of the company’s activity is in Europe, which is home to 227 stores. Its 49 stores in North America are continually being added to, as are Asia’s 17 and Australia’s 5. Fiscal Year 2012 alone saw the opening of 11 new locations in 9 countries.
Its total of 298 stores employ some 139,000 workers, who are respectfully considered “co-workers” in a show of appreciation by the company’s owners of the vital contribution they make to the company’s success.
Other keys to its success stem from deep behind the scenes. More than just a retailer of affordable, self-assembled furniture units and sets, the company designs and manufactures its own products, linking together an amazing network of 1,084 home furnishing suppliers in 53 countries. The uniqueness of its self-designed product line is the heart of its business concept; you just can’t find the same products anywhere else.
Altogether, the joint efforts of management and co-workers, manufacturers, and suppliers have continually grown the company’s revenues and profits year after year, which rose over 28% over the past four years from €21.5 billion in 2008 to €27.6 billion in 2012, with 9% growth in 2012 alone.
Yet the company’s focus is much broader than the quest for cold, hard cash, as it actively engages in the softer, warmer pursuits of environmental stewardship and social responsibility. “We want to have a positive impact on people and the planet,” the company introduces its green-initiatives at its website. “For many years we’ve focused on economizing with resources and helping to create a better everyday life for people – which includes living more sustainably.”
For its social pursuits, the company’s philanthropic arm – the Stichting INGKA Foundation – funds a variety of charitable programs around the world, including supporting children’s needs. “We’re working toward a world where children living in poverty have more opportunities to create a better future for themselves and their families,” the company describes its aims. “Thanks to IKEA’s dedicated co-workers and customers, we were able to donate €82 million [$110.8 million] in 2012 to fund children’s programmes in some of the world’s poorest communities. By 2015, 100 million children will have benefited from the programmes we fund.”
Bucking the “Cashing-Out” Trend
With a 70-year record of proven success, the owners of the private company could certainly make some wild fortunes for themselves should they jump aboard the IPO train to Money Town.
Just look at the successful IPO of comparable retailer The Container Store, which started trading publicly November 1st on the NYSE under the symbol TCS. Initially priced at $18 a share, the stock exploded out of the gate to reach more than double the price at a high of $37, and it is currently holding the mid $35 area.
By comparison, TCS has only 60 stores in one country (U.S.) versus IKEA’s 298 stores in 26 nations, and it generated $706 million in revenues in 2013 versus IKEA’s $37.3 billion in 2012.
But there is an even deeper comparison to be made between IKEA and other companies, especially those who have recently opted to cash-out their holdings through public offerings, often before a company has legs to stand on its own, with all too common disastrous consequences for the public shareholders left holding a bag with holes at the bottom.
Don’t get me wrong; stock markets are indispensable sources of capital that can infuse a growing company with inexpensive cash to finance its expansion plans. But the mechanism of taking private companies public seems to have changed somewhat over the past few years. It is now something of an assembly line, with investment firms churning out one IPO after another with extremely short-term interests.
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In many cases – as with TCS, which was purchased by Leonard Green & Partners in 2007 – you will find that a group of investors will purchase successful companies with the sole purpose of fattening them up through a massive reinvigoration program designed to impress the public market.
When the time is right, the investors – who were only in it for the short-term to begin with – will take their recently acquired private company public and cash-out in a rewarding way, fully financed to find their next cash cow to milk. The IPO process is no longer just a doorway that leads companies to brighter futures. It has become a door that swings both ways, through which businesses are stepping into the marketplace while in the other direction, owners are cashing-out.
So don’t expect an IPO coming out of IKEA any time soon, as the owners have quite the opposite view of their business. “I decided that the stock market was not an option for IKEA,” founder and still Senior Advisor Ingvar Kamprad explains his view at the company’s website. “I knew that only a long-term perspective could secure our growth plans and I didn’t want IKEA to become dependent on financial institutions.”
“The founder of IKEA, Ingvar Kamprad, wanted to create an ownership structure that stands for independence and a long-term approach,” the company elaborates. “That is why, since 1982, the IKEA Group has been owned by a foundation in the Netherlands. Our profits can only be reinvested, used for charitable purposes through the IKEA Foundation or kept as a financial reserve for future investments in the business.”
This long-term attachment to its business is arguably what has made the company so successful in the first place. Self-reliance has always been management’s key motivation. “The main financial principle of the IKEA Group is to grow by using our own resources,” the company underscores. “In other words, we earn our money before we spend it. This makes it possible for us to make long-term investments for the future.”
You would think the concept of self-driven, organic growth would be on every company’s agenda, until you notice all the companies that have gone public over the past 20 years without every having generated a single dollar of net profit. And investors are surprised when their stocks plummet shortly after debuting?
Sometimes you run a company for more than just financial gain. There are social gains as well, which cannot be represented by dollar signs but only by signs of contentment and personal development among employees, customers, and the global community at large. Kudos to you, Mr. Kamprad and team, for sticking to your core principles and showing the business community that the whole point of business is to generate money as a means of achieving other more meaningful ends, rather than being an end unto itself.
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