colemanjolley.com

Image via Wikipedia

Former Ikea executive Johan Stenebo’s new book, Sanningen om Ikea (The Truth about Ikea), poses some interesting and disturbing claims about privacy violations against employees and other unpleasant acts on the part of Ikea owner Ingvar Kamprad and his two sons Mathias and Peter, who manage the company. Spying, an informant network, discrimination against “foreigners”.

However, the gossip is less interesting than claims about volume driving pricing requirements from suppliers. As with WalMart, Ikea is an enormous global retailer, with tremendous volume. Suppliers are virtually guaranteed profit, once chosen. They are usually forced to “bid” on supplying the retailer with a specified component, and lowest price usually wins. In turn, the suppliers are driven to lowball their own cost of labor either local or outsourced in order to make up the pricing per volume. Sometimes that means consuming larger mass for disposal (forestry product, petroleum based plastics) than they would have otherwise. This, in turn, expands the size of the carbon foot print maintained by the supplier, which costs the consumer ultimately in higher energy prices, or higher property prices. And of course, jobs sent overseas drives down the wage base locally

Consumers who search out the lowest price, above all else, reward with their purchase, thinking they have a deal. Often, they are convinced that they have no choice in making the purchase – that there is no other “game out there”, meaning a supplier of low cost consumer goods such as furniture, kitchen utensils and bedding. But is that really the case?

Often, when Ikea or Walmart (or Target or whatever other low cost brand supplier you care to name) enters a market, it is at the expense of lower volume, small business-owned providers. The proverbial “mom and pop” stores. As many of these providers churn or close, the job loss again reduces wage base, reducing even more the ability to purchase. It’s a vicious cycle that accelerates as there are fewer retailers in a marketplace. Its effects can be observed outside the retail space in the area of cable providers also.

At the end of day, consumers end up paying more through lost wages and lower standard of living than saving 10% off purchase price from a big box store.

Related articles by Zemanta

• Spies and Racism at Ikea? (abcnews.go.com)
• Habitat furniture chain for sale (news.bbc.co.uk)
• Wal-Mart: Urban Expansion In U.S. Planned (huffingtonpost.com)
• Wal-Mart Looks to Bolster Suppliers (online.wsj.com)
• Wal-Mart Sharpens Its Pricing Pincers (online.wsj.com)