Ikea's top executive on why “climate-smart” is "cost-smart"
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Jesper, thank you so much for joining us. So this is a room full, among other things, I suspect, of people who have put together IKEA furniture. Oh, no. And so I thought I would... So if there was... I normally try to say if there was any missing screw, I apologize on behalf of my predecessor. So can we have that done? So I do have a question. You know, it's rare that you get a chance to ask this of the CEO, but...

When you get almost finished with the bookcase and you realize that you missed a step right in the beginning and you didn't put in the right peg. I mean, I suspect that may have happened to some other people. I'm not the only person. What do we do about that? Is there any way AI can help us? No. AI won't help you there. Maybe you should talk to your wife.

I don't know how to reply now, if it should be a legally correct answer. Obviously, if you put together a piece of furniture that has any risk of collapsing, I would probably advise you to go back. But I'll tell you a funny story. Many years ago, I was sent by the founder of IKEA to negotiate company cars.

I went to a German car manufacturer, I won't tell any names. I love negotiating.

He probably felt that was a bit annoying after a while. And then he told me that, "Haboudin, you will have the car for this price, but you will get it in a flat pack and you put it together yourself." So, you know, you reached the limit. You know, forgive me, but it serves you right. So, let me turn from our personal experience with your product, which actually...

we love, it's everybody's first furniture. To the question of the future of the company, and we're in a world where everything in retail has increasingly an online component. And because your product is such a physical product,

I think of IKEA less in that context, but how is technology changing how you deliver your product to consumers? And then I'll get to the interesting question of resale in a minute, but just talk about the way in which IKEA is different today because of technology from what it was 10 years ago. Very good. I think these are so interesting times, so challenging and so exciting times.

When I signed up for my assignment, and I look back now eight years, and there was nothing in that description that actually happened. So if you look at the poly-crisis, poly-transformation that we're into right now, the first insight for me was actually beginning this job. I travel around the world. I visited, I think, some 15, 16 markets. I met customers and co-workers everywhere. And one of the things that everybody said here in Japan, it's different here in Poland, it's different here in...

The US, it's different. But the comment was the same. And that was in particular from customers saying that we love IKEA, we like IKEA, we like to go to your stores. You don't have to wait six, seven weeks for the sofa, etc. You have a full day out inspiration. But on a Tuesday when you come back from work...

put the kids to bed, you need to order two folding chairs. If you're not showing up online, we're going to deselect you. So at that time, we actually hadn't started our online transformation. So that was a wake-up call, I think, for me and for us. I remember asking myself, how could we...

have waited so long since the online transformation started at least some 10-15 years before. But the fact was we were successful in our model and that can sometimes of course be to your disadvantage. So we began the online transformation. At that time we thought there would be two cohorts of customers, one off and one online.

Only to find out a couple of years down the road that almost 90% of Ikea's customers today use a mix of the channels So that's where we ended up

We have been able to defend and increase our market share. We have luckily also found a way to scale costs. And the most interesting part of that was returning to our old stores, because they, in our stores, in our model, for those of you who know IKEA, we actually carry almost all of the IKEA range. So we didn't have to set up warehouses. We just had to find another operations and digital component. And finally, along came the pandemic with all its calamities and suffering.

IKEA was closed 55,000 store days during the two years, 55,000. We would not have made it unless we had online. So actually online was speeding up and helping us through a crisis. And obviously nobody wrote a strategy like that. It just sort of happened.

we we have a world i want to say uh of ikea furniture um our own not here but yes yes uh i don't know where i can help you with this it was a mistake but uh you know our our children's old ikea furniture uh dots their apartments and their houses if they move but

There's an interesting question of what happens to that furniture as we age, as we begin to buy different things, and the possibility of a secondary market so that much younger people who want to come in...

might buy not new IKEA furniture, but their moms or dads or uncles. So tell us where that is. Is there a secondary market? If there isn't, is that a business for you to be in, or should it be done by somebody else? Well, to be honest, there's been a secondary market for IKEA furniture long before I, and we, really embraced that, or even updated us on the topic.

The first component I think which is really interesting, when I used to work back in the early 2000s, I worked with leading the kitchen business in IKEA. That was one of the highest quality points at IKEA and is still an incredible quality product based on the simple fact that

A lot of people think quality should be expensive. That's absolutely untrue. You can scale things. By economy of scale, you can build in quality ways that you could never make possible otherwise. Back in 2012-13, we looked at ourselves in the mirror on the quality perspective. We saw some beauty spots and we decided to go all in on basically making ourselves a high-quality company.

After that, we saw, and of course it was there before, we saw an upswing in the secondary market, basically, the e-base of the world. And today, interestingly enough, IKEA's market share in any given market is higher on the secondary market than on the first hand. And until quite recently, it was not fully clear to us why. But since we also target certain life situations, like your first home, your first kid, and so on,

These would be typically periods of life when you have the thinnest wallet and the biggest needs. But it's also limited to a certain range of years. So you would see IKEA's changing tables come again and again and again on the market. Now, what we had to do to enable that was to realize that our products were built for assembly, but they were not necessarily engineered for disassembly, assembly, disassembly, assembly. So we had to change a couple of standards and fittings and whatnot.

Today we have started to engage by buying back furniture to IKEA stores. It's reasonably successful. I would almost say that it's more successful as a symbol than if you compare it to the volumes of the new furniture we sell. But we have started a platform, our own secondary platform. We are testing it in Norway and in Spain.

And the reason why we do that, because the eBays of the world are excellent, is that we can actually add value by providing AI-driven pictures, price recommendations, access to IKEA spare parts, and thereby actually give some value to customers on the secondary market.

So that's, you know, I can think of certain children of a Washington Post reporter who could use that news service. So let me turn to a couple of issues that are at the intersection of business and politics. This has been a tumultuous week. I don't have to stress that for anybody. We all watched the inaugural address.

And I think people are curious with a business like yours that's associated, I think, with the idea of sustainability, of protecting the climate. What effects, if any...

You think the political changes in the U.S., sure to be mirrored other places, will have. You were quoted in Fortune after the COP summit in Baku recently as saying our transformation, meaning our transformation in terms of the way we use energy, has begun and is irreversible.

There's no way we would reconsider that because of politics. Well, we're just in the middle or at the beginning now of political events that may suggest it's not irreversible. It may be slowed, stopped, even reversed. We don't know yet. As you look at what's happening in the U.S. and at the possible slowing of the movement toward democracy,

steps to address climate change. What difference does that make to you and your business? No, but to start with, of course, these are incredibly interesting and to a certain extent, tumultuous times. We have seen elections here. The super election year has been what we've been through last year. The interesting thing, when I grew up, I was sort of taught that companies are fast and governments are slow.

If you ask any CEO today, I think it's actually the opposite. We don't work with three-, four-, five-year horizons. We've been around for more than 80 years. We've been in the US for 40 years. I think we did announce our biggest investment in the US a few years ago of more than $2 billion. We are on the roadmap of buying property, building stores from Manhattan to countryside Texas,

We're engaged in, through our ecosystem, setting up production and so forth. So our approach is, of course, we always collaborate with governments in order to provide jobs. Do I share up paying taxes? But we're definitely not a business model that could be easily swung around because of the massive investments in what we do.

So in our way, you can say IKEA was actually built on a couple of ideas. And the central idea is to make it possible for people with thin wallets to afford good furniture. In order to do that, it's hard work. And particularly if you go down the price categories, it becomes an incredibly interesting task. So what we really do, we are obsessed by cost. And in our transformations,

Waste and avoiding waste is like one of the things we're really good at at Ikea economies of scale is another one and when you look at the the interesting thing with the transformation of Climate smart if you like is that it's associated with resource smart obviously and therefore cost smart So during last year in Ikea we we in the company we invested 2.2 billion euros in lowering prices now

Part of that was, you can say, finance through the rebounds from the pandemic when we had, to a certain degree, you can say the inflationary parts of the economy was driven by the unbalance in supply and demand. So we saw a bit of rebounds in that. But the big share was really that we managed to actually harvest a lot of efficiency through entering and transforming into a smarter economy, if you like. And if you look at what type of numbers you have there, it's super interesting.

A few years ago, we had faith that this would be the case. Now we have the facts. So IKEA today, what is referred to scope three, which is basically the end-to-end carbon from raw material to end of life of the product and everything in between. If you would put the cost footprint on IKEA on top of that, it's very synonymous. So when we touch carbon, we actually touch cost. And that has been one of the main drivers why we've been able to lower prices and expand the last year.

So when I walk down the promenade here coming to this venue, virtually every storefront has the initials AI. I thought it was Al, but now I know. I think I'm not AI Gore. This guy Al is really transforming everything.

But I bought a new golf driver this summer from Callaway, and they called it an AI smoke driver. And I thought, wait a minute.

How is a driver, a golf club, possibly associated with AI? Did that improve your swings? It's actually not bad, but it doesn't have anything to do with it. So I'm curious. One of the things that we think about is how will this technology actually be absorbed?

by companies like yours? What will be the effects on your workforce, how you deploy people? So let me ask that. In terms of this AI transformation that we hypothesize, what does that actually look like at your company and where is it going? Well, I think it's still a new topic for us, but I think in the previous tech revolutions that we've seen from the internet to social media and so on, I think

We, humanity, grown-ups if you like, I'm a parent as well, and definitely to a certain degree, corporates have typically had the face of first updating ourselves, learning, secondly be very optimistic, and then maybe too late, realizing the risks of it. This time in IKEA, we're not going to be too late on the risk side of it. So let me speak to that too.

On the upside, we have a very practical approach on how we actually use AI. Today it's typically engaged into logistics and it's helping us massively with optimizing cost and all sorts of end-to-end optimization.

Secondly, it's an amazing support in customer service. So it takes away a lot of the non-value added work, which means, for instance, people in our support centers today would typically not spend 80% of their time answering basic questions, but selling kitchens, which is harder for AI to do at least now. On the other hand, we engaged early on to...

to understand and try to understand the risks. If you would Google us and look at our standpoint from an ethical point of view, we have made it very clear that we think it's incredibly important both to engage in social aspects, what it means from an information perspective, and how we, as a responsible company over all these eight years,

have to make sure that the transformation of jobs leads to something that is good for humanity. And at your company, as you

think about the, let's say, a 10-year horizon, will the combination of AI and robotics in a significant way reduce your workforce? What do you think? It's not going to help you assemble your furniture, I think. No, we're going to do that. You can't replace me. But in terms of your own factors... I'm sure it will. When you look back at the tech revolutions from the point of automization,

It's been less dramatic maybe than the initial outlooks. If I look at IKEA today, we are about 170,000 people in my company. In the companies that have the name IKEA integrated, it would be 200,000 people. If you include the suppliers and the supply chain, it's at least a million people who are engaged every day in that network. If you look over the years,

we can be self-critical to a lot of things but i think we've been

providing stability when it comes to workforce and jobs. We are a slow grower. Our founder left us with a policy saying that we have to... He said there is only one financial policy. I checked, there were more, but according to him, it was one. And that's you have to earn the money before you spend it. So we're a slow grower and a steady... I think for any part of society, you can sort of count on us being in the game for the long run. We've never had a dip when it comes to employees.

Even during the pandemic, we decided that rather than letting people go, we think it's more important to spend our hours to invest in things that help us move forward. Who knows? We will definitely see optimization in the areas I described, and maybe more. But at the same time, I think there are no reasons for panic.

Our business is fairly slow when it comes to demands and shifts, meaning that people will probably sleep in a mattress also in 50 and 100 years and so forth. But we need to be cautious because it's a transformation. It's the second biggest transformation that we are experiencing right now. So we need to keep our eyes on the wall.

So you're the kind of paradigmatic globalized country. I can remember arriving in Moscow years ago, coming in for the airport and seeing this enormous IKEA store and thinking, my God, it really is a new Russia. I'm sure you passed that enormous, enormous store. There are probably many...

Many, many more now. And for your business, free trade, the lowering of trade barriers has been, I would assume, an important component. And we're now in a period where our new president loves to talk about tariffs. You were quoted here at Davos as saying about tariffs, the fewer the better.

I noted that you told CNN recently that the tariffs make it more difficult for us to maintain the low prices and be affordable for many people, which is, in the end, is our goal. So I want to ask you, as we begin what may be a round of American tariffs and

and then retaliatory tariffs by other companies. What that's going to mean for you, how concerned you are about the effect on your business? Just talk about how IKEA is going to live in a tariff world. It is a very exciting topic, I think also for your colleagues. So it's a question that I'm quite used to at this moment. I don't think, just to put it like this,

The simple view for any company is of course that tariffs increase costs and it changes the game of course of import, export and trade. So that's what it's for.

The mathematics are simple. Companies typically would say the less the better. And also to say the more long-term economic structures, the more we can plan our footprints and so on. But if it changes rapidly, of course, it sometimes could change the game quicker than we can adapt to. So that is just basic economics.

If you ask me how worried I am, it doesn't even show up on the top 10 list. So to put it in perspective, if you look at the supply chain and the costing of a product, of course, it changes the game. But if you look at the totality of it, it's not the number one topic. I also need to say, because there's a lot of discussions about you as the new president,

This is a topic that's been around for many years now, and it's a global topic between countries, between EU, China, US, and so forth. So it's neither a new topic or an American-driven topic, I would say. But it's not on the top list of the worries. So I have to ask you, if tariffs aren't on the top 10 list...

What is? What's the number one... I'm Jesper and I'm going to bed tonight. What's the thing I'm worried about most for my business? Except for the children. For me, I think the big topic is obviously climate change. We thought a few years ago that climate change would be a distant threat.

We know today it's upon us. We see calamities, human suffering, nature loss and we see economic loss. Last year IKEA alone, with all the respect of the human suffering involved, was hit seven times.

by extreme events, floodings, droughts, lately, of course, in Los Angeles with the enormous tragedies we've all been experiencing. We see impacts on raw material sourcing chains. We see insurance issues coming up for us. We see the need to adapt.

Luckily, in Spain, in Valencia, when the flooding came, IKEA had moved its equipment to the rooftop rather than having it in the basement, which we still have in some places, which made we could actually become a center of refuge for the society. We had hundreds of people that we could take care of there for a couple of days to feed and to provide a safe haven.

We are now back in business in Valencia, but you can imagine the weeks and the investments, loss of sales, cost and so on. This is not an anomaly. It's actually part of our risk calculations and what it is today. So looking forward, this is the topic for us to change. People speak, as you said, on the promenade of AI as the big transformation. It's not. AI is a tool. Climate is something else. It's a disaster. It's a purpose.

But it's also, which is I think we find so interesting, coming from the roots of IKEA, we have always been a thrifty culture when it comes to waste and to resources. ClimateSmart invites you to actually build sustainability into your business model, which only provides you with the economic advantages. And then a lot of people I know say, how is that possible?

I can give you several examples from the renewable energy investments we've done that gives us benefits to electrical mobility, which gives economic benefits. It also allows us to come to cities that, so to say, close down for diesel traffic in the daytime, so we can actually operate thanks to that.

We have reduced our food waste in IKEA by 57%. How much money did we save? 57%. You know, it's not rocket science, to be honest. There are a couple of investments and a couple of steps that we have taken where we made bets. We were early on shifting out incandescent lighting to LED. I think we were the first company to go all in. We didn't know at that point, will it pay back? But it did.

So, if you look at the space of climate and economy, it provides us with an opportunity to not only contribute to the overriding goals of humanity, but also, which is incredibly important because there is no backside of it from an economic point of view. In IKEA, we are sharing two very interesting numbers to prove that because you can say it's nice examples.

These examples are part of an engineering that we have done for some 10 years and beyond, by the way, so it's not by chance or by flux. Now, we are reporting a growth since Paris Agreement by 24%. That means also covering for the pandemic years, and it's not been normal years, if you like. So 24% up in our company and the sales of IKEA. We have more customers, we sell more products. It's also interesting. We don't sell less to fewer people.

We are down by 30.1% in absolute carbon. So we are way on the way. We thought at the beginning this would be an issue, because we thought we had to suffer economically for it. But our customers told us, and this is very interesting, because this is coherent to data here from many companies and institutions. IKEA customers around the world, there is no worry

In the US, in France, in China, in Sweden, there is no worry greater than climate change. 68% of our customers today worry deeply about climate change. Interesting enough, 64% today do take action. I can't remember, but if you go back some eight years or so on, we would see a trend of worrying, but we didn't see a trend of acting, so to say. Today, 64% of our customers take active decisions today.

It's also, I think, probably guided by the wallets, energy decisions and whatnot. And we asked them then how many of our customers are prepared to pay a bit extra for something that is climate smart. And the answer is 6%. At first, I thought and we thought that maybe means that people don't care after all. But then when you meet people out there,

The answer is I can't afford inflation, interest rates, two kids, schools. I have two jobs. So our customers told us that it's your job to fix. It's you and governments who need to help us make this transformation because I don't have the money.

Accepting that led us to the opposite, meaning that we didn't just add some flavor to it, but we decided to make a massive transformation. And the output of that is, as I explained, also massive cost advantages for the company. So it's fascinating. That's the clearest account of the economic advantages of sustainability that I've heard from a company. So let me ask you a final question about

One thing that's come through many of my conversations in Davos this week is anxiety about the European economy, also European politics, but really focusing on the European economy. Goldman Sachs is projecting in its 2025 budget

that Europe as a whole will grow by 0.8% in GDP terms. I think

I was very struck by the report of Mario Draghi, who warned that Europe really is in danger of falling fundamentally behind the United States and China in its use of technology. A week or so ago, Elon Musk, of all people, said there should be a new movement, MIGA, Make Europe Great Again.

that Europe needs to jump into this new world of technology and transformation. You're a European company, you're a Nordic company, but you're a European company. How worried are you about the situation of the European economies and the degree to which regulation is a problem for growth and startup?

Well, it's a very interesting question. I do worry about climate change. I don't worry that much about the European development. But let me give you a couple of flavors. When I look back the last eight years, as I've been on this position as CEO of the group, more than 50% of all predictions, including my own, has been wrong to start with. Now, when you reflect on that, it's really interesting because when you have times of stability and you're in an era of some sort of

some sort of set world order, I think probably it's easier to make predictions. We are probably between two eras right now, and the world is trying to find its way. And as I see it, there are so many variables at stake right now, so it's incredibly difficult to understand. So in my case, what we work with in the company is not to try to establish the right number, but to play with scenarios and thereby...

mostly uncover the opportunities in that range, I'd say. What I think is true though is that Europe has a number of challenges and a number of opportunities in a very open dialogue together with Ursula von der Leyen and I would say the leaders of EU today.

It is not a question of understanding the complications of Europe, but more how do we simplify it. There's a massive commitment from the top, from Ursuland and the way down in the organization that 2025 is going to be the year of simplification. Companies applaud that. There is a lot of well-meant legislative initiatives in Europe that I think

I myself applaud. It's just that the ambition level is sometimes high and drives complexity into investments and other things. So the pathway of simplification is going to make Europe more attractive, I think, for a lot of investors. And then on the other hand, Europe is a massive market, 500 million people, a relatively smart geography, if you say it like that.

In IKEA, it is our majority businesses and majority of our production and so forth. So it's both important. It has a good tech environment. Comparing it to China and US, you would be able to rate Europe

ahead of the game in a few things, behind in some others. But I see great opportunities for us as a multinational, not only think Europe in that context, but more value chain integration. So let's see. I think the message that we refer to has been heard by the leaders of EU. That makes me very excited about the opportunities. What I do believe maybe Europe will be a bit ahead of is, again, adapting to climate smart economy. Mm-hmm.

In Europe, we have the aspect, obviously, that EU is one phenomenon, and then the member states have their legislation and leadership, which, of course, slows down some of the decision-making. But you have some similar aspects of that in the states as well, where not all states would agree to the White House in all terms and so forth. And then I think you have China, of course, which is much more of a planned economy, has been for so many years, where we see actually the most rapid growth

development to modernization and transformation in any of the regions we operate. And do you see in terms of the fundamental growth numbers, Europe growing faster than the projection that I cited from Goldman, which is on the more pessimistic end, but still most projections see fairly slow growth in Europe.

What is your company plans for future markets? What do you see? Well, I couldn't argue with the government numbers, with all the data and intelligence they have. In our line of business, when it comes to home furnishing, we are obviously connected to the big movements because we have customer base of businesses.

about 800 million customers a year and on. So, of course, we are representing the money. On the other hand, we are in the life-at-home sector, and we are, so to say, guided by other measures than those economic numbers. Today, what we see is three things happening. Inflation coming down, interest rates coming down, and there's a massive pent-up demand for moving and investing in your household. These are the three economic factors

indicators that will dictate 2025 for us. And there I'm cautiously optimistic. I have been 50% wrong in the past, I need to say, but I am still cautiously optimistic that we are ahead. We are actually standing before slightly better times when it comes to demand. We are ready, as I've said, for that. And interesting enough,

It used to be, if I go back to 2008 or even before, at IKEA we saw very different economic speeds in our different markets. During the last seven, eight years, we have seen similar movements in most of our markets. How the pandemic hit us, how the inflation, the interest rate, impacted demand about one and a half, almost instantaneously on all our markets one and a half year ago. And we see actually a gradual return to demand across continents and markets right now.

However, I'm normally 50% wrong. So let's see. So I haven't heard the 50% yet that's wrong. So, Jesper, thank you so much. It's a fascinating conversation. We're really glad you could come by Washington Post. We hope to see you again. Thank you very much. Thank you. Thanks for listening. For more information on our upcoming programs, go to WashingtonPostLive.com.