Thursday, November 15, 2007

The Toy Store For Adults—IKEA

April in Paris—the City of Light, romance, the fashion capital of the world (at least it was then), romance, certainly the home of croissants, romance. That’s where I fell in love, except it was really in September, actually a better time to be in Paris than April. Yes! Some twenty five years ago, just by happenstance (probably the better word would be serendipity), is when I stopped at a doorway leading to a lovely courtyard and viewed what has become a long-term and enduring memory of beauty and form, sometimes sculptural and sensuous. There, lying in seeming innocence, untouched, virginal, obviously waiting to be picked up by residents of the compound within, were several of them. Looking about carefully to ensure I was not being observed; I selected one, (okay I stole one) and quickly returned to the hotel. It was there that I really became smitten, overwhelmed with admiration by the sights I beheld. Oh, to relive that moment when I first gazed upon the contents of an IKEA catalog!

That is truly the very first time I came in contact with IKEA, and I must admit, I am even more impressed today than that first time 25 years ago. As a one-time painter and stone carver, an admirer of art, design, color, and architecture, I was fascinated even then by the taste and design level exhibited, even though I could not decipher the French text. Some time thereafter, I had the good fortune to visit several IKEA stores and I’ve become an enthusiastic admirer. Of course, I’m hardly alone since there are some 250 stores in over 34 countries in Europe, Asia, Australia and the United States (28 of them here) that draw well over 400 million shoppers a year.

Generating close to $20 billion in annual revenues, IKEA’s success has even inspired two case studies at Harvard Business School. Unlike another giant retailer that might come to mind, IKEA was ranked two years in a row in Fortune magazine’s annual “100 Best Companies to Work For.” Why the popularity? The best way to describe an IKEA store is it’s like a Crate &Barrel on steroids with Costco-like prices. If you’ve ever visited an IKEA you know what I mean. If not, the new IKEA in Sunrise, only about half an hour away, will be quite a pleasant surprise.

The name IKEA was first registered in Sweden in 1943 by its founder, Invar Kamprad when he was only 17 years old. Even before that, Invar was an entrepreneur, selling matches from his bicycle, quickly moving to fish, Christmas tree decorations, seeds, and ballpoint pens. His first store opened in 1956, and a giant store, more typical of today’s IKEA, opened in 1965.

Now 81, retired, and a long time resident of Switzerland, he is a relative unknown despite the stunning fact that Forbes magazine lists Kamprad as the fourth richest person in the world with $33 billion. Some question this figure since Kamprad’s actual ownership of the company is limited because he transferred his interest to a foundation as well as to a holding company in a complex tax-sheltering scheme. He does however control both.

Nevertheless, he shares some traits with Warren Buffett, his fellow multi-billionaire. He drives a 15-year old Volvo, flies only economy class, and encourages IKEA employees to write on both sides of the paper. While they are both frugal, traits they do not share are that he was once an alcoholic, and even more disturbingly, he has admitted he raised funds for, and recruited members for a pro-Nazi group in 1942. He now calls this the greatest mistake in his life. He has written letters of apology to IKEA employees of Jewish descent, and is one of the few retailers to have a store in Israel despite doing business with the Arab world.

With that background in mind, does the new IKEA store that opened a month ago in Sunrise deserve the appellation given to IKEA by Business Week as the “quintessential global brand?” If your taste favors dark, fussy, traditional Old Europe home furnishings, probably not. (That doesn’t make you a bad person). If you relate to the simpler, minimalist, functional Scandinavian designs, you are an IKEAN. In that case, a trip to IKEA is more of an outing, an adventure, than a shopping experience.

The store itself, all 293,000 square feet (the size of five football fields) is like eye candy. Every item carried has a Swedish sounding name. That practice originated because Kamprad was dyslexic and had trouble remembering stock keeping unit numbers. Entering the two-story store on the ground floor, you are welcomed and offered a map—you need one. You are guided to an escalator, and on the second floor the fun begins. That’s why people are so enthusiastic—shopping in IKEA is an entertaining, eye opening experience.

The store is extremely well organized with a main aisle, identified by a series of arrows on the floor, circling around through seven unique categorized sections, each clearly identified. A major portion of the home furnishings is displayed in some 40 model room settings, with an amazing array of accessories. There is a Living Room section, Wall Units, Media and Storage, Work Area, Kitchen and Dining, Bedrooms and Bathrooms, and a delightful Children’s Area.

But before continuing, we must stop for breakfast, lunch, or a snack at the remarkable restaurant and café for an authentic Swedish repast. This is an attractive area that seats 250. As an indication of its popularity, when I was there, almost all the tables were taken and I counted 75 more people on line, selecting their food. There were half a dozen different sections, each with unique lighting fixtures that were available for purchase. I mention this because I bought one of the styles five years ago in a Chicago IKEA for $24.95. It (and many of the other lighting fixtures) is what you might expect to see in the Museum of Modern Art gift store in New York for significantly more money.

The ground floor is part warehouse (that you stroll through in order to pick up the furniture items you want) and part showroom, with eight additional areas such as Cooking and Eating, Textiles and Rugs, and a huge Lighting section. Throughout, there are hundreds of small accessory items for just a few dollars that are unique and clever.

While good design is paramount, (the company has more than a dozen full-time designers and some 80 free-lancers) there is an obsession with costs and affordability. Management’s objective is to lower prices across the board by an average of two to three percent a year. As a result, pricing is remarkable as are the values. Interestingly, IKEA might have originated the pricing doctrine adopted by Costco (remember Costco’s vow to maintain forever, the $1.50 price of its hot dog/soda combination, the same as has existed for the past 17 years). In this sense, long ago Kamprad, established a policy that any item adopted must have the potential of being produced for a lower price, and rather than increase IKEA’s profit, the lower cost would be passed on to the customer. For example, despite inflation and the probable increase in the cost of materials over the past five years, my lighting fixture mentioned above is still just $24.95.

How did I transport a lighting fixture on the plane from Chicago? It was flat packed, fit in my luggage, and I had to assemble it. That’s the other major IKEA secret of success, and low pricing. Almost all of the furniture items and many of the other items are flat packed, thereby saving labor, delivery, and shipping costs. Most also must be assembled. However, IKEA will recommend an installer if you need one, and they also will arrange for delivery.

Exactly two years ago Business Week ran a cover story on Costco, and one paragraph captured the essence of the operation beautifully: “…IKEA World [is] a state of mind that revolves around contemporary design, low prices, wacky promotions, and an enthusiasm that few institutions in or out of business can muster. Perhaps more than any other company in the world, IKEA has become a curator of people’s lifestyles, if not their lives. At a time when consumers face so many choices for everything they buy, IKEA provides a one-stop sanctuary for coolness. It is a trusted safe zone that people can enter and immediately be part of an IKEA-minded cost/design/environmentally-sensitive global tribe. There are other would-be curators around — Starbucks and Virgin do a good job — but IKEA does it best.”

The best way to get to IKEA is to take the Sawgrass Expressway to Sunrise Blvd. and turn right at 136 th Avenue. One caveat: If you embark on an IKEA adventure, for the moment, don’t do so on a weekend. You might find the parking frustrating and the crowds overwhelming. Wait for a weekday so you can get into the café and enjoy a Swedish meatball.

Don’t Believe Everything You Read

I hate a mea culpa especially when it’s my turn. So, allow me to prostrate myself, seek your forgiveness, and fall back on the now familiar, “If I had known then what I know now…” Hey! If it’s good enough for Hillary…

In last month’s issue, I wrote that delivery of the revolutionary new plug-in-electric Tesla sports car would begin this month. I’m now convinced that information was provided by Curve Ball, the same source whose false statements succeeded in starting the invasion of Iraq—well, maybe not. Nevertheless, my information was also incorrect as well as premature. According to The Wall Street Journal, “Now, company co-founder Martin Eberhard says, the first roadster should come off the Lotus assembly line in Britain in the first quarter of 2008.” He also explains that, “The run of cars produced during that quarter could be only 50 or so, with a goal of about 600 cars in the 2008 model year.” If you haven’t yet sent in your $100,000 check, you will go on the waiting list for 2009. Eberhard is also hedging on previous statements about the $50,000 sedan model that was supposed to be produced in 2008. You just can’t trust what you read.

Thursday, November 01, 2007

Water, Water Everywhere, But Just 1% to Drink: The Global Water Crisis—Part III

While you may or may not be enamored of the editorial pages of TheNew York Times, the content of its Sunday magazine section is generally objective, and more to the point, the magazine’s cover articles are usually devoted to important issues of the day. Obviously, not all are upbeat and exhilarating. In fact, the October 21 st cover article that ran for 10 pages was as disturbing, distressful, and alarming as can be imagined. Reading about a global water crisis can seem like a remote and unlikely event, one that can’t happen here. Yet, as described in the Times article (and as portrayed here starting two months ago) it is happening here—in the United States—and it is happening now!

By nature, most Americans are, optimistic, they have a greater degree of detachment related to problematic global issues (other than terrorism) that other nations might define as more threatening. They are only now becoming more aware of the dangers of global warming, and they have given little thought about the fragile state of our infrastructure. Despite that disinterest, the public will not condone sudden and unexpected surprises, yet many unexpected developments occur because of initial public indifference and political disinterest. The disastrous consequences of the Iraq War and the recent escalation of oil and gasoline prices are symptomatic of issues that have come as a sudden shock, raising the ire of most Americans. To a great extent, it is now obvious that the outcomes of these topics were both predictable — too few troops to accomplish the mission in Iraq, and clear indications that demand for oil is growing beyond industry’s production capabilities.

Although it is becoming just as predictable, it is now more than obvious that water will be the next oil in terms of mounting worldwide shortages, yet that fact is still unrecognized by the vast majority of Americans and, as indicated above, surprises of this magnitude are not well tolerated by Americans. The situation is exacerbated because most Americans take the availability of water for granted since the United States is one of nine relatively lucky nations that enjoy a larger than average distribution of fresh water resources. The other nations are Brazil, Russia, Canada, Indonesia, China, Columbia, Peru, and India.

Yet, presence on that list does not guarantee water security. Brazil, for example, borders the largest lake in South America (Titicaca), but, according to the UN, “the lack of access to clean water is a key factor in the country’s high rate of child illness, and death.” Listed as causes are, “high water tariffs, industrial pollution of drinking water, global warming, and rapidly melting glaciers.” China and India both share huge problems since up to half of the world’s populations lacking access to adequate water and basic sanitation reside in those countries.

Some of the more problematic geographic issues in the United States will be addressed later, but a few recent situations have just arisen that deserve attention now since they typify crises yet to come.

“Drought Stricken South Facing Tough Choices” was a headline in the October 16 th issue of The New York Times. The article’s opening paragraph read, “For the first time in more than 100 years, much of the Southeastern United States has reached the most severe category of drought, climatologists said Monday, creating an emergency so serious that some cities are just months away from running out of water.” The North Carolina governor “warned that he would soon have to declare a state of emergency if voluntary efforts fell short.”

On October 20 th, the Georgia governor did declare a state of emergency for the northern third of the state, with officials calling attention to the Atlanta metropolitan area, warning that Lake Lanier, a 38,000 reservoir that supplies some four million people, could be depleted within three months. Mark Crisp, an Atlanta based consultant stated, “I think there’s been an ostrich-head-in-the-sand syndrome that has been growing…because we seem to have been very, very slow in our actions to deal with an impending crisis.” Ironically the Southeast is hoping for hurricanes to bring enough rain to replenish the reservoirs.

The New York Times article referred to above describes the potentially catastrophic consequences to a number of Southwestern states, as a result of a reduction in the flow of the Colorado River. Moreover, few are even aware of the existence of the largest aquifer in North America, the Ogallala Aquifer. It is being depleted faster than it can be recharged, with disastrous consequences to the future of several major agricultural states.

It is appropriate to place in perspective the slow measures being taken not only in our country, but throughout the world, to cope with a water crisis that seems unavoidable. As indicated earlier, there exists a lack of knowledge and total lack of concern displayed particularly by Americans that typify the problem. Ironically, until recently the possibility of a pending water disaster was not on the worry list of most Americans. Suddenly those living in the Midwest, in the Southeast, and now the Western and Southwest states are awakening to the very real threats of a water shortage. The consequences will be discussed in more detail in next month’s article.

It should be noted that just as the United States uses a disproportionately large amount of energy to the size of its population and land area, so is its consumption of water at four times the world average. Household usage of water is 153 gallons per day per capita in the United States compared to 87 gallons in Britain, and only 15 gallons in Asia. Yet, over one billion people in the world don’t have adequate drinking water (over 2.5 billion lack basic sanitation) and poor water quality is attributed as the cause of diarrheal diseases and malaria that kill more than three million people a year, 90 percent children under the age of five. The UN estimates “1.6 million lives could be saved annually by providing access to safe drinking water, and sanitation hygiene.”

As an example of American extravagancy, one calculation that might give golfers pause estimates that Palm Beach County’s approximately 150 golf courses consume close to 13 billion gallons of water per year. That is about equal to the amount used by 3 million Africans. On a larger scale, one report claims that the water used daily for all golf courses’ irrigation could support 4.7 billion people a day. (Don’t ask me to do the math on that one). Although much of this golf course water may be untreated, it is probably safer to drink than a large portion of that consumed in Africa and other underdeveloped countries.

The subject of golf course irrigation leads to the fact that on average, 70 percent of all water used is for the purpose of agriculture and landscape irrigation. (22 percent is used for industrial purposes, and the rest for human consumption.) That is addressed in a press release issued on the occasion of World Water Day this past March by the Food and Agricultural Organization of the United Nations. It stated, “As the number one user of water worldwide, the agricultural sector must be in the lead in addressing the rising global demand for water and its potential drain on the earth’s natural resources.”

The press release elaborates, “Agriculture accounts for about 70 percent of all freshwater withdrawn from lakes, waterways, and aquifers around the world. The figure is closer to 95 percent in several developing countries, where roughly three quarters of the world’s irrigated farms are located. However, food is water.”

Food is water ? That’s a rather mind-boggling concept— so much so that a phrase has been coined to describe it: virtual water or embedded water. One definition that applies is “the volume of freshwater used to produce the product, measured at the place the product was actually produced.” It refers to the sum of the water used in the various steps of the production chain. Consider this: according to the U.S. Geological Survey, the average American uses from 100 to 175 gallons of water daily. One third of that is used for personal washing; 25 percent for toilet use; another 14 percent for clothes washing; only 13 percent for drinking; and the rest for dishes, gardening and car washing.

However, those 100 or more gallons are literally just a drop in the bucket compared to our consumption of virtual water. Here are a number of surprising examples:
  • Producing one pound of bread requires 500 gallons of water.

  • Producing one 8 oz. serving of chicken requires 330 gallons of water.

  • Producing one egg requires over 100 gallons of water.

  • One 8 oz. glass of milk requires 48 gallons of water.

  • Just two oz. of pasta requires 36 gallons of water.

  • 650 gallons of water are required to produce one pound of cheddar cheese.

  • Your cup of morning coffee—36 gallons. Add a teaspoon of sugar—that’s the equivalent of 50 cups of water.

  • That quarter-pounder at McDonald’s? An amazing 2600 gallons.

  • If you really want to feel guilty, producing a typical U.S. car requires more than 100,000 gallons. Oh yes!

  • According to one source: that Thanksgiving dinner for six you might be contemplating will contain some 30,000 gallons of embedded water.

While it is not immediately apparent, the concept of virtual water has enormous implications for the global economy. Just as some countries have more oil than others, or more gold, or more diamonds, water is not distributed equally throughout the planet. Countries with valuable commodities can export those valuables to satisfy the needs and demand from the have-not countries. While water in its liquid form does not lend itself easily to export, a water-rich country can export a water intensive product, thus exporting its water in its virtual form. For those countries burdened by a scarce water supply, it is more effective to import water-intensive products than produce a water-demanding product domestically.

One of the thirstiest products to produce is grain such as wheat. According to the Earth Policy Institute, it requires 1000 tons of water to produce just one ton of grain. Until recently, the United States (and Canada) has been fortunate to occupy areas with ample water, supplying the irrigation that helps to produce grains in large quantities.

We thus satisfy the needs and demand of less water sufficient countries throughout the world—essentially providing them not only with the product, but with enormous amounts of virtual water. But, as domestic water supplies become depleted, as they surely will, how long our grain and other water laden exports can continue to be produced will be the subject of next month’s article.