IKEA
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I also got a flat packed chocolate moose. I put IT together this morning. It's very easy. It's three pieces.

Oh, moolah on an animal, not chocolate. Moose lake, the pudding.

Yeah, that's correct. IT look truly good at first. But like the sun, race came in my window and within like ten minutes, IT was melted and broke on the kitchen table per.

oh boy, there an anal gy about, I give .

him a trainer hope .

I think so.

I'm ready.

If you are, i'm ready. Let's do IT easy. You wait.

You wait. You who got now? Easy you, easy you with you, sit me down. stand.

Welcome to the fall twenty twenty four season of acquire the podcast about great companies in the stories and playbooks behind them in gilbert David, and we are your host when you're running an in person retail establishment. You know, one thing for sure, if people are going to buy your products, they have to be in your store. And more time in your store generally means they buy more product. So what is a great way to increase time in store? Meat balls, David meat house.

me balls and hot dogs and .

hot dogs, we'll get there. So listeners today, we dive into ika, the company that sells over a billion swedish meat balls a year. And a lot of furniture and homework is to go with IT.

Ika is an eighty one year old company. People visit their stores nearly nine hundred million times a year, and it's quirk ky as hell if you've ever shot there a ear familiar with the crazy maize of showrooms. David, I spent five hours inside the seattle store last weekend. I went there to prepare for this episode. I didn't realize that I was going to expand the whole day there, but that's what happens when you go to ika.

Yeah, blessed. Did you make you some smaller?

I with a friend who had a kid old enough to take a range of small. And so, yes, nice. Perhaps you know, the relationship test of, can you make IT through I key IT together and that's just at the store, then you get home and you have to assemble all that flat packed furniture you just bought. But the furniture IT does look good even though it's extremely inexpensive and you do have to build IT yourself using the funny diagrams with the funny little man and the funny labels, IT ends up looking pretty good.

How does and the results of this crazy still of ingredients that ika has become the world's largest furniture retailer and one of the largest retailers period today will examine why IT has worked so well, how its founder became the eighth wealthiest person in the world before shifting his ownership into a foundation, and how all the little innovations have just added up and refined the concept along the way. So whether it's the power chair, the lack shelf, the Billy bookcase, IT is very likely that you have something from my kia in your house right now. This is the story of a mission to create simple, well designed, low cost furniture accessible to as many people as possible.

Take into its absolute, logical, extreme, totally well, listeners. After this epo de come discussed with us on slack and check out A C Q two, our second show where we just had Louis fun on as a guest. The CEO of dual lingo.

His company story is pretty unlikely given most investors assumed you could not build a large business in either the education or a language learning market specifically. And Lewis has some of the most practical advice i've ever heard for anyone building a consumer startup and have sent IT already to a bunch of friends who are building consumer companies. So go check that out.

ACQ2 available in any podcast player。 And if you haven't taken the acquired twenty twenty four survey yet, please do IT is open for another week and we would greatly appreciate your feedback. Click the links in the showed tes or go to acquire data m slash survey for your chance to win some sweet matera or at A C Q dad hat.

We might need to add a poem chair, something to that. Actually.

that would be extremely economical for us to offer. Yes.

that would be cheaper than the ability .

we believe and throwing some at home assembly for you and .

really grow well as we will discuss later in the episode, including you know delivery and everything that comes with the commerce. I don't know if they'll be cheaper or IT will certainly be impacting .

my key as margins. It's true. Well, before we dive in, we want to briefly think our presenting partner, J P. Morgan payments.

Yes, just like how we say every company has a story. Every company story is powered by payments. And J. P. Morgan payments is a part of so many of their journeys from seed to IPO and beyond.

So with that, this show is not investment advice. Ed and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

Unfortunately, there is literally no possible way for us to have investments or for any human being to have investments in the companies that we discuss here. But we start in the small town of l.

Hood, sweden, which is in the province of smaller, which despite its name, is not so small, but rather a large rural area in the south of sweden, not too far from denmark, and small land, again, despite its sort of Q C friendly, I ker like sounding name. It's pretty tough place. It's rural.

It's agrarian. The soil is pretty barren. It's really rocky. There's a lot of forest and timber and timber, wood for shadowing. Maybe one day, what would come out of this province in sweden?

It's also cold.

yes. yeah. I mean, it's sudden it's really cold.

tough place to grow up totally.

The farmers in small, and though they really have to work hard to scrape out their existence, and there is actually a word in smell and called lia, which means making do with an absolute minimum of resources appropriate to the province and appropriate to idea, as we shall see. And so IT is there on a farm and smullen in march of nineteen nineteen, twenty six.

When are protectionist, fat or ingvar compared, or just in var, as he is known, is born and he's born where else for the region on a family farm named elen thud in an area about twenty kilometers outside of l. Hood called a guna read, which apologies to over sweet, which does I list to a lot of prunes ation, to try to get this right now, to give you even more of a sense of this land that we're talking about. And hood, you know, bustling local metals, is, I don't know what the population was in nineteen twenty six, but in twenty ten, the population, l hood, the big city was nine thousand people and that is including I K as major major presence there in that town today, including the first store, the ik a museum, the ik a hotel. It's a i'm imagining maybe a thousand people live there this time maybe a good rude the um area where the farm is in twenty ten you know what its total population is low hundreds, two hundred .

and twenty people right so isn't the .

sticks this is the sticks. So how did the complete family come to smaller? Well, if you're perceptive and know you're sort of northern and central european family named, you might say compound is not a swedish him, its german.

And actually, do you know what I K is? The largest market is till to this day, IT is not sweden. It's not the us is not china. Germany is germany.

So eb's grandmother and grandfather had immigrated there, a small land from germany only thirty years before in bar was born, so in thousand and ninety six. And unfortunately it's not a happy story. So they bought the farm on tede, unseen when they're in germany, from an advertisement in a local hunting magazine. People would sort of joke later that this was a key first meal order purchase was the farm, and moving this.

So wait, why would you buy a site unseen farm in sweden.

especially a not very attractive place to farm in sweden?

This is a pre world, or one germany too.

Yes, so more to the story here. The stated purpose and idea was that they were going to convert the farm from like a agricultural farm into a timber farm, into a timber forest. Ebs grandfather H.

M. Had been connected to the timber trade in germany. So ID makes sense on paper. Unfortunately though, IT doesn't work out. And the next year after they immigrate in eighteen ninety seven, embrace grandfather agim commit suicide. So that leaves his grandmother, friend, sister a alone to raise three kids, one of which was just born and management. This farm SHE something about how to farm, is a really difficult farm to Operate in a rural, isolated part of a country that he is not from. Doesn't speak the language.

Totally rough, really, really rough. And I don't know. This came up in the stuff you are reading, something I read eluded to the idea that inverse grandfather committed suicide, basically out of poverty, like his life was so miserable from being totally impoverish that he was clinically depressed. yeah.

Well, yes. So there's a little more to the story. Turns out the actual reason for the family's immigration from germany was more about Franciska and gyms, marriage and Franciska s.

family. So H. M. Had been from a noble family in germany, or at least a family with historical ties to the nobility.

Francisco was a commoner, and I think in a legitimate child born out of wedlock. So a ibm's parents, and particularly his mother, was not happy about this, didn't approve of the marriage. And so part of our really, probably the whole reason for their immigration from germany to sweden was to escape this. This is a tough.

So to plan a seat here, there is a strong cultural thing in this family of, don't be poor, figure out a way to earn a key, make wealth deeply ingrained from this, yes.

really, really bad situation none's the family person years. And by the time these children draw up, Franciska has turned alter ude into like a real functional farm they're getting by. It's not going to make them rich, which I get like nobody in small and is rich like they're making IT work and they're build themselves into a respected family in the area.

Now the eldest of these children, the eldest son, france fator, grows up and marries the daughter of the biggest merchant in the end hood. So bringing, you know, that's a merchant blood into the family. When he's twenty five, Frances asked him and don't think he asked to come to help manage the farm.

So france fade, or and his new wife, but to they have two Young sons, the elder of whom is fed, or invar comparator protagonist. Here they arrive at the farm. This is where invar compare the founder prevail.

Genitor sol, embody ment of I A grows up. I mean, really, we say this on a lot of episodes for invar is I K A. We shall see. Yeah, he is like jensen and mark arberg.

all in one singular founder. The company wouldn't exist, but for his exact personality, magnified and multiply into this huge behemoth. You already see the frugality that were about to get to the like cleverness .

of being emergent diversity, the chip on shoulder IT. Yes, yes. So when ever is super Young? Like five years old, this merchant side of his DNA starts to come through. And his ant, the Youngest child, the third child of Francesca, helps Young invar by bulk sets of match boxes, male lore from stock up capital sweden, invar little invar five year old, then goes around the gutsy side, selling individual match boxes. Two other farms and other families in the area at like a three x mark from what he got the unit Price in the bulk package from starcom.

So he write later my unt didn't accept payment for the postage, so then I solved the boxes at two to three or each, orders like a penny to a con at the time, and three and like two to three times each, sometimes even five. The whole male order package of one hundred cost A D eight cents. Talk about profit margins. I still remember the lovely feeling from that time, selling things became somewhat of an unprocessed for me.

Yeah, the seeds are shown of one of the greatest retailers of all time, right here. Age five.

total. Jim senior soul press. Jeff is us. Ingred's prod?

absolutely. yes.

So Young ing verb, he gets a taste to this. He's hooked. My head goes on all three out his childhood, his ordering bulk items, male order from elsewhere in the country, selling all kinds of stuff out to the residents, out in the smaller countrysides, like Christmas cards, wall decorations, garden seeds, IT is like random small goods.

Ultimately, he finds a niche and a good business. Importing and selling fountain pens from other countries in europe is like ten, twelve years old at this point. He's selling these fountain pens so fast that he decides like, oh, hey, I wish I had some financing to be able to buy some more of these pens. I know I could break money.

I have product market fit.

I should raise money. I should raise money. So he goes to the village at bellhop d, and he takes out a five hundred coroner loan from the bank. Swedish coroner, this is like sixty three dollars about at the time. This is in one thousand and thirty eight .

and in one thousand hundred and thirty eight dollars, sixty three dollars as hundreds of dollars today.

Yeah, especially for a twelve year old.

So imagine your kid walking down the street and going, and somehow going back with five hundred dollars.

right? That's also part of the story here. He finagle like, I don't think his, you know, grandmother, his parents were helping him with this, right? So he uses that to import five hundred fountain pens from paris. And then I think you know they sell quickly, like repays back the loan pretty quickly. And that listeners is the only capital that ever goes into idea, that is the only money the envy would ever raise.

We will flash all the way forward to modern day. Invar always owned a hundred percent of ika. He built IT into the world's largest furnace store and one of the world's largest retailers period, without anybody else owning a single share of the company. No outside financing, no debt financing, nothing.

nothing they own. I think all of their real estate today, they own all this. I'm sure they probably use construction financing today, but they have twenty five billion years old in the bank.

Like this is IT. This is the backside. This is what he comes from.

Five hundred kroner loan in one thousand nine and thirty eight paid back immediately. Only capital that ever goes into the business. And wild, totally crazy, totally wild. I don't recall exactly like the walmart story, many even that I think sam was like from family and banks and other folks taking money.

Yeah his vice family, I believe, invested.

That's very his wife family.

The whole thing gets financed off of cash flow from pens.

Yes, he literally trades match boxes to Christmas cards, to pens, to furniture, to ika nuts. It's like the story of the guy who starts with the paper clip on, ends up with not just a house, but like a city.

It's not though it's not really trading is he generates positive cash flow off of the sale of each of those items, then reinvest that positive cash flow in buying the inventory for the next thing. It's just dislike think godde's had eighty one years to do IT others SE you could never grow to something. This large financing your future growth only on the cash flows you've generated so far.

There is a good point. Although he is a later for a very long time, I think that is how you would think of himself. It's not like he's getting the Better of other folks like he's creating value.

He's right, creating value for supplier ers. He's creating value for buyers. His performing capitalism here.

right? That is the definition of capitalism. You sell something, you have access cash flows in the form of profit margin. You reinvest that in growing your business. And he just did that over.

over, over again OK. So in one thousand and forty three, when in va. Is seventeen, he is about to go off the equivalent of college at the school of commerce in goltz burg, which to say much bigger city in student is actually a city in sweden. And a bar decides that before he goes, he wants to officially started a company like a firm to formalize all of his trading activities that he's been doing because he intends to expand IT while he's in golden burger school is sort of import export business.

shall we say? And there is one other thing happening during this period of time in in verse life. We will come back that later.

So before he leaves, he registered an official trading firm with the county of small land and names IT. But creatively, the natural thing that comes to mind, very descriptive term. He named IT his name and his mAiling address in the comrade alter ode agony's. I K E A.

I K A. I never put together. I was like his mAiling address. I always knew the two initials of his name and farm in the city.

I think that once is mAiling address.

Uh, that makes sense.

Does this is the countryside here? It's not like there's any more to the address to a good yard. He doesn't have a house number. So cool. So that idea that's in very complete trading firm.

this is IT and he does put the first I kia logo sign on like a little shed on the property that simultaneously labelling the property by address. Then in addition to saying this is where I .

here does business, yes, which is all part of the law. I'm not sure how much actually happens in the shed. Besides, he puts the sign up there.

I think just store story there.

Well, let's talk about inventory. So eva goes off to the school of commerce. And for the first time there, he's able to do what I think he intended, which was get access in the school library to real actual trade publications, imported export trade papers and trade publications.

So he starts writing to the suppliers all over europe who are listed in the trade publications and asks if he can become a selling agent of theirs in sweden. Now I say, agent, at this point, he's running an actually incredibly capital light business. Most things, I think he is not taking inventory.

Some of IT he is he's storing some pens and stuff, small goods under his bed while he's a college. But a lot of IT, what he's doing is he's finding an aggregate demand in sweden and sending purchase ders directly to the manufacturers wherever they are in sweden or elsewhere. And they just fulfill the orders directly to the customers by male.

it's pretty awesome. So like the first drop shipper.

yeah, he's not doing the shipping mean, he's just an aggregator for a demand.

He's agent and he never takes possession of the inventory. It's a fulfilled in real time as he gets the order that supplier put in the mail. great. Yes.

I think it's not always you are sometimes you get a box of five hundred pens or whatever like he's doing whatever is going to make him the most money and be the right arrangement. But being an agent is the best way to do this. So he start off.

You don't naturally, he continues the pen business. He goes from fountain pens to ball points. That's a big hit. Then he gets into all its cigarette tors file folders, all sorts of small goods.

And at first, he's mostly just kind of doing what a lot of other people are doing at this point in time. Who trader agent types, he's uh, traveling salesmen. He's going back and force to gotten burg into small land and he's selling to customers that he means mostly up in the countryside.

It's and to hand combat, it's ring indoors. It's going on his network. Then though he gets the idea is like, well, i'm getting all my supplier relationship fts to trade magazines and corresponding by male.

And then a lot of times when i'm the agent, they're filling the orders by male. What if I just entered the male order business myself? These trade publications are a pretty good way to get business for the suppliers.

What if I do that? So he starts a product catalogue and he advertisers IT in publications all around sweden, with the idea being that like, oh, rather than just what i'm limited to doing myself, I can now scale across the whole country and I can aggregate a lot more demand. That actually doesn't matter if I don't know these people or I don't go to these parts of sweden.

The suppliers don't know on me either. It's all gonna the same. yep. And he's also learned at this point that if he can aggregate more and more demand and get higher order volumes, he's for sure going to get Better Prices from these suppliers.

Now here in the color bid ninety eighties, this is not a new innovation that Young ing bar is coming up with. It's basically the story of the year or about catalogue. You know, fifty years earlier in america, this is happening all over the world. And there's plenty of other people doing the same thing in sweden at the time.

Once you had enough scale to say, hey, i've aggregated a bunch of interesting products, you've started making a catalogue and you'd mailed out everyone and that was your .

sort of client base. I mean, IT was the e commerce industry before the e commerce industry. Yep, anybody could do IT who is just about aggregate demand.

yep. So invar creates catalogue of his wares called I kia news. Eventually he publishes a key news on its own with its own subscribe base.

But at first, he's just inserting IT as an advertising supplement in local farming publications all around sweden. So by the end, college into the world, like I said, he's doing really well. He's doing way Better than probably anybody back in smaller.

So after school, he returns to the farm to alter ode, and he recruits his family, also start helping him with the business and fulfilling these orders and running all the sale and all that stuff in. And they're still just running IT on the farm. And then in one thousand and forty eight, enva makes a fateful, but again not unique decision, which is that he decides to add furniture to his catalogue.

No other competitors of his other rare focused meal order businesses, dealers offered furniture at the time. And that's actually why in bar starts doing IT too. He had been shopping the competition, doing the same wolton thing.

He's reading all the advertising supplements of all as competitors, and he noticed is that they start offering furniture. IT seems to be working for them. The promoting IT more and more say, I should try that too. What he would joke later, there was an accident that he found his life's calling in the furniture business.

So he does with furniture, what he's doing with all like your products at this time, which is he goes around, he sources some suppliers, and he asked them if I K I can be their agent to sell their further ure. Now, furniture isn't exactly like fountain pens or wallets. It's big. You can't just order a box of five hundred armchairs and stuff in under your bed or put IT in your little shed on the farm. Really, what you need to run this model is you need local suppliers or at least domestic suppliers within sweden.

Yeah, well, fortunately, as we discussed, small land is full of photos and IT just so happens that probably because of that, there are a number of furniture makers right there in the province, so ever goes around to local small Allen furniture makers and asks if he can be their agent like, hey, can I bring you more business and they're all like, well, sure. He like there's one condition, which is you'll have to deliver the furniture yourselves. Is that okay? Well, that's what we do anyway.

It's part of our business, sure. Yeah now famously and this is part of the law about environ probably is uh somewhat exaggerated he loved to tell people that he's disley ic and IT totally serves this law of I go here's this hard scrawl country retailer I don't know how dislike a cute really was. Really, this was like a thing that I am.

I thought I was going to stuff you. I was because IT comes up later in a key moment of ika that he is just lexi c and it's why some analysts, well yet but obviously not only do you know he was dissected. Ic, you're proposing he may not have been that disley. Ic.

well, I read some stuff from some former employees that suggested that IT was more part of the legend that he cultivated than reality. But I actually don't know what you're referred to him. Excited to be surprised.

So it's why the products are named the way they are rather than having .

model numbers.

对， it's like part of the hey, I need to have a word for each .

of these things and exactly what I thought that was like. Another point point.

okay. So where are we go on to here, David?

Well, regardless of its vasti or not, invar does not like remembering product numbers and codes in catalogue e. So he decides that he is going to give a name and not a product coder number to all these furniture pieces. And yes, this is the beginning of ika product naming conventions. Do you know, though I actually had no idea how I start researching what these sort of general naming conventions are within a today?

I think so. I think different product categories are named after different things like rivers. And yes, certain furnace is named after certain. It's was like conference room naming at companies.

yes. So products are usually named after scandinavian locations. I think swedish locations are used for sofas and coffee tables like the core part of the line.

Norwegian locations, I think I used for beds, danish locations for textiles. And then some of the smaller goods like lamps are season legs. And outdoor furniture is islands, I think clever got the whole, you know, schema here with name.

So enva, if he truly was dissected, ic would now be having a tough time with. So anyway, anbar decides that he's gonna start all this off with his new named pieces of furniture and the AI catalogue. E that, again or not, his furniture, he's just sourcing them from local furniture makers like other people are doing.

He's gna start with a test, and he puts three pieces from small land in the catalogue, two armchairs, one of which is a armless st. armchair. So I was just a chair that is intended for baby nursing.

Do an armless chair for baby nursing? Sounds awful. Sounds like torture like that. The time you need the are the most.

have a different era, different era. So he writes, the response was unambiguous. We sold a huge amount of this quote, quote test furniture.

And in var, of course, he's a trader. He has a nose for a business. He's like, great.

What more can we add? So he quickly sources a sopha b to add to the catalogue. I F A T. There IT is betting then a chandelier and also its other stuff. And it's off to the races.

Pretty much any piece of furniture or furniture like home goods that he can get his hands on. And advertisers in the catalogue is sells black hockey s or maybe meat balls three. So too much that too much.

Everyone, so now why is IT selling like me balls here? Why is their huge man before male order? The only way that people out in the countryside could get furniture that wasn't locally made right there, or pass down from generations, but still that to get made and bought at some point time was through dealers like invar used to be like, you know, traveling salesman, pe people.

And they had very limited access to inventory. They were sourcing like individual pieces, probably more often than not, you know, second hand the state stuff, or maybe they are from a distributor third party. I mean, either way, we're talking super limited scale, very Sparkly and unreliable product offerings.

Like you need a baby nursing chair, aren't baby nurse whatever? You need a dining table like the likelihood that your guy had that in his stock is low. And so that's just a availability, but then also the pricing.

I mean, and again, we're talking about Harry body here is just basically eating out a living. The traveling salesman agent types, they're trying to eat out a living too. They're trying to make as much money as they can.

They're not trying to build scale. They don't get like oh y volume drive Prices down, low Prices drive volume. It's like na.

no. But what's the maximum margin I can extract for this very one off random special sale by making .

totally in more though because of his history and small goods and as an importer, he's got a very different mindset. He knows that oh, selling goods in bulk, in bulk borders, like it's all the way back to the match boxes. That's how he's approaching the problem.

He's also Young. He does not have a family like he just Operate in a very different mindset than everyone else here. So scale doesn't bother him.

He's happy to try and drive Prices down as low as possible, pass that savings along to buyers under cut. Everyone else get more demand like this is how Operates. And even more than that, he realizes furniture is way Better than the small goods. Because even though, you know, I could sell cheaper, these are still large ticket purchases for people.

The absolute number of dollars are you coroner that i've got to make on any given piece furniture, even if i'm selling IT at a low margin, is like way more than ballpoint pants here, right? And not only that, but it's also selling quickly even though these are high Price items because there's this huge unmet demand in the countryside, people are starving for this stuff. And even Better, the logistics and distribution for us, for idea is just as easy as ever.

The furniture makers are handling IT all themselves. This is great. Let's pour resources into this. IT is crazy.

He managed to aggregate demand for something that is very difficult to manage and take inventory of. And he managed to sell to those customers without having to deal with the really tough inventory problems and make truly is like the first drop shipper well as well.

See, IT works for a while, and then IT doesn't. But for the moment in time, the furniture makers love IT in var and the other folks who are doing this has just expanded their market. This is the golden early days for this whole catalogue drop shipping industry.

Um so within a couple months in ver is getting so many orders from customers and so many furniture makers who want to be in the catalogue that is like, okay, we ve got to just focus on furniture. He started tiring a handful more of other folks beyond just his family way to help out. But it's still like a fairly lean Operation.

We're talking ten people are. So through the forties, they're still running IT out of the farm at alterd. And then in one thousand hundred and forty nine, enva decides to go really big.

He starts buying regularly every week a supplement in the big national farmers paper in sweden, which has a circulation of two hundred and eighty five thousand copies. I guess we should talk about this early. I talk about supplements, you advertising, realizing that I bet a lot of our audience has no idea what .

i'm talking about, like a supplement to .

A A newspaper. Yes, this is here in amErica going back to the best buy circular in the sunday paper, the target circular or the series circular. I don't get a newspaper more.

but i'm pressure. This still happens. I think this is still a very common vertigo channel.

totally. Anyway, back to one thousand nine hundred and forty nine, na goes big. He commits to regular weekly publication as a supplement in the national farmers paper.

So before this, when we said people were subscribed, his catalogue had of that work.

IT worked like all these businesses, I think, did at the time, which was, if you were a customer, you saw something in this advertisement circular in a paper or somehow can get exposed to IT, you then place in order, you then get placed on the customer list. So I think once thing far is got your address and knows who you are, you're in its C R. M. So to me now I think you're getting his cattle .

directly.

So in this first weekly supplement, he specifically appeals to what he ultimately terms. This idea of the many. And we will keep coming back to this.

This is super critical to ika. So in this first national circular that goes out, he reads, you may have noticed that IT is not easy to make ends meet. Why is this? Give yourself produce goods of various kinds, milk, grain, potatoes at sea.

And I suppose you do not receive too much payment for them. No, i'm sure you don't. And yet everything is so fantastic. Cally expensive to a great extent, that is due to middle compare what you receive for a kilo of pork with what the shops ask for IT in several areas. IT is unfortunately true that goods that may cost one or two krona to manufacturer cost five, six or more to buy in this Price list. We have taken a step in the right direction by offering you goods at the same Price your dealer buys for, in some cases, lower.

I mean, this is IT. We'll make IT up in volume. This is finish margins possible for the many people with an obsession in cutting out middle. Yep.

and it's interesting here. I think this is the first time where he's, by instinct, appealing specifically to the low Price aspect, like again, almost everybody else was appealing to the selection, the availability of my old, you can finally get furniture. He's now saying, like, no, no, I know it's hard for you out there. I know you're strugling to make ends me. I'm going to give you the absolute lowest Prices on this stuff oh yeah.

this is worth a pause harking back to our walmart episode. What's the um sort of perfect triangle of delivering a retail product? It's convenience, Price in selection. And what he's basically saying is Price, Price, Price.

yes, and way Better selection than you had in the old model. Convenience probably not as good, but Price, I know you care about Price. You are struggling to make ends me, yeah, a little later, were going to talk about this amazing document that invar rights in one thousand nine hundred and seventy six called the testament of a furniture dealer. He's so foxy. But the very beginning of the very first thing reads that the mission of the company is to create a Better everyday life for the many people, the many by offering a wide range of well designed, functional home furnishing products at Prices so low that as many people as possible will be able to afford them.

I mean, that's IT. It's all right there in a sense.

yep. Now the interesting question though here and for the rest of the episode is likely said in bar is not the only male order furniture company at this point. He has plenty of competitors who are doing the same things and probably catching on to the same idea that low places are also important, but none of them become clear. And the next reason why other them become clear is none of them have a show room.

Oh, yes.

But before we tell the show room chapter of ika, now is a great time to tell you about our presenting partner this season, J P. Morgan payments. We've been talking about how I K.

A brought simplicity to a complex and fragmented customer experience. This is exactly what J. P. Morgan is doing for payments.

Businesses don't want complexity, or they have to rely on connecting multiple third party hardware and software vendors together, or to sacrifice stability and security in order to grow their top line. This is why J. P. Morgan invest over seventeen billion dollars a year in technology as the end and seamless payment solution to handle everything from payment acceptance and processing to security to reconciliation. So you can focus on running .

your business exactly and sense. We're in ii o land. Let's zoom in today on retailers and specifically on a product that most of you are very, very familiar with, tap to pay.

Obviously, there has been a massive shift in the last few years and how consumers expect to seamlessly use their phones to check out. Well, jp, more in payments enables this as part of their omi channel solution that's likely been running under the hood in many of the in person checkout experiences that you've had. We've reached this tipping point where fifty percent of global in percent transactions are now contact us, and it's totally essential for companies to offer a great tap to pay experience.

I honestly love this, and i've been preaching the virtues of tap to pay for years.

Now this is, I can vouch for that. David was a very early adopter when we would go on morning runs. I think actually back when you lived in seattle, and you'd only bring your watch even when we were gona go get breakfast together afterwards.

And I thought it's just crazy. Yes, it's great. It's great for everyone. For merchants, they can easily accept debit and credit cards from the NFC enabled digital wallet on smart ones for employees is great because they can see mostly complete payments from anywhere in the store.

And of course, for customers like us, it's great since they get a transparent and secure transaction and pay more conveniently. Yep, for anyone who is at our chase center show, this is the exact experience we used for the roaming hawkers selling the hats. So you got to experience this first hand, and the results were pretty insane. We found out after that, they sold fifty one hundred heads in under two hours with a one hundred percent success, right? Which means zero declines yeah.

So any business retailer otherwise benefits from having a frictionless payment experience listeners and go to jp more in docs lah acquired and learn more about tap to pay and check out other payment solutions driving growth for businesses artis to jp more in payments. okay. So David, how does the first I K A show room come to be?

So as we eluded to earlier in the early days of this male order furniture catalogue circular type business model, it's the golden a everybody prosperous. Consumers are happy. Furniture makers are happy.

This room for a competition like it's all Green field. Everybody's going after new customers. Nobody y's stepping on each other's turf.

Inevitably though, as we get into the early one thousand and fifties, competition gets more intense among these meller businesses like I kia and Price wars start. yeah. So this is the next chapter. And the thing about male order was, yes, IT enabled scale, which enabled selection, which enabled low Prices, but there was no governor on quality. And what I mean by that is that anybody who had a male order business could take attractive looking photos of their furniture and homework hoods and sticking in their catalogue, their circular advertisement, oh, by my beautiful looking furniture at this really, really attractive Price. And those photos, mayor may not have any sort of bearing on the reality of what the furniture actually was when I arrived.

Not to mention you basically had no recourse because at this point, there wasn't modern credit or so. It's not like you could charge back. There wasn't twenty, twenty four style returns infrastructure where you could just get your money back by sending something back weeks or months after IT was delivered you and get a full refund. Nobody was building these big sort of global brands that were trustworthy. And so is just a matter of which small, local circular brand convinced you that their picture was worth ordering.

right? I actually don't know what their return policies are. I hope that, that is like the t move of nineteen sweden here, right? The disconnect after a couple of years of this between what you think you're getting and what you're actually getting right starts to wide.

And so even though invar is focused on quality furniture at the lowest possible Prices, the fact that other people aren't is hurting him because is hurting consumer trust.

I can just delivered low Prices if I compromise on quality, right? So he searching for a way out of what, starting to become a pretty brutal competitive landscape. And one night, as legend has IT, he's working late with one of his early employees, get him span, go to, and they come up with a crazy idea.

And the crazy idea is, what if we had a showroom where people could come and they could touch and see and feel the actual items that we are selling in our catalogue, and then they could commit themselves like, yes, this is the quality. This is the item that i'm going to get at this Price. I think if we could just show people they could see with their own eyes, touch with their own hands, they would see that the quality we're delivering at this Price is way Better than anyone else out there.

And it's just so happens at this moment in time that the local furniture joining in l hood is about to close. He is going to buy the building for thirteen thousand coroner, which is about twenty five hundred dollars at the time we, and like early one thousand nine hundred and fifty, so you know, not cheap, but not that much money. And that twenty five hundred dollar investment becomes the first I P H O room. I think we serious ly kid you not listeners. The only money this guy ever raised was that five hundred hundred or bank alone?

Yeah, it's not. And the funny thing about this is a show room. It's not like a store. Our business model continues to be this catalogue thing, but we have a place where you can just kind of touch and feel the furniture.

I think tesla does this today or has done. You can go see the cars and see the ants take IT. All right? So let's illustrate why this is a completely nuts idea. A, there is the obviously can take at home. b.

The old point of the male order business was that buyers and sellers can now access each other across the whole country, all of sweden as a market, all the rural areas everywhere in the country. And sweden is a pretty big geographical country. What eva is doing here, they're opening a show room in one singular remote part of this country, you know, in a town with like a thousand people who live there.

And their business model is to sell to the other towns of a thousand and people all over the rest of the country. Why on earth we're opening one show room in one little town work? Here's the thing, I mean, by god, is at work.

I don't know that the customer based in the town of l hoo was that important to I key itself. People come from all over the country to go to the show room. This is a wild.

So in our advertisers that they are opening this for months leading up to the actual opening, which is in march of one thousand nine hundred and fifty three. So all of his customers and everybody getting the circular advertisements in the weekly paper all across the country, they're hearing about this room in. Now hold on opening day in march of two thousand and fifty three.

There over a thousand people from all over the country who show up and wait in line to get IT let's take the train. They somehow make their way to unable to see the furniture they're not even buying. And you think it's crazy env in the TV like they're still worried about this that they don't know that the floor boards on the second floor of this old joiner, like it's like old, got to stand up to a thousand people being up their plus all the furniture that they have is not the showroom. They had also advertized in the circulars that they were going to offer free coffee and morning buns to anybody coming to shop.

Yes, the very first time there is a food and nia is the very first time there an nia that's right.

There is always, always been part of the concept. But yeah then as you say, like there's no warehouse, there's no flat pack furniture, everybody he's just there to like see the stuff and you can also fill out in order form while you're there to them mile later.

So invar has a quote about this. At that moment, the basis of the modern I T, A concept was created, and in principle, IT still applies. First and foremost, use a catalogue to tempt people to come to an exhibition, which today is our store.

Come and see us an alm hood d and convince yourself. We wrote on the back of the first catalogue, two very important words there convince. And the other one is exhibition.

Already they receiving this idea and the fact be marketed to the whole country and offered food. I mean, we're not just offering you a store that you can walk into and buy something. We are creating an exhibition.

Yes, IT is an experience and someone's like you're getting a free ticket to this experience, this exhibition. Yes.

great retailer ers have more in common with pt bottom than poor .

retailers totally. Oh my god. So this is, I think, an address thinks he writes this.

This is the very first time anywhere in the world that a male order business is combined with a physical show. So you might think of series in the U. S.

Service as the order business. And they have serious stores. No, they're different. Like the serious stores. You buy the stuff at the stores and you walk out.

It's not a show room here with I here for the first time IT is that concept you just describe. But it's like we tempt you to come see this exhibition that then you order by mail. I don't think anybody had ever had this before because again, I was a crazy freaking idea.

But of course, IT becomes an enormous success. So within the first couple years of the l hoo showroom store is not a store being open, a huge portion of I kiz catalogue subscriber based. They're now formalized. IT is the ik catalogue, about half of their catalogue subscriber base, which is hundreds of thousands of people now, at this point time, make the pilgrimage, tell, and they visit the showroom. This tiny little village, hundreds of thousands of people are now coming there.

And you might ask yourself, what's the big deal with the catou? E like, are people so interested? Catoe e IT was really inspirational, able. I mean, I hadn't quite made the shift yet, but especially in the sixties, after brita length took over from inside, because invar is like everything right now. He's like art directing the photography.

I think you might even be taking the pictures and writing the copy, but IT turned into this thing with these viBrant, beautiful living room settings. And people are anticipating the arrival of the catalogue. And a positioned a as this brand, this lifestyle, IT illustrated a life you could be living if you participated in the ika story.

That really, really becomes the thing in the sixties with modernity. And when the target customer becomes the urban and suburban customer bit here, even with the role customer like IT still works. They lean into this model heavily.

So they arranged for any idea customer to get discount tickets on swedish. We always to make the pilgrimage to alm hood. And then they also set up this program where customers who come from another location and commit to furnishing a whole house, they call these the setting up house customers.

They hit, they get free dinner at the hotel in elmo that night, like, this is a hockey stuff. But tear point pt bartow, yeah, that's what this is. So within a year, they pass one million coroner in sales at this showroom, which has got to be, by multiples, the largest business ever built in l mod in like human history in thousand and fifty four.

So the next year after this has been open, they passed three million coroner in sales. I think the exchange area was about five to one this point time of five coroner to one dollar, one nine hundred and fifty five. They double again to six million in sales.

The number of ika catalogue subscribers around the country passes half a million. And all this is done with still less than thirty employees. The business still being run out of the combination of the family farm and this one showroom, it's wild.

The scale they get to, it's amazing. yep. So it's one of these things that you know, on the one hand, we are how many years into idea was founded in forty three and were approximately fifty three, fifty four here.

So were seven, seven years in. But the thing that is really working is this thing that just got started the previous year, which is the combo of the catalogue in the showroom that proves to be this like amazing winning combination that they just realized. Oh god, we need to scale this.

Yep, totally. This is that I would say like generation three of the a business, as generation one is just small gods trading company matches in pens. Generation two is furniture plus catalogue.

Now we're here in version three of like furniture catalogue plus show room. And that's what's really explosive. But here in the fifties, though, the target customer base, who reference this a minute ago and the product mix is still geared towards these rural farmland families. Hey, i'm outfitting my farmhouse.

yep. And when you look at the old catalogues, you can tell totally it's not this simple swedish design that we think about as I as today. It's like pretty rugged, red, robust, heavy furniture.

yes. So when the one thousand nine and sixties come around, sweden, like pretty all of europe, starts rapidly and incapably urbanizing. The automobile becomes common place.

Farms are closing down. Young people are moving into cities and suburbs. They are taking jobs in factories. They're taking White color jobs, blue color jobs.

I think there is some that in the I K A story that during the decade between the mid fifties and mid sixties and three quarters of the farms in sweden close down wow, it's well, but this is happening all over europe. Uh, and so the customer base for ika and all their competitors starts to majority majority shift. It's no longer families setting up their farms, are taking over the farm from the older generations. It's nag a whole new lifestyle. Modernity in the cities, in the suburbs, smaller houses, modern houses, electricity, apartments.

not to mention it's kind of impossible to do the traditional thing of just pass down the furniture to the next generation, which is how most people got their furniture up to this point, because they were living very close to their parents, or perhaps taking over the house from their parents totally. This is, oh, i'm getting an apartment in according to start from scratch, and the furniture needs to be pretty easy to move or put together.

Yes, yes, indeed. IT does so on the one. This is like a total existent al threat to espace. It's like, well, your customer basic shift, the products that you are selling are no longer wanted. They're going away. On the other hand, there has never been a bigger opportunity in the history of furniture making and selling throughout all of human history.

Then what is about to happen here? And ika, even though it's currently serving what is effectively the parent generation of these new customers with a little bit adaptation, has the perfect model for these new Young urban and suburban families. no.

But to get there then, I know you are written to tell this story. There's one more element of the aca model that needs to fall into place. And ironically, even though IT is totally identified core part of the company today, it's a reaction to competition that drives IT and that is designing its own furniture and specifically.

what packing IT is astonishing that so far in the story, they've been looking like full sized, fully assembled armchairs. 一种 是 get them to your house。

Well, remember, I guess is not shipping IT. The suppliers are shipping IT.

but that is taking up a huge amount. Think about a flat packed chair that you're ordering versus a fully assemble chair in how much room that takes up in the truck?

Yeah, in the early days, this doesn't really matter. I OK it's all great. Like that's my suppliers problem. As the business is scaling though, this becomes a key. It's problem because it's a limit to scaling.

okay. So where does flap cackling come from?

So it's totally intertwined with a kia taking on the furniture design itself. And I said I was driven by competition. It's not driven by competition because any of the other players do the same thing.

It's actually the opposite problem. I kia has become so dominant in sweden at this point time that it's monopolizing like a huge portion of all the furniture makers production output. And so the rest of the industry starts organizing against ika.

And ika is philos hick, trying to drive down Prices. They want to create the furniture for the many, and their competitors are all trying to maximized margin and have kind of small businesses because the whole furniture landscape, in fact, to this day, is very, very fragmented. It's tons of players serving niche local use cases. And so you've got the whole swedish furniture industry that's pasted ika for going to the furniture manufacturer and saying, what's the very best deal you can give me and then turning around the customers and saying, i'm going to make very margin and sell you all of these manufacturers capacity at extremely low costs so that competitors are feeling IT from both sides are saying, OK, the manufacturer have no capacity. The manufacturer for me and no customers want my stuff because you're selling a cheaper.

It's freaking wild. Ika does not have a direct competitor today. In twenty twenty four. There is not a single other globally scaled furniture in the world.

Put a pin IT. I have a thesis on why.

Oh okay. So what are the competitor? Or do they start locking ika out trade fair, trying to limit their access to suppliers? They start pressuring ik as existing suppliers into not selling to ika. They say h we're all collectively going to boycott other .

orders from you and I he is not yet big enough where that fails that actually works and the manufacturers to come to I, T and say, sorry, the collective leverage of all your competitors is too large and we're not onna serve you.

Yep, competitors even go to the swedish government, and they they love the swedish government to limit I, T. As ability to circulate its catalogue. I don't know what .

what ground like the most european thing ever, that the regulation should.

This is too good for consumers. Yes, exactly. We can wake a billions jokes about european regulation.

yeah. Anyway, dear point, IT starts to work, and this becomes a real problem for I. So invar the company, they like that. Well, how we're gna design our way out of this one. And turns out design is the answer.

So they start going to the suppliers, to the furniture makers and they say, okay, we hear you that our competition does not want you to give europe ece to us like you're also giving to them. What if we give you a new set of designs for different furniture, and you make those designs just for us, separate line, open up separate lines. Could you do that? And most of them say, oh yes, I think I could do that.

And this is the beginning of ika in house designed furniture. Now, the first quote and quote designer who enva sets to work on this is a former advertising draft man named gilles longer. And invar had hired him originally to help in var do the set layout in the photo shoots for the catalogue is is like assisting london starts cranking out sketches of furniture designs for the manufacturers.

And so then, as legend has IT, all this is going on. And then one night the two of them, longer dining bar, are taking down the set from a photo shot and longer and says, well, he's putting a table always like, uh, god, thank you. So heavy, what a huge amount of space IT takes up.

Let's just take the legs off the table and put the under of the table top and then we can store the all the stuff Better and invisible. A bot lightning has hit him. He's like, oh my god, i've just received like, you know the last commandment from government how to run this business.

Like, yes, we take the legs off and IT takes up a lab less space. My god, we can design these things to come off on purpose. And then when we have our manufacturers ship the tablets to customers, they going to be able to fit a hell of a lot more of them in those trucks.

Yep, and it's kind of a pocky phone. I am sure something along the lines of this insight happened. There were many other companies that were doing flat packed furniture before this, including the company we've talked about multiple times on this episode series rock was flat packing in their catalog distribution in america. But certainly the company that gets credit for popularizing and growing the volume of flat pack for nature being shipped one hundred X, A thousand x around the world is I kia and is .

a nice little story. But I think what I hear does is they go all in on this. So the first flat pack product that the design is the max table in the mid one thousand nine hundred and fifties.

But by the end of the one thousand nine hundred and fifties, flat pack and then self assembly by the customer is expanded across the entire range. Like all of I is furniture, and I always like some stuff you can't flat pack, but like as much as possible. And because they had, for separate reasons, started doing their own designs with manufacturer. Do you can do this?

Yeah so flashing for a little bit to today, but it's interesting to look at all the downstream things that happen from flat packing. One IT enables this space saving and trucks IT enables you to do more volume for the same cost too. There's a cost reduction since customers can do the labor and transport before you had to have someone at your company put the chair together, and that costs a lot of labor.

Now you're putting that on the customer. You're also making IT. So the customer has the capability to transport the merchandise in a way that they couldn't before they had to have a truck.

right? Malot was the only way to make this happen. Your declared drive away or get on a bus with a table.

Yes, absolutely. There is a further cost reduction since that decreases the broken merchandise in transit. So there is a third amazing benefit to flat packing. Ultimately, they pass all this along to the customers, meaning now their products are definitely the least expensive on the market for their quality.

And psychologically, IT gives this feeling of accomplishment and increases your fond dss for whatever object you assembled because of the labor, the blood suit, tears that you just put into IT. You feel like I made this. We almost broke up, but we didn't. And four hours later, I have the the cabinet together.

What are the articles I was reading for research called IT the lego for adults? totally. That's early. right? Another great love to cover IT.

Someday I have a fun story for you, David, on flat pack that I haven't told you yet.

Oh.

right on me. So there's another word for this. Do you know that is, do you hear anywhere kind of an old school retail, our merchants? Es.

no, I don't think I did.

Knocked down. Oh, no.

And IT was .

referred to as kd. So in preparation for this episode, I talk to jim and a. El, the cofounder of costco, because I was asking about I, K.

And the similarities. And he said he used to love going to ika to look at the K, D. Furniture that they stocked.

And I felt this was like a brand. I was. I going, maybe this was like a brand that I used to stock at.

At some point I realized that all, oh, no. This is like what people used to call the flat pack. Is K. D.

That's amazing.

yeah. The inner woven in this with costco is really interesting. Another research call was with the ren Bailey, who ran, I hear, in the us.

In the late eighties. And he mentioned that invar always looked up to costco and thought they were like the greatest retailer or in the world. There's a lot of shared Operation there.

and we're going to talk about the hot dogs in. You think i'm joking?

I'm not right.

Let's go. Okay, before we get there though. So, K, D, you know, this innovation knocked down flat back. This is also though, what enables this shift in the product mix for the new modern, Young, urban and suburban customer who doesn't want the same kind of furniture, can use the same, cannot furnitures that their parents were using back on the farmlands.

So legend has at the right around this time, as the whole I key ranges shifting to flat pack invar goes on a trip to the melanin furniture show in italy. And while he's there, one of the suppliers at a carpet supplier at the fair offers to take him around the city and you know, and bar wants to see how people live. And he's like, sure.

I think i'll ask a bunch of my employees who work in my urban modern mechanized factory here in malyn if you can just go into their homes. And so anbar goes into their apartments. And he's just appalled by a the furniture that he sees there and how different IT is from the new modern city living designs he's seeing at the furniture fair.

It's all the old world farmhouse, big, heavy, dark furniture that takes up a lot of space and is in practical in the city. And so supposedly this is the moment winning that really gets religion of like, oh, this is our new customer and this is our opportunities to design the low press, high quality, affordable furniture for this target market. All these people that are moving to cities for the first time, this is modern middle class living.

So we're all familiar with the simple skinner avian design that I ka furniture is, and it's become extremely popular, basically univerSally adored.

I just accept IT as like the standard of what modern furniture is.

right? The question is, is there something intrinsic to simple scandinavian design that makes IT univerSally applicable? Or is that I is success that now we all sort of look at IT and have some reference for IT, because IT really is beneficial to a that we all like simple signs instead of ornate designs at this point, because IT makes IT work much Better for a flat pack, for reducing cost, for making transportation easy. And imagine chunky or need furniture with intricate hand carve designs still being the criminal a cram of here's what you should have in your house and it's basic and expected IT kind of makes the business model work that it's these simple .

designs yeah I think these things are inextricable. I mean, i'm not a expert and design history and people who are might contradict me here, but I don't think there was necessarily that much about scand navy in our swedish design that was particularly light, simple, minimal before a yeah listen is .

john is in the slack. I'm curious if someone has traced the any age of this sort of skin and avian aesthetic in a prone thousand, nine, hundred and fifteen world where this sort of comes from. Who are we are copying because there's definitely some lineages of designers that all this trying .

to emulate yeah so anba rights to this, he says a design that was not just good employed, unlike with the mellon factory workers previously had in their homes, but also from the start, adapted to machine production and that's cheap to produce.

Which band is exactly point you are making with a design of that kind and the innovation of self assembly? We could save a great deal of money in the factories and on transport and keep the Price down to the customer there. IT is so entering into the one thousand nine hundred and sixty here and all the demographic change that's happening, ika is perfectly positioned and it's just explosive growth for the company.

And to capitalize on IT, they obviously need to rap supplier production significantly. So they've had these battles in with competition. We've gotten around that with their own designs, but now they need to rap up so much. Sweden itself, even if they didn't have these problems, just doesn't have enough capacity for all this new furniture that aya needs to source.

Yeah, just to illustrate your point, about one thousand nine hundred and fifty five they did six million coroner by a sixty one they did forty million coroner. So that's almost seven x in six years.

yes. So eva starts looking around elsewhere in europe to expand supplier production. And then in one thousand nine hundred and sixty, invar reads in the swedish newspaper that the foreign minister of poland is coming to visit the stockroom chAmber of commerce with the express purpose of developing business relationships with swedish companies.

And you might be like, okay, you know, doesn't this kind of stuff happen all the time? What's the big deal? Well, poland at the time was a communist country behind the iron curtain.

You, so this was odd, an embrace like, well, you know, if we could find a way to work with the community, we can probably lock up a lot of production capacity. Nobody else is gonna through the trouble of getting yeah. And I bet they can also produce things pretty cheaply over there and in pretty high volumes.

yes. So in one thousand nine hundred and sixty one, ika goes to poland to help local state sponsored manufacturers there set up furnitures production of the ika designs. And by the end of the decade of the sixties, poland is producing fifty percent of I K S.

Furniture, including some of the first modern classics like the Billy bookcase, the ogla cafe chair. It's the sort of wooden sort of curved back, oh yeah, chair that, you know, the iconic one. Yeah, that's, I think I haven't, right? I think that design is actually based on like a polish chair design. Interesting becomes yeah, one of the biggest selling products for the company in history.

The other thing that they are doing here is IKEA is investing in bringing up these factories. They're trying to build really close supplier relationships here and basically make sure that those factories are going to be successful for the long run so they can kind of bet their .

business on IT totally. And I mean, they get really, really entertained to the point where eventually in the is a little later in the seventies after I can invest a ton in developing board on frame quote, quote technology or and which board construction as it's called, this is the lack table. So list because many of you know, for those of you who don't, you definitely i've seen this thing, you've probably owned IT. The lack coffee table .

or lack shelves .

or a poland is where they produce this coffee table that they use, particle board, you know, sandwich board construction inspired by how doors are made sort of more cheap, not solid woods doors. Today, in twenty twenty four, the lack table retails for nine dollars and ninety nine cents in america. This is a table that you can buy for less than ten bucks.

It's astonishing how we've driven Prices down on some of these things.

Totally astonishing. And in fact, I think it's worth a little sidebar on the coffee table right now. As an example, IT perfectly illustrates the new consumer dynamic and demand explosion that are key is about to head into the lack. Coffee table is the first example of this idea that enva starts to develop of the item with the breath taking Price code code. And every product that I cell s in its range should be high quality, great value, ideally way Better on both dimensions than any competition have.

Beautiful for. I think that's a part of IT too, is it's posed to have the form design. It's not just build quality, but actually the form is should be elected to look at.

yes, but over and above just kind of the standard products in the range. Ika should always have a few products that are these breath taking Price products, and these products should also be high quality, but they should be placed at least fifty percent below any competitive or substitute products out there.

An ideally like well, less than fifty percent, I mean, a ten dollar table today that's breath taking that's astonishing and so adverse like it's our job to figure out you start with that and goal in mind and then design backwards from that of like how are we're going to make that happen? He would later written, describe the whole idea is based on the substantial Price difference, the easily understood Price by the consumer. We don't lose on the deal nor do we make much profit, but at least we make a little.

And in the end, that's what matters. We can actually lose money on these products. And thus, we need to design like not just what the furniture looks like, the main uc turing process, the transport process, the raw material sourcing process, like everything, and the end about how product .

is the whole supply chain.

Yes, a ten dollar coffee table. And so the way they do, at least in the case the lack, is like we're gona wholesale reinvent the manufacturing technology process for this. We're not going to make a solid wood coffee table.

We're going to use board on frame construction. And what are the raw inputs for that? Well, we can use the leftover scrap woodchips.

And then eventually now I think it's slike pope material from the timber that's actually gonna be like ninety plus percent of the material that goes into the product is our waste products from our other things that we're making. A that super cheap. B is super light weight, even though they're pretty solid and dirty.

And then see, we can just scale this indefinitely. Today, I T. Cells, almost twenty million, lack tables every year and has been for decades. And theyve sold hundreds of millions of these things. So like, you can optimize the freaking crap out of your whole supply chain to do this.

That is wild.

I think they have multiple skills of that scale. So later, once he, like charly monger, got turned on to the virtues of cosine, pe. Invar would hilariously formalize this idea, this meana festive in one thousand nine and ninety five, as the hot dog product policy, because in one thousand nine hundred and ninety five they copied costco, and they started selling hot dogs in the stores.

Okay, so I brought this up with the gym, and I was talking about similarities between costco and idea. He did not believe that I key a, copied the Cosmos hot dog. And here is a rational, there is no way.

is one hundred percent of copy.

I don't believe him. I know. I K, I started doing at nineteen ninety five.

There is a rich swedish tradition in hot dogs. Swedish hot dog carts are freaking everywhere. I don't think you had to look at costco to observe. We could probably sell hot dogs at a sweetest store.

Jim is a very kind and generous despite being one of the greatest retailers of all time. So i'm just gonna this one up to that. The ika hot dogs today are placed at one dollar, which is cheaper than the buck fifty at costco.

Well, no, if the book is a combo.

that's what I was going to say. I think though you can only get the book fifty combo a costco yeah.

I mean, I don't know if you. Could walk up and tried to order a hot dog that's less than a dollar, but IT is one dollar in fifty cents for a hot dog and a drink. And there is no menu item of just a hot dog.

right? We talked about all this on the oppositely part of how they .

do this is including the drink is a anyway.

I refuse to believe that the ability to buy just a hot dog and I car is not a not to the costco deal because ika also has the hot dog Andrea combo for one fifty.

And it's right after check out, just like costco is. And IT entered the store about a decade after .

costco there. No way, no different way. That wasn't just like we got a copy.

The hot dog, that even more amazing thing is he qualifies this into the official policy of the company, which is we must have at least at first, it's ten corona cold hot dog products across the range. He later upset to twenty. And it's yes, it's like the lack table. It's an impossible Price for ideally one product in every category that we sell that is just it's criminal not to buy this thing.

Yeah and the fact that they just keep riddling IT down year over year over year. Great example of this is the power chair.

Yes, another hot dog bread. absolutely.

I think theyve sold thirty million of these since one thousand nine hundred and seventy six. Theyve just been but naco about optimizing. So the initial power chair, which was originally called the poem, not the poem.

and in inflation adjusted dollars.

was three hundred and fifty dollars in one thousand nine and eighty eight. By twenty sixteen, they had IT down below one hundred dollars and it's effectively flatten out. It's now one hundred and thirty dollars, but with a little bit more inflation, it's astonishing. You can get this chair, that is a living room chair for one hundred and thirty dollars. Comparable chairs are like two to three thousand dollars.

right? You're not going na buy a poem chair and have anybody mistaken for a harman Miller reckin.

Er no but that's not what .

they're trying to be. But it's pretty darn close for the delta in place and in a harman Miller requirement is what? Five thousand dollars?

I think something like that yeah, maybe this performs the same function, but you're not at a esthetically mistake for a harman Miller chair.

Oh, I guess my point is like the delta in the design, atheism is also way closer than four thousand, seven hundred and seventy dollars.

Yes, at a great point. And IT has this wall Price. When you drive home with that, you set IT up. You can marvel at the fact that I only cost you a hundred and thirty dollars. Yes.

okay. Which brings us to the other, I think really uniquely I can piece of this hot dog policy that even costco doesn't really have. I just love hot dog policy.

I hear thanks to the catalogue controls all parts of the demand and the supply in. They control the supply chain, obviously, as we've been talking about. But the catalogue for decades is the primary marketing and demand driving channel. So it's not like they're having to buy advertising. They fully control the marketing channel. And so they can use these hot dog products strategy and promote them in each market in the catalogue to then drive the visits to stores, drive the huge demands, position them with other products, then they do the layouts in the show rooms. So it's is genius that all works together.

It's kind of amazing that because in many ways, they are their own customer acquisition channel with the catalogue that they never turned into a custom requisition channel for other businesses, they should sell advertising. I mean, the amazon play, once you reach scale and you have enough customer I balls, you can step on a near hundred percent margin advertising business for free. And I flip through decades worth of iki a catalogues unless I missed something I never noticed, like an emergent advertising business in there.

Yeah so just sting. But that doesn't actually surprise me. I think being very probably a view that as a short term optimization and that is like antha themal to how he wants to run the business. yes. So now what's also interesting though is like this element that I was just saying, if they control the whole demand and supply chain is no longer true in the internet world, like in the catalog world, absolutely was true in the internet world. No.

and OK OK we ahead .

of selves. So i'm going to take .

us back to one thousand hundred and fifty eight. There's a few more key pieces of the puzzle that needs to come together. But first, this is a great time to talk about friend of the show, static g.

So as we've been talking about, I key as big innovation was finding a way to make high quality, well design furniture available to anyone at crazy, affordable Prices. And you know the three ways they did this, sweating design and functionality, having erratically different delivery model and offering great Prices through crazy scale, which we are sort of getting to here in the story. Now I might not seem this way at first, but that's like a sort of doing the same thing for their category.

Okay, later here, alright.

And very with me listening ers, you probably know the rough story of stats by now, but here's a quick refresher. They were founded by a team of engineers at meta who wanted to build a complete set of data and engineering tools like those that powered the growth. And facebook can make all of those available to anyone at any company OK.

So back to the I key civilities ties, design and functionality. Stat six tools were designed and built from the ground up for engineering, data science and product teams by world class people in the same functions. This means their tools come with things that aren't really available anywhere else, like advanced statistical treatments, over thirty high performance sd case and the ability to deploy your own da warehouse.

Now the second piece, erratically different delivery model, unlike legacy vendors, stat sig, bumbles all of their products, which means that when your team starts to use that sig, they get access to everything, experimental feature, flags, analytics, session replays, everything. And so rather than charging for seats, licenses, you just pay for what you use. This is super different than legacy vendors who are focused on maximum revenue from just one product line.

And because it's all sort of an inner connected set of tools, you can consolidate your spend and save time on configuration. So that's the second way. Third, stati g makes their products super affordable because like I chia, they make IT up on volume.

They power companies like open a eye at last year, microsoft, I gma, and they process over a trillion events per day. And they've got a great engineering blog. And how they do this, this scale helps them basically give away their product for free to small companies and startups and help larger companies cut their suspend.

I want IT. I want that I get where you're going on. Now static is the market of product tools. yes.

So listening ers, if this sounds interesting to you, there's a bunch of great ways to get started. Status g has an insane, generous free tier for small companies, start a program with a billion three events that fifty thousand dollars in value and significant discounts for enterprise customers. The team is just awesome.

They're so great to get started, go to stat, sig, dcom, slash acquired, or click the link in the show notes and just remember to tell them that then. And David sent you, okay. So David, i'm taking us back here to the late fifties where we have a few more pieces of the puzzle of modern night night here that kind of coming together.

So in one thousand nine hundred and fifty eight, they expanded. Member, we said there was just like some cold food and coffee. They expanded that. They added hot food. They added self service is more like you see today.

This is all the show .

room in exactly. And the philosophy behind this is the margin should never exceed ten percent at the restaurant. They want to use IT to attract customers to retain and delight, but they want to make their money on furniture.

And it's kind of like, David, these hot dog items you're talking about, they don't want to lose money just like costco. They are sort of opposed to loss leaders. I don't know if it's as religious, but they are looking to make money on everything they sell.

I think it's equally religious for different reasons. I think costco was about not insulting your customers. I think I hear is invited his background in being religiously opposed to losing money.

right, is unbelievably frugal.

Oh, men, we got to tell that amazing story we heard in the research. He was doing a story visit somewhere in europe, in germany. Yeah, I think he was in germany at night and start how cost.

And IT wasn't a store manager.

IT was like a really junior person. Yeah, right. Do you know how much they cost have to use this flashlight if they spend hours going to the store with flash lids?

And because he's also like obsessive about details and the micromanager, he like thirty little things wrong, all with a flashing light, and, you know, asked for all of them, do you? Fixed by morning? amazing.

But this whole restaurant thing they really find religion on this is here because we need to make IT worth your while to come all the way to this store. IT has to be in attraction. They developed this phrase, it's tough to do business on an empty stomach.

And so it's early days. It's not like prolonging time in store the way that IT is today. But IT is, hey, we want to add a disney land effect and add perceived value to your trip here today.

Restaurants, just a flash all the way forward. IT is technically the world's sixth largest restaurant chain, measured by number of customers in twenty seventeen. They had seven hundred million people per year eat at the restaurants.

Now I think that's not the duplicated. Like if I eat multiple times per year, that might be counting me. Otherwise it's kind of unfathomable. Does ten percent of the world really eat in ik is even more while .

there are only four hundred and seventy six ideas in the world, right? So whether that's d duplicated or not, seven hundred million customers across only four hundred and seventy six locations is wild.

but totally wild. Thirty percent of people who visit I here do so just to eat.

I love IT .

lot to meet boss.

I have done that many times in my life, most recently in downtown seven cisco.

I don't have many of these stories. And I was trying to figure out why. Like I was talking to my wife and SHE was talking about, oh my god, I love getting the cattle growing up and h i've furnish so many apartments in idea and I was kind of thinking, like actually, until the last few years, I haven't really, and like i've never read in an idea, just eat, launch.

And I kind na realized ohio did not get an ica for a really long time like I grew up without a ika near me. And even when I went to college in colum, they got one in since anadi. But I was until after I left column, they got one there. So until I got to seattle, I don't think i'd never experience.

Ed, well, I have a question for you. then. What year did your family leave deliver?

Ninety six.

You grew up very close to an ika, and you just didn't realize IT. Oh, really, because I kia has been part of my life prety much my whole life. And I can.

I didn't realize why the first U. S. Store was in limit meeting pennsylvania, right outside philadelphia, which opened in one thousand nine hundred eighty five.

I was born in one thousand nine hundred eighty four. I grew up with, you know, Billy book cases at all this stuff, like, it's just been a constant my entire life. I mean, I went to the small land I played in the right.

IT is funny how i've developed an appreciation as an adult, but I was not like afford of thing, like for you and so many others, right? So into the one thousand nine sixties, David, they open a bigger store where.

yes, so they actually had opened the showroom in norway, ve in sweden, tex store neighbor country, to be able to sell in in norway. But that was in the same concept as the home hood showroom. Not really a storm by the mid sixties though, all of this, you don't new urban consumer all really, really taking off. In june of one thousand nine hundred and sixty five, I kier opens its second show room location very different than the original. This one is almost five hundred thousand square feet.

What that's like even still probably their biggest store among their biggest view.

I think IT is still, I believe, the flagship I T A store because even today.

they're like three, four hundred thousand when they build new stores.

IT is a circular building inspired by the guangdong museum in new york city. I think even this one is no longer secular. That does not last in in the idea, a book, a cost seventeen million coroner to build a roughly three million dollars compared with the original alm hood location that ever bought for thirteen thousand coroner.

They must have done so much business out of that catalogue and that little two tiny showroom in order to leap to this and spend all that money .

on this store. Well, by this time, the business was called IT, about one hundred million kroner a year by the ID sixties when the second store is opening.

So twenty million USD at the time.

So a three million dollar USD investment in the stores a lot because I don't know whether profit margins are, but like a big investment.

but they could handle IT. So it's probably like a year or two of all of there profits go into this. yes.

Most importantly though is the location. IT is on the outskirts of stock km, the biggest and the capital city of sweden. And for the first time, they actually stock items in the store.

By now, flat pack is really rock and and roll in like they're trying to fit as much in the store for customers to by cash and Carry out themselves. And this is the first real modern I K. On the first day that they open IT in june of one thousand nine hundred sixty five.

They have eighteen thousand customers come through. And then in the first year, that store alone does seventy million coroner in sales. So IT doubles the company's revenue.

They also at the store for the first time now have the set up where customers fetched the products themselves from .

the warehouse. yes. And a few more elements of this stock comm store that you might recognize if you are an ic customer today.

It's located on the outskirts of the city with good highways leading to IT and lots and lots and lots of parking spaces. Its opening hours are eleven m to seven P M, so that both U. S.

Customer and the employees, the coworkers there are not battling morning rush hour to get there when you know who's going to be shopping at nine am in the outskirts of the city anyway, but it's open late after work. So you finish, you know, work, you finish your shift to the factory, you've finish your White color job, whatever you're doing. great.

How on the bus? Hop in your car, go on over the idea, buy some furniture. And yes, then, as you say, you can buy and Carry away the flat packed furniture right there.

The fact that you don't need employees to go and fetch things for, you can just grab, move of shelf yourself after you going to wine through show rooms, it's like further compounding their cost structure advantage.

Don't look so then. This is tragic, but ends up being great for the company. Five years later, this beautiful desire guang ham museum inspired store in one thousand nine hundred and seventy one night, the non I assign on top of the building catches fire and the building burns down.

I have a totally burns down, major, major damage. I believe the insurance claim resulting from this was at the time the largest insurance claim in swedish national history. But I think this is really part of the culture of vigia the company.

And certainly, inverse mindset is like every chAllenge is an opportunity when they reopen the story year later, it's got the full customer self service check out the you know of I key today where like yes, there are you know coworkers there helping you check out. But like you're whiling the stuff up here, getting the stuff you're putting IT through, it's got more capacity for more in larger flat packed items in the warehouse. And this is really the beginning at the end of the male order business here. I mean, it's still exists obviously for a long time. But the share of the business that is malorum sus cashing Carrier in the story goes way, way, way down to they add a children's playroom at the front of the store with a ball pit for kids to be entertain while your parents shop because lord s you, how what are thing you are going to do your like shopping with your crazy little kid's running around.

which is also a genius way to pro long time in store. I think you're just onna buy more stuff if your kids are looked after, I will say the small end at the seattle store, the idea is a little bit Better than the execution. IT was a two hour weight once you get there to get your kid into the small land and they only allowed five kids at a time. We sort of this odd, like, I was all built up for all small lands.

going to be this amazing thing. I suspect this is something that, you know, hey, a different era when we were growing up, like, things IT worked a little Better.

And you get away with these days, two person watching something.

yeah. Just a kid off. Go knock itself out.

Come back with ten fingers. ten. yeah. Can do that today. yeah. And then finally, number three, in the newly redesigned stock comm store, yes, they had opened a restaurant at ARM hold at the showroom a couple years at a time.

But this was the real .

like cafeteria, the real cafeteria like we know and love IT today with the traditional small and style menu.

yes. And so this is basically IT. There is a lot that happens after this, but there's core concept of the store and why the business model works at all that is pretty baked here. By mid sixties.

yep. And certainly by one thousand nine hundred and seventy one in the sort of v two of the stock homes store.

yep. So across the sixties, they open more denmark and norway stores. In the seventies, they opened in japan, australia, australia, canada, germany, hong kong and singapore.

In seventy five, they enter japan for the first time. They try real hard for twelve years to make IT work, but IT fails, and they withdraw in one thousand and eighty six. A few of the reasons are the furniture is too big.

They just didn't understand the needs of that market. Well, self assembly was kind of an anathema to a japanese culture, and the delivery industry hadn't really been built out in the way that they needed to be. There's like a necessary precondition to I T entering a market, which is there is robust delivery services to make IT work if you're going to rely on the catalogue model.

Otherwise, people have to be able to drive to the stores and use the store concept where you grab IT off the warehouse, put in your big car, drive home in these dense urban areas in japan. That's not really possible. And so they pull out after twelve years.

They did eventually go back in in two thousand and six and make a lot of changes to make IT work today. But I D think japan was kind of this after they saw success in all these other markets. IT was a little bit of humble pie for them not seeing IT work there. And I think it's spoke to a little bit for further global expansion.

Yeah, IT is amazing in the seventies really until they go to japan laughing using the word um well, come back to another reason why I shouldn't be laughing using the word. It's almost like they did blitz scaling, you know across europe and even beyond europe in the seventies. I mean, they went all through out and all europe. They expanded to canada, australia, a singapore. I been in totally got conviction that the newly redesign store in stockings with IT and we are gna, copy, paste and bring .

IT everywhere. And they're rapidly scaling with .

profit dollars. They are not raising money to.

as we talked about, they have very thin profit margins. And so what that means is they're just doing tones and tones and tones of volume to enable them to do their future growth with their current .

profit dollars. Yeah, it's hard to get consistent revenue data on the company cases. A private company still is a private company.

But by the one thousand nine hundred eighties, they're doing two billion dollars a year in revenues. So call IT. Fifty and twenty years to scale from twenty million to two .

billion is incredible. yeah. Interesting is the company that is rapidly scaling at the same time that in their DNA, they're unbelievably thrifty. You kind of wouldn't expect both of these things to be true of the same company. totally.

This is the same guy like, just to quote the testament of a furniture dealer, this like one of my favorite paragraph S. Variants IT is not all that difficult to reach set targets. If you do not have to count the cost, any desire can design a desk that will cost five thousand, but only the most skilled can design a good functional desk that will cost one hundred groner.

Expensive solutions to any kind of problem are usually the work of media quality. We have no respect for the solution until we know who the costs. And I, A product without a Price tag is always wrong. IT is just as wrong when a government does not tell the taxpayers what a free school lunch cost proportion before choosing a solution set IT in relation to the cost, only then can you fully determine its worth. It's amazing that this level of drifty ness and paying attention to the details is also the same company that is in a decade expanding all over the globe.

yep. And it's totally what enables IT to happen because it's almost like warn buffett, you do in the burger half way episodes where as a Young man, he's like I cannot spend any money because any money that leaves my bank account will not compound. It's the same thing here with, I care theyve view all of the profits that they aren't making as like compounded value of future investment here.

It's interesting to think about IT.

So mean, the seventies during the decade of blitz scaling, if you welfare I A inbar, is in his early fifties. And for a couple reasons, as the company is doing this massive scaling outside of sweden, he starts to become really concerned about succession and what will happen to idea when he inevitably dies. Although he would live for another forty years after that he wants to be ninety one.

Sweden at the time had high and rising wealth and inheritance taxes. So inheritance taxes for larger states, of which the comparin a station, a key as an asset would definitely b one, was over sixty percent. And on top of that, there was an annual wealth tax in sweden at the time, which was two point five percent of your calculated wealth annually. And your calculated wealth included all of the working capital in any companies .

you owned wo really like. It's the illiquid ownership of the company plus the working capital in IT.

Yes, especially sitting there in the early seventies, knowing you are about to embark on this journey. From now call IT couple hundred million kronor revenue business to a multibillion dollar revenue business.

his nett orth would eventually rise to something around sixty billion dollars.

Yeah, there IT wasn't just gonna like enough capital to pay that two and a half percent in your attacks. Side note, by the way, in the mid two thousands ended up abolishing completely both the wealth tax and the inherited ance tax. So actually at the end of his live enva moves back to small and moves back to sweden.

Oh, wow, I realize that was part of IT. yeah. And he dies in sweden. Anyway, this kicks off for ever, the comrades, a whole saga of wealth succession, corporate planning that ultimately has a huge impact on the company.

So in one thousand nine hundred and seventy three, which is the first year that I key expands outside of scandal a environ, his family emigrate to denmark first to avoid the wealth tax. And then a couple years later, in one thousand nine hundred and seven eight, they settled in switzerland. Now nvr actually has multiple goals here, though it's not just avoiding taxes, although I mean, he will be the first admit taxes was the like first in primary motivation here.

In addition to that, and I think this really, really was genuine, he's concerned with ensuring I K is continuity and survival, and the multiple parts to that one he wanted, I hear, to be completely independent from anyone country's political fate, the political history of europe that enva lived through in the work going to talk about later. His case in point here, right, like he has lived through, not knowing that countries are going to continue to, and he doesn't won any that to risk I keep up too. He also doesn't want anything that would happen within his family to risk I keep us.

So by this point, he has three relatively Young sons, and he doesn't want to set up by dynamic where the three of them are fighting over control or selling off I, or at R, A, tearing at apart. And then I see he also wants to ensure that I, kier, keeps its focus on the long term and not the short term. And for him, that meant specifically having a huge fear of what would happen if I ever were publicly traded company. He thought that, like this is just like holy, incompatible to be publicly traded and have shareholders and the long term focused.

I heard a funny quote, indirectly from someone who told me that in va, one said, going public is a little like wedding your pants. It's warm and comfortable for a few minutes, but after that.

Oh my god, what a fox I did. wow. So ultimately, after a lot of international lawyers get involved, they decide that what they're gonna do is set up a self owned foundation based in the netherlands.

So this is like echoes of our novo nordisk episode here. And the reason they choose the netherlands is that dutch foundations are less, according to the lawyers, the most bullet proof and hardest to change the biology of. And they're going to divide idea into two corton quotes, fears, one of which is going to be the physical sphere and company, and that is the actual stores.

the Operator of the stores.

Operator of the stores. And the other one is going to be the mental sphere, which is the brand and concept of vaca. And this is where you end up with this grazy structure, where ika is two companies today.

IT is in a holding, which is the physical sphere, the technically largest franchise Operator of I K. S stores. They own and Operate four hundred of the four hundred and seventy six I K.

S. Stories in the world today. And that is owned by the dutch inker foundation, which is a charitable foundation, is actual charity foundation. And then you have the mental company, the brand company, which is into ika systems and into owns the ika brand, the concept and in the license, the aqua brand, a concept to everyone else who Operates the story as franchise Operator, of which today in ka is by far the largest. And in return for that, licensing of the brand and concept into idea gets a royalty of three percent of growth sales from every store.

So i'm GTA say all of this, again in different words, just because IT is impossible hard to pass the first time, you can essentially think of IT as a franchise er franchise relationship, the franchise or who owns the brand, the IP that is interior systems.

They work with a company called the inky who has the privilege of Operating the stores and getting access to the intellectual property in exchange for a three percent royalty on their revenue. So every year, interior systems, and this changes a little bit over time. But interior s systems, the parent company, designs furniture and works with manufacturer to have IT made and up, keeps the brand and all the corporate .

stuff designs the catalog.

It's sells that furniture two in ka or any of the other franchise. And the reason there's other franchisees is because you want specialized franchises in different markets where you don't understand the local culture. So that's cut a wipe. There's ink up for a lot of the like western europe and english speaking world.

And then there's specific franchises that are not in ka for other parts, but just simplify IT for now because inca is like ninety percent of the stores and then in ka buys that furniture from interior holdings, pays three percent of revenue and then brings the stores. Now, David, I simplified out the part about the foundations that on each of them, I think we should come back to that later because there's some interesting nuances there. But that sort of the structure they devise here.

yep. And then ultimate foundation owners for both of these two upper companies, they get set up the compound d family. At least after inverie, the complete family will be involved but does not have ultimate control a voting power over either of these companies.

So today, certain of the brothers are on the board of certain companies. All three of them are on the board of one company or the other, but they are far from a majority, and they cannot, even if all three of them get together, influence or control the decisions of either company. And that was super important to invar.

Yeah, it's pretty .

interesting. And I believe the inker company and foundation still rules up to a dutch parent. And the interpol ding company, I believe, is a elect and stein foundation that is IT.

It's all like this sort of spread around till ensure this sort of political continuity of the company. It's almost A A bitcoin maximum st people who have ripped up their keys into different parts and put IT in different safe deposit boxes all around the world. That is exactly what inbar is doing here.

To get analogy, yes, you are correct. In ka, the franchise z, who Operates the stores, rolls up to a netherlands based charitable foundation, where into ika systems, the kind of parent that on the I. P. Rolls up to a licensor in based enterprise foundation. Different, like non charitable, is an enterprise self owning foundation based in license tian, which, for those wondering what licked time is, IT is a country that is sort of land locked and sandwich ed in between austria and switzerland with a very small population. But IT happens to be very good for establishing entities like this from a tax and treaty perspective.

Yep, and you said you to through a enterprise foundation, I think, is the word you used, not a charitable foundation. The purpose, this is like a circular function and computer science. The stated purpose and goal and activities of the foundation is to ensure the continued Operations and success of I A yes.

to secure the independence and longevity of the I K A concept, and the financial reserves needed to ensure this, that is the purpose of the foundation, which is so .

interesting. Again, the anger foundation is a charity foundation. And they do disperse, I think, now like two, three hundred million euros a year in charitable donations around the world.

And it's to things you would expect, its climate, it's poverty, its cheerful causes. But yet, to your point, that into ike, a holdings, a foundation at the top of that is literally to ensure ik is continuity.

IT is like a fort knox for ika. fascinating. okay. So the .

structure is going to shift a little bit, as I mention, like they'll be things they'll break some things apart, they'll shift who's responsible for what on the edge. But that's the structure that is in place going forward.

Yeah so once this is all done in invar, in the family, no longer directly on the company, in one thousand nine hundred and seventy six, he writes this document that is intended to serve as sort of all like forever Operating system of the company.

It's like the BIOS leadership principles. Yes.

exactly is exactly what I was like. And he titles IT the testament of a furniture dealer as we're talking about. And he literally like he's treating this like it's his last will and testimony even though he stays involved in the business for another forty two years and hands on the whole time.

It's an amazing document will link to IT in the show. Now it's like you should go read IT. It's on the I T.

A website. It's really cool. So IT has nine testers. So sort of comments and you already red one, which was the model scin of wasting resources that I kar the first one that number one, the product range are identity.

We shall offer a wide range of well designed, functional home furnishing products at Prices so low that as many people as possible will be able to afford them. Talk about that earlier. Our products must be functional and well made, but quality must never be an end in and of itself.

IT must be adjusted to the consumers needs. This is fascinating. He continues a table top, for example, needs a harder wearing surface than a shelf in a bookcase. In the first example, a more expensive finish offers the consumer long lasting utility, wherein the latter IT just hurts the customer.

By adding to the Price, quality must always be adapted to the consumers interest in the long term, no effort must be spared to ensure Prices are perceived to be low. There should always be a substantial Price difference compared to our competitors, and we shall always have the best value for money offers in every function. Every product must include breath taking office. This is before the hot dog analogy. And ninety five.

it's great. IT makes so much sense. It's so great. The analogue to software companies is engineering for engineering sick. There is many examples. I've sort of architecture, the perfect system that's like wildly overkill.

Anyone is put together, I key a furniture, knows anything that's not seen, like things that on the bottom, that face the floor or that face the wall are not finished, and often times like the back of shelving units or the back of cabinet ory is like thin fin zi. You don't need to be structurally stable. So it's not because they wanted to cut a corner there and make IT as cheap as possible because they view that as a value for you.

The customer is not that they don't care or that it's sloppy.

They care a lot, right? I said that would be insulting .

to spend money on IT. Yes, exactly. This is the polar opposite view point of the apple Steve jobs. The insights must be beautiful, yes, but it's actually a lock closer in philosophy than you would think that is intentionality about IT. Yes, nowhere in either company is they're love at us.

But at ika, we are going to intentionally make the backside and the insides not beautiful so that IT is a higher value to U. S. customer.

Yeah, there's so much good stuff in this document just illustrate envious personality. The fact that you wrote this is, well, here is, bear in mind that time is your most important resource. You can do so much in ten minutes.

Ten minutes, once gone, are gone for good. You can never get them back. Ten minutes are not just a six of your hourly pay. Ten minutes are a piece of yourself. Divide your life in the ten minute units and sacrifice as few of them as possible in meaningless activity.

It's so i'm so glad that you brought this up. I wasn't going to put this in the episode, but I totally highlights reading IT. I was like, well, I need to think about that .

in my life totally. And there are so many times we were like ten minutes away from a call that you and I are jumping on or ten minutes away from recording and episode. And i'm like, i'm amazed in the area and I could get done in those ten minutes when I really was forced to.

And it's such a good point. Like if you actually force yourself, he just go focus and get ten minutes of work done. You can be astonishingly productive in ten minutes.

totally. I hadn't thought about this, but um maybe I can an apple or more spiritually alive than I even realized.

I keep an apple are very similar in a way that .

I will get you later. Do OK I love IT. okay. And then another similarity analogy. The last testament number nine is just so early, jeb, a shareholder letter like that we cannot the title of the investment is most things still remain to be done. A glorious future explanation, mark.

So is he read the feeling of having finished something is an effective sleeping pill, a person who retires, feeling that he has done his bit, will quickly weather away. A company which feels that IT has reached its goal, will quickly stagnate and lose its vitality. Happiness is not reaching your goal.

Happiness is being on the way IT is our wonderful fate to be just at the beginning. In all areas, we will move ahead only by constantly asking ourselves how what we are doing today can be done Better tomorrow. The positive joy of discovery must be our inspiration in the future, too.

Uh, I share this friction .

a hundred percent. Me too.

I feel for invar that this is his like view on life because anytime anything awesome happens, i'm like immediately onto the next thing and unwilling to ignore, like doesn't give me happiness that something great happen. What gives me happiness is working told the next great thing if we ever just decided, alright, we made all the good episodes. We're done. I'd be miserable.

I was GTA laugh. I be like, this is the story of required. Yeah, thank you. It's so.

But more on the personal life advice from this two, like anywhere, I think is living proof of this. I mean, the man leaves to be ninety one. He clearly didn't think he was gone to live to be anywhere near that age.

And the stories we heard of him, visiting stores, being super engaged in board meetings, making decisions, making product decisions up until the last weeks of his life, at ninety one years older, I think he is totally right. I know he rates a person who retires, feeling that he has done his bit quickly, weather away. That is like no more perfect example of that exists than inbar himself.

Yeah, happiness for him was making things a little bit Better. If he has nothing to make Better, what is reason for being?

So this is the mindset that in bar and the company are going into the eighties with. And the eighties is just continuing this compounding. So one thousand eighty one, the open stores in france, in spain, one thousand and eighty three, they go to soddy arabia.

Nineteen eighty four they go to belgium. Nineteen eighty seven they go to the U. K. One thousand and eighty nine they go to italy.

And along the way in one thousand eighty five, as we talked about, they open the first U. S. Store outside philology.

A in climate meeting, right, backing a pressure. Frequented IT often as a child, I fit in my bedroom and my family room and everywhere else. The interesting thing about the U.

S. Which I was so surprised reading because, again, I was just been part of my life forever. IT actually doesn't work that well for a .

really long time. Yeah, IT opens with a bang in nineteen, nineteen eighty five. They do this like incredible marketing campaign in the phillippa area.

Part of IT actually was figuring out how IT should be pronounced, because in europe, IT was eka, the way you would pronounce IT as a swedish person as eka. And the ad campaign, they decided americans are just gonna once I here. So let's lean into IT.

So I was an I and a picture of a key dash. U. H. And so coming soon, I, kia and people sort of knew about IT because I had been in canada for nine years. I think that started in nova goa. And actually, I happen to know the founders of costco made a special trip up to one of the canadian ideas even before the founding of costco, because they had so much respect for ika as a brand they admire, they like wanted to go and see and and experience IT.

Ah that's amazing .

yeah isn't not crazy. So like people in the U. S, especially merchants and people knew of ica from its canada present. So it's opening the end up demand in philadelphy from the cocoon nia. Factors leading to the excitement around IT was insane. There was over a one mile long line to get into the store they ran out of merchandise on opening day, and they actually had to run radio ads apologizing and announcing that they were restocking the .

store as fast as they can. Wow, that's child.

That said, a failure of IKEA corporate as they were expanding around the us was assuming that the U. S. Was homogenous.

And so I think they expanded to ten or twelve stores wasn't going great relative to their other markets. And I think it's they sort of misunderstood that the us. Has really different needs in a really different parts of the country.

Yeah, that would make sense of in in, in upe. Not to say all you're be in countries are homologous ous, but any given european and country is a lot more homologous ous than all of the united states of america. And there was also some just basic U S.

Market specific stuff. I love this, uh, softer sofas. Americans like to sit in the sofa. Where is european? Sit on the sa. really?

Is that part of IT?

yeah. yeah. So the sofas are softer in america, you think to them who is in europe? Yeah.

funny. yeah. Around this time, I think when they were observing, the U.

S. Stores were not in great shape. They were open to the idea of individuals Franking ics stores.

Now they had this structure in place. They thought, maybe this is an interesting thing for former a long time I K. Employees to do to sort of open up a store.

So they did an experiment starting in seattle and the sort of idea for envious, if you have your own wallet on the floor, how do you do compared to the corporately owned stores and IT, was this essentially like a bake off and a test to see if the bureaucracy was hurting them after the too many layers of management, or if they had more innovative marketing ideas, which the independently own stores, specifically the seattle one, absolutely did, created their own marketing campaigns, and like IT, became pretty divergent. The seattle store was actually at least old boeing warehouse that ended up being laid out pretty differently than other I K. S.

stores. And so you can get what you ask for. If you want different ideas. The concept is gna end up being pretty different.

So they only opened one or two more despite the fact that the locally own stores, well, the seattle store actually did way Better. We think that was the highest performing U. S.

Store and beat all the corporate on ones despite doing another deal in santiago and another one in houston. Eventually, they kind of wanted to bring the learning back to the mothership to kind of have morbihan genus. And so all the us. Stores are now Operated by inga. But for anyone in seattle that during the twelve years of independent ownership visited that store, IT actually was a pretty different thing with very different marketing materials than anyone else in the us.

Was getting was IT in the same location. Uh, that the government one is down in written.

I think that where the original I was is now the parking lot. And they've shifted and built this new shiny building next to IT.

Man, I spent so much time in that store when I first moved to see at all the work from a jona. I mean, I was moving across country as a Young person on my fourth and fifth apartment since graduating from school three years earlier. wow. Man, I was so squarely in the sweet spot for a at that moment in my life I was almost a weekly pillar mage that I did to that I keep a store. Wow, I I used to love going to the s section like I would always start oo on here because as is is like returns .

and yeah broken stuff are so room floor .

stuff that they're getting rid of yeah it's like when I enter .

a little lemon I always go right to the back and look at the clearance rack yeah even the luu lemons clearance is horrible. There are like fifteen percent .

off for something. Sometimes in the a as section you can get some screaming deal. something. Do we argue everything is a screaming deal?

But to this point of that, the reason they were doing the seattle specific thing, the individual franchise, this like eva, was obsessed with reducing bureaucracy. I get the sense this is still an ongoing battle today now that there a bigger company in figuring out how to be as lean and scrappy as they were. You know, when you have more committees and more lawyers and more traditional corporate leaders from other companies and all that coming in, this sort of thing is a helpful anti body against that totally.

There's one other thing that happens in one thousand and eighty five in nik and me.

both. Baby, like the final piece of the puzzle.

the add meat balls to the menu. Now, this is what's unna. You would think this would be like the capping of his career, the end of the story.

No, it's one thousand eighty five. They had my balls. The concept is perfected in one thousand and eighty six.

Invar is sixty years old. He stepped down as president of the I S. Store Operation of incur.

It's the reverse modest chain is not the year he started tsc. He was fifty nine. So like that.

That's right. Yes, he stepped down as president in one thousand and eighty six. I don't think anything changed whatsoever in his daily activities. I think he was doing exactly the same things that he was always doing in the his successor game, Andrews mubarak tuesday, that I think for twelve, thirteen years, maybe he would leave at the end of the nineties to go become president of home demos planned european expansion, which then ends up not happening until he would leave him. But yeah, I think he was constantly clashing with bar eli, hey, i'm the president here that there is only one president that I can, even if not a name and that was in the.

do you know what under snow berg is doing? Now.

who I do .

not under is on the board of directors for the I. T. A foundation.

hh. Hh, interesting. Yeah, well, they couldn't beat that any hard feelings then.

right? Yeah, which is the foundation on the inker side of the tree, the franchise.

Z E side. amazing.

With two of the sons to come prod brothers.

yep. And I think the third sun is on the interpol.

exactly.

So that takes us into the nineties. Basically, the compounding story continues unabated. In one thousand nine ninety four, they entered taiwan.

In the spring of one thousand nine ninety eight, they entered china. Expect that china will become an obviously huge, huge market for them, which IT does by the end of the nineties. I kar is a ten billion dollar annual revenue business.

Rocket and roll in. Seriously, there is another thing that happens, the nineties, that we have to talk about on this episode, and happened way earlier in in VS life. But this is the moment where IT really intersects the I.

S. story. The news comes out that in his youth, in var, was a part of a nazi and fascist movement in sweden, which in some ways is not surprising.

I mean, his grandparents had immigrated from germany, have very strong feelings, had lived this horrible life, an envy very much, looked up to his grammar and sort of looked to her for political, moral, social guidance. And so unfortunately, in var was a part of this swedish fascist movement. IT was like, sort of provable that he was attending meetings helping to organize, raise funds, recruit members.

He stayed close to the swedish leader even after the war, in as latest one thousand nine hundred and fifty rote a letter than he was proud of his involvement. Then out of all this is in one thousand nine ninety four, when this came out, he immediately came out instead that his fashion activities were a part of my life, which I bitterly regret. And the most stupid mistake of my life, he was direct about IT.

In fact, the first employee of ika was a jewish refugee who had fled austria in one thousand and forty three. So there's a lot of complex stuff going around here. But the thing that is definitely admitted to proven is that he was a recruit organizer for the swedish fascist movement during the native regime.

Up the extent of his involvement in the swedish fascist movement after the war actually didn't come out. Then in the ds came out later in the two thousands. And envy, they greatly took a lot of flag for not fully disclosing how long that went on.

Yeah, he had a friendship with the swedish fascist party leader who would go on to be this pretty horrible vocal hook denier. An enviro maintained that friendship, and even at the end of his life, went on the record and said, this person was a great man. So, you know, on the one hand, you want to say, lucky apologized, and he was fifty years or earlier, and he was seventeen at the time.

Cata person make a mistake when they were Younger, and i'd made a mistake and move on. On the other hand, you could imagine wanting to give him more forgiveness if he hadn't continued to stand by the holocaust. Our guy maintain their friendship.

or just came clean about that whole thing initially totally.

or with his vast, vast resources, made a big contribution to a holo us. museum. Or are the families or something?

This is one of these things that covering these old european companies, like.

you can avoid this totally. My heart dropped and was also not surprising when we first started doing the research and had no idea and came across is not hard to find this come across the for the first time and you're like a crap. yep. So coming out of the nineties.

coming out of the nineties, in two thousand, ika starts their next big geographical growth initiative, which is russia. So they read to deal with the russian government that I K is going to enter russia.

And they're gonna use the market, which they expect to be really big for idea, to also pilot the code, code mega M E G A O capital shopping center concept, I think was actually like the brand name of the shopping center that they then later roll out their places around the world in the ideas. Ika rit large has so much capital and so much resources at this point. We've always owned our own real ee state.

We think that's a key part of securing the future. We have so much more cash resources. Now what if we also investing like a large retail centers around the I A.

Store, which they hadn't really done before. And the idea this is kind of genius and novel now, because so many other folks do IT. We surround the I, M. With lots of partial competitors because, I, K, S, L, so much stuff in its range that, yes, there could be a home depot there or yes, there could be a Better bathin beyond there using american terms here. Obviously, these are not russian stars, and we compete with them partially.

I don't realize russia is where they started this strategy.

Yeah, russians, where they started. But because it's now this retail center, if even only, say, ten percent of the people that are coming go there for call IT bed bath and beyond might also visit idea, well then that's a found extra ten percent customers for us. So they pilot this in russia, which is interesting.

And I think IT works pretty well, unfortunately for I K and everything that would happen in rush over the next twenty years, they end up completely exciting the market in march of twenty twenty two after russia invades ukraine. So they had seventeen stores total in russia, fourteen of which were these mega complexes. They close all the I stores.

They sell off the fourteen mega complexes to the um russian and I think supermarket chain gas from bank. So they end up fully existing the market after twenty years. But IT does become pretty large for them and sort of pilots this mega retail center idea, yeah.

I mean, as much as twenty years later, they had to sell IT all off or in some cases, i've addled and kind of a return and they just had to like close up shop. IT does lead them to this insight, which is we've been building these disney lands out in the potato fields, and i've a few people referred to the potato fields and read in a few places, and then everything springs up around.

We should probably benefit from the fact that everyone is springing up around IT to try to take advantage of the fact that people are driving out for their day at idea. And so they want to be everyone's landlords who are drafting off the success of idea, creating a whole bunch of traffic to this area. I think it's a pretty major strategy of theirs. Now whenever they open a new story, one as much real state as possible around IT and helps develop pit yeah I mean.

guess I think about here in the bay area at the amy vee store, cross the bay in the east bay. I don't know how much of the m vel complex they own, but there is so much retail all around that. Yes, IT would be genius for I had to participate in IT.

yep. So another thing that happens around this era, it's sort of the middle ate nineties, is they really codify these principles of what they called democratic design. They had always believed in optimizing form and function, like they want the things to have beauty, but also incredible purpose.

But they added three more pillars. So they now have these five pillars. So you ve got form, function, quality, sustainability and low Price.

And we've talked about the quality. We talked about quality is not maximum quality, its appropriate amount of quality for the object, low Price. We talked a lot about sustainability.

They were extremely early. This is before anybody is mentioned in esg or anybody most people are mentioned in climate. They are making heavy investments, even in the late nineties, when I was kind of viewed as heretical.

They probably wouldn't be able to do IT if they were a public company, but starting to invest in renewable energy and other things. And now this is like a huge, if you go to I T A, dom IT gets a lot of real estate, and everything they do is they are sustainability efforts. But their goal is to optimize across these five vectors and weigh the trade off in between them.

And so their idea of democratic design is that everyone, regardless of their income, can access well design products to improve everyday life. And every time they iterate on a product every year, they should be further optimizing some set of the products in the range to get a little cheaper or find a little Better way to manufactured or develop some way to serve more customers with the same product, to get a little bit Better scale economies or to do something in a slightly Greener way. You could imagine a five point diagram where they have sort of a score on each of these five. They want the total area to be as high as possible for everything they do across those five vectors.

Sound like a mainz, I can told them.

Now I am confident that diagram has a name, and I am proud that I don't know. IT, yes.

me too. I've seen him before. I don't know what it's called and I don't want to.

but yeah, that is democratic c design .

jumping forward to two thousand seven. They hit twenty billion in revenue in two thousand seven, up from, you know, all ten in ninety ninety thousand. So growth is really still going here.

And then they hit a rough patch. Part of that obviously is the financial crisis in two thousand. Eight non word. But it's also e commerce. So I kia makes me like considered and deliberate decision here in the in two thousands as e commerce is taking off not to participate, or at least to participate only as minimally as is required.

which you can understand. IT is against every other element of their DNA totally.

And i'm sure still, to this day, very much less profitable for idea than in star visits.

I bet e commerce is not a profitable business for them.

I suspect that is right.

If you just think about all the ways in which they widdle Price down every single place, they could make a deal with the customer and say, hey, how about you do a little bit of work and we don't will give you a Better Price and the customer says, okay, you know, it's picking IT out your self in the warehouse. It's assembling at yourself at home. It's driving IT to your house.

It's, oh, I don't need the back to look good. You know, it's every single way in which the customer makes the deal. If I to yeah lower the Price little bit, e commerce blows IT all up the overhead, the constructive required for e commerce. I mean, the shipping things to your house, having the delivery network, figuring out a whole new supply chain like should IT come from the store every time? Should IT not come from the store every time?

Should we box them differently? Should we use third party logistic .

IT goes in the opposite direction as everything we've been trying to optimize for the last fifty years.

totally and even more than that, we eluded to this matter earlier in the episode. IT also breaks the beautiful sort of closed lubeca system of controlling both the demand and the supply chains. In an internet e commerce post catalogue world, ika no longer controls the demand chain in the way that they did before, right? So for the next four years, between two thousand and seven and two thousand and ten, revenue is basically flat.

Growth falls off a Cliff, like zero growth. For four years in twenty eleven, they do start growing again. Revenue hits five billion euros. They enter that america. So they start to open up new markets again.

Yeah, but twenty fourteen, they decide to shift strategy, but not to start doing e commerce. The strategy shift is to start opening small stores in cities, starting in humble germany. They have now embraced this and launched in dozens of cities.

including services ago. Yes.

the smaller set of products. So is pretty interesting observing this trend tard urbanization and trend toward buying online. As of twenty fourteen, they still don't really heavy commerce. You on the one hand, maybe that the right strategy, maybe they never should have done N E commerce.

I don't really know because they're not a public company and because they don't break out segments, we don't really get to know if e commerce is a profitable business for them. What we do know is that over time, that revenue keeps growing. At least if you look at.

A the Operator of these stores, the Operating profit does not in fact, over the last several years, it's been declining. So as a percentage of their revenue, the Operating profit of these stores is going down. And David, I think where you're sort of going with this is they really start going down once, like he does meaningfully start investing in e commerce starting in twenty eighteen is when they really put their foot on the gas.

And today, twenty twenty four e commerce is twenty six percent of revenue.

right? So this is what their customers want. So you can't bury your head and say, look forever, we're not going to do e commerce because IT doesn't really fit with our model if it's what your customers want. In the fact that twenty six percent of people are doing IT today, clearly, you do have to go do that, but i'm not sure yet that they have a profitable way to do that with their model.

I mean, simply just inferring from the financial statements, they don't because revenue is growing, e commerce share is growing, an Operating income is flatted declining.

Yeah, my only skepticism on IT is like before truly issuing judgement, there is maybe there's something were missing and we don't have false financials who were just looking at anka, which is the franchise that Operates the stores. Maybe there's high on out. But yeah, I mean, you and iran, the numbers pull off the preachy require starting in twenty seventeen.

Revenue continues to grow on the order of five fish percent per year. But there are Operating margin drops from eight percent, six percent, five percent and kind of hovers in this three to five percent rain till last few years. You so something is happening that is making them less profitable.

Yep, and seems like a fair assumption. Its e commerce. Yeah twenty eight two big things happen one day. Enter india. Two passes away in jin r twenty eighteen at eight ninety one. And you know, like we said, he's working right up to the end one sort of pointed story we heard in the researchers after one of the last board meetings that he was part of a sort of talk, the board members of management, and i'm so jealous of you and he know he's coming to the end of his life. They you get to keep working in I K and running this business and I don't it's like this was his life yes.

absolutely. So twenty twenty one, they finally discontinue the catalogue e the sad, sad time. At peak, two hundred and twenty million copies were printed across sixty nine different versions, thirty two languages and fifty markets.

I mean, they really used to have their own proprietary relationship with customers. And in this new era on the internet, any time that I have a thought or I need to go buy something, I google IT. I look at a bunch retailers. I am not specifically I S customer in the way that in one thousand nine hundred and seven you would have been an ika catalogue subscriber. And they don't really have a way to engage people as strongly as they wanted that I mean, email marketing is just not the same as no, what the k no.

the same cata galou e.

Now on the one hand, they're competing on equal footing. On the other hand, i've spent thousands of dollars at I O. Over the last few years since moving to a new house having a baby, yesterday morning, I bought seven hundred dollars worth of ika merchandise, in part to prepare for this episode, but in part I needed stuff right?

I mean, tell, i've got the idea. High chair that have used across two kids. Now, yeah.

oh yeah, my son script. Is I kia? Oh, and by the way, that seven hundred dollars was spent on e commerce.

Oh, you didn't spend that on your trip to the store.

No, I I had two big I heat transactions in the last week. I mean, I wouldn't gone to the store if I was preparing for, but the stuff that I bought online, that was stuff I needed, and I probably wasn't gonna to the store to buy IT. 没有。

So you willfully and intentionally cost I K A margins, literally took the money out of their foundations.

profits I could not take in more time and gone to the store, but this episode would have been worse. I want to have a much time research.

Um there we go. This is like the version of, you know, when you google for products, you want to click on the organic results, don't click on the add result, even though it's the top of the page to save your favorite company's money. Don't buy I kia online. Go to the story if you love .

I kia ah at some point, the bigger to talk to somebody of the company, but I am sure they don't like lose, but they don't make as much money and maybe they do this .

money on online holes. I don't know, I know and I don't know. It's true.

I will say I think that illustrates every point we made making on this episode really, really well is so they bought task grab IT for a small amount, fifty to seventy five million somewhere in there a few years ago.

Yeah, twenty seventeen.

And I checked the little box, like, provide me an estimate of what I would cost for a task rabid to come to my house and assemble of this stuff. Three hundred and fifty bucks on a seven hundred dollar or order.

So half of your purchase.

Yeah, that is the perfect encapsulation of how much money customer save by the ika flat pack. Pick up yourself at the warehouse model. In fact, it's more than that.

I think I was like thirty box or fifty box in a delivery fee. So call IT four hundred dollars that you're saving by buying something the ake away vers a fully assembled delivered at your house thing. I'm saving over a third of the total purchase Price by doing IT the I K O way. This is the traditional way .

which i'm laughing ing brings up. What for me was the ultimate ika hack for many years of my life. I think I talked before on the meet episode how much I love facebook marketplace and crags list before that yeah I decided probably, I don't know, ten fifteen years ago.

Hey, I key of furniture despite the fact that you have to assemble IT yourself and what not like. IT actually is pretty derby. On the one hand, IT gets the rap of like disposable, but if you take care of, you last a long time.

even through a disassembly in a move.

Oh, I can attest to that. Not just do the move really.

because my whole thing with that is, to me, IT feels like once you assemble IT, IT is good. But then when you disassembly put IT together somewhere else and always feels .

like it's little weekly now well, my hat ford, quite a number of apartments and houses was just by a second hand ika crack listen and facebook marketplace .

and because that um so you could successful ly move the .

idea that wouldn't not so much to save money but more to save on that was the reason that I was doing IT. And they hold the resale value pretty well.

Well, first, while they can really go down in value so they're fully appreciate you when you buy for A A ten dollar lack table, right?

I was not buying lack tables, but there are some things that .

are super durable on some things that aren't like a lot of the press sports stuff. Once you've pull IT apart, I wouldn't expect to be able to a put IT back. You now sell like thousand dollar dining tables made out of solid oak.

First of all, I didn't realize you could get just the materials to make that for a thousand dollars. That's like a four or five thousand dollar table at other retailers. But something like that I expect to survive moves very well. And I think gets just it's unfair to say everything from this retailer is throw away or everything from this retailer is infinite, durable, neither or true.

What I really used to do my work with was the helmets line helmets, ook cases. We have had so many hamely book cases in our homes over the years. Jeni did A P.

H. D. So he has lots of books. Lord knows, I have tons of books. Now as a my vocation, our vocation and happiness book case is like dull last, if you take care of them and you can disassemble assemble.

fascinating. All right, should I take us through to the state of the business today? And that will get one in the analysis?

Let's do IT awesome.

But before we do that, we have one more of our favorite companies to tell you about the climate aligned A I infrastructure company. Crucial.

yes, crucial is the vertically integrated cloud platform built specially for A I workloads and was recently named the gold standard of A I cloud providers by Dylan patel over at semi analysis. Cruel is just such a cool story. They build and Operate enterprise grade GPU data centers that are specifically designed for AI workloads. And each one is powered by low cost stranded energy that otherwise goes to waste or worse, gets admitted as Greenhouse gases.

Yep, they've totally reimagined the traditional data center architecture to support the huge power, cooling and compute density needs of ai. And kind of like I here, they've done IT all with a focus on getting the lowest cost of puts possible, in this case, energy, which enables them to offer Better Prices to customers, which leads to signing more long term contracts, which leads to cruise al, building more capacity faster, which just makes the whole fly will spin over and over again. And it's not just Better on cost, is also super fast and reliable, thanks to innovations across virtualization, networking and other areas of the stack. They can do things like boot up A V M in under ninety seconds.

Totally power demand in G, P, U is increasing dramatically, which means that one, the traditional data center design and engineering of the hyper scale is no longer optimal. And to energy, not compute, is actually becoming the limiting factor in scaling ai.

So crucial infrastructure, unlike the hyper sketchers, is built from the ground up for GPU with elements like high density rax and direct liquid to chip cooling, which enables them to support the most demanding A I workloads that traditional data ors just not yeah.

And because crucial can build with this unique access to stranded energy, they're able to bring massive amounts of compute online all at once. They currently have fifteen gieger watts in their development pipeline, and they're coming aben, texas. Facility alone has over one point two gigolos planned, which will make up one of the largest clusters in the entire world.

is just an amazing company. The net of all of this is crucial, can provide nuclear levels of power for less cost than other cloud providers and with low, or in some cases, actually negative emissions. David and I are super proud to be working with them and also to both be investors to learn more about crucial, go to crucial.

Duda I slash acquired that C R U S O E di slash acquired. Or click the link in the shown notes and just tell them that ben and David sent you are things to cruise. All right.

So the ika business today, we will start with a quick refresher on structure. There's two branches of I chia to think about. There's into ika systems.

This is the corporate entity that owns the brand and the IP. And as of twenty sixteen, they also do all the product development supply chain, all that stuff. So they own sort of all the inventory and the franchise.

Take possession of IT almost not like a real time basis as they needed. So interact a does three things, franchise, the range, which is the products and supply, which is supply chain. And the way that I would sort of think about this is there are like two things.

In one. One, there are company that designs and makes products to sell to franchisees. And two, there are a licensor that takes a three percent rate effectively on all sales, which is pretty fair totally.

The three percent of your revenue for the I K. A brand and concept that seems very fair.

But also like if you're selling rather thin margins, it's actually a huge percentage of your profit pool. It's kind of like payment processing. You're like, go what's three percent? And then you look at the profits on a retailer you like, wow, i'm shipping half my profits .

to yeah what did you say Operating income margin is these days like six, seven percent for remember .

at high it's like four, five percent.

four five okay. So the other taking basically half of year Operating income.

yeah. On the other hand, like are these really different companies like what there's not really a deal between .

the two that and there's actually a specific tax reason why it's a royalty on sales.

From what I could tell, i'm not a tax expert. I think royalties are tax deductable. So by shipping money around between two entities instead of having IT, just be one simple score that runs the whole company, they are actually able to deduct those royalties after taxes.

Yeah, IT is helpful for tax purposes. That parent company, twenty seven billion dollars in sales of goods, and they made one point four billion dollars from franchise fees. That number pencils pretty well.

I K, E as a whole did forty seven billion dollars in revenue. So when you think about IT, the parent company sells twenty seven billion dollars of goods to the franchises who then have their own top line of forty seven billion. You cut to start to understand the margin structure a little bit.

and then they get that called up one a half, two billion ish sorda effective cash low back in the royalty of that forty seven billion dollars total revenue.

It's exactly right. okay. So where does money go when IT comes up to the interactive foundation? This is, again, the parent company, the one who owns the IP, the one who develops the product range, all this stuff, but they don't Operate the stores.

That company is owned by the interior, a foundation in lichtman. The main purpose, as we talked about us to ensure the independence and the longevity of the ik a concept and to own and govern the I A group. The interactive foundation is a self owned .

entity. That's a new thing that I didn't know existed is foundation is familiar and there .

is no nor can there be any individual beneficiary funds held by the foundation can only be used in accordance with the foundations purpose, which again, the purpose is ensuring the future of idea. So David, you are doing some napkin math on this. What sort of cash do you think is held by the interior foundation in victims in right?

So IT was reported around twenty eleven that I had roughly fifteen billion euros in assets and that does not include the value of the company.

So that's just like cash and marketable securities call IT sitting and on the baLance sheet, this foundation in the thirteen years since then, if you can sit to infer from the financial statements, and I think they actually do disco how much the Operating holding company sends in cash up to the foundation every year. It's like a billion euro in cash every year. They get sent to the international foundation.

So just add thirteen more billion euros in cash every year. You're up to call IT close to thirty billion euros in assets there. That's assuming no investment return compounding.

But twenty eleven to today is among the best investment returns in history, assuming they were just at market beta.

Totally, that is like fifty billion is seems like a wildly conservative estimate for the amount of assets in this foundation you have, arguably closer to a hundred. We don't know.

It's not a charity foundation. Let's be super clear. This is an enterprise foundation and their purposes to ensure the community of ika. What do you do with fifty plus billion dollars?

Well, you start investing in retail centers.

This is not including the ownership of interaction itself, the company. This is an addition to the value of your ownership of that enterprise.

This is like a member. We are joking at the arena show that the forbes, a netware estimations of Taylor swift are laugh hable because they're just looking at like, what is her back account? You know, they are not enterprise valuing tail swipe. This is like a the bank account of the foundation not valuing into a the company had anything fascinating.

Yes.

one of the largest entity, s in the world by assets. And then if you include the value of I here, I mean, my god, what do you value? I kia as a company.

Yeah, it's fatty. I had done some afghan math on if I were to buy olive chia, including into and in ka, what would I value IT at? Maybe now a good time to share that. So the whole company does something like forty five billion a year. It's growing at about five percent per year, but Operating income.

at least for the moment, is not growing.

right? There's another company out there that grows at about five percent year that has an income margin that pops around the three percent range. That's also a retailer and that company is walmart.

Walmart is valued at about one point one x sales. So you could value all of idea. Again, this would be into plus plus the other franchise at about fifty, sixty billion .

dollars. That feels low to me. Just give in the the ability and defensible way of idea. But you could also make an argument that is fair.

Yeah, call IT fifty hundred. I don't really care about slicing IT into verses. I think this is all silly. But IT is interesting to think like there is a cash pile that the interior foundation has to ensure the continuity of idea that is approximate, equal in value to all of idea itself.

right? Yes, that cash pile is almost certainly between fifty and one hundred billion euros. Dollars, whatever you want to say. Similarly, the value of idea somewhere between fifty to one hundred billion dollars?

Yes, totally fascinating. So then flipping over to the in a side of the house, this is the largest franchise with ninety percent of stores. That is the four hundred different I P stories out of the, what do you say was four hundred and seventy total.

seventy six, I think that .

they Operate. They also have what they call in ca centres, which is this shopping center concept we talked about. They have forty four of those experience oriented shopping centers across the europe in china and more are on the way.

And they're also applying that concept to the small city stores here. So like interestingly in seven Frances go the I car here in downtown, say for cisco I car boat, the building it's not just like they least some space in downtown safet. Sco was actually empty.

Building was empty for long, long time on market street, huh? They bought the whole thing. They put a and and now they're putting other tenants into this complex.

So they're like ika is participating in service co downtown urban renewal, which is kind of wild. But like I think it's all part of this. Hey, we need to make some investments .

with all these cash. yeah. So they have this ARM, inker investments that basically allows them to invest in other companies that they think will in some way be additive to their core business.

So it's like effectively super large scale corporate venture and then their owner. This is again the franchise that Operates ninety percent of the stores. Inga's owner is the stitching in ka foundation based on the netherlands.

The other one was licked and shine, this ones in netherlands. And this one is an actual charitable foundation that has a specific focus on climate and poverty. And with this one in ka sends about fifteen percent of their net income up to that charity, and then they use the other eighty five percent for reinvesting in the business.

So call IT two to three hundred million euros a year that inca actually ships up to their charitable foundation. And from what we can tell, that seems like the ital foundation then does about two hundred million euros of grant making every year. So hard to know exactly what the endowment size is of the stitching inker foundations net of the asset itself, like any estimates that float around kind of include the enterprise value of in ka. But there exists some cash pile there that probably grows modestly because they're doing so much donating out of the endure.

All that reminds me there's another big cash pile that we forgot about.

oh, the actual baLance sheet.

the baLance sheet of in ka, yeah, in ka has twenty five billion dollars in cash on hand.

Yeah, cash is not the constraints here.

no. And that cash, again, is at inca, totally separate from that, that fifty to one hundred billion of cash securities, we can estimate that is over. Ter, yeah. Anyway, one way to think about this company is basically as like the burger hath way of europe yeah .

if you wanted to sun some things together and just pick some mid points, let's say you got seventy five billion dollars for the enterprise value the whole kitten kabuya. Then you've got another twenty five billion other business sheet. So call IT one hundred billion for the ika business.

Then let's say another seventy five billion for the interior, a foundations cash pile. So that's one seventy five. And then the question is, what is the cash size of the endurance that the stitching inca foundation has? I'm going to guess, at smaller tenison billion, but we're still approaching two hundred billion dollars here in value, all created with no equity investment.

no dead investment.

I mean, this is just eighty one years of selling things that provide value to customers and reinvesting the dollars to do that, again on a grander scale.

I truly don't think there is anything like this in the entire world.

Yeah, I wonder that's true. This this is the only business like that. And if we define IT as like two hundred billion dollars scale built from nothing with no investment, exclusively investing the cash flows of the business for growth, like there has been no inorganic growth, right? No material inorganic growth. I mean, with burger, they traded a paper clip for a house many times. With l vy mh, they did the same thing he had, like three years were returned, some small amount money and six hundred million dollars to get the whole thing started, if I remembering our L V H episode correctly.

But L V M H certainly capital, both from barden, the family and other sources went into the business bircher. Maybe you could make more an argument that was trading paper close, but either way, was all in organic growth.

Air man is a pretty good. I mean, it's spin around twice as long.

That's a good point. Doesn't have as much cash is worth the same or maybe arguably more right, but doesn't have the lute rous cash pile that the idea has.

Meta didn't use much of their cash otherwise you could say metas this example, but they have a lot of all that mark is not the only shareholder is the way that in value was.

And IT took venture capital to build that business. Yeah and that capital, as we talked about, yeah.

that to me is like the most impressive thing about this whole business is that IT was just one front in front of another. Take your money. Keep planted in the next thing.

You more stats on the business. Today, they have two hundred and sixteen thousand employees. They call co workers.

A slight decrease year over year from last year. Ika is in sixty three markets worldwide. Last year, they welcomed eight hundred and sixty million people to the store.

Sometimes they say store visits, sometimes they say visitors. So I don't know if it's eight hundred and sixty million unique people are eight hundred and sixty million times a person walked into the door. But whatever, either way, crazy, the demographic of their customer base is twenty to thirty six. So there is an age where you kind of like turn out of ika and they know this. This is measured in a bunch of external surveys.

I'm surprised to hear you talking about how you're doing so much active buying grade dell perhaps because you have your .

first child to nursery. And yeah.

i've totally aged out as much as I love I E. And it's been such a huge part of my life for a long time now that we're on the kid. Number two, we're using a lot of stuff I don't actually buy from there that much anymore.

There's a great study that earnest did that will link to in the showed tes that shows I K as peak customer age is twenty four. It's like they start turning after that. It's interesting to see the distribution like crate barrel package, just thirty one.

West is thirty three. Williams 在 omas thirty three。 Then you start to get IT like restoration hardware, forty four.

Pure one imports is forty five. Home depos forty eight. Lows is fifty four. This is like the cycle .

of life. I love IT you go from sort of that I kia semi self construction or believe self construction to then the I just buy a consumer furniture to then, no, i'm actually building this stuff myself.

Yes, exactly where you go from furnishing your apartment to furnishing your home to .

fixing your home. Yeah, that sounds right. yeah.

So geography, europe is still their core. Seventy one percent of sales even still come from europe. Even with the U. S. Is a huge and development market.

And germany is still bigger than the U. S. I think seventy .

one percent is products in stores, twenty six percent as e commerce. Three percent is services to customers. I assume that basically means task rabbit, I seem so yeah.

The majority of the revenue is still products sold in stores. Growth is pretty slow. Five percent or so, not so different than walmart.

I decided I wanted to do a sales per foot analysis the same way that we did on our costco episode. It's a private company. They don't break IT out and they're limited in what they have to report to you. But if you assume all their revenue is spread over there, four hundred and seventy three stores and you estimate is about three hundred thousand square foot per store, that gives you three hundred and twenty eos of foot, which is like on a three hundred and fifty box of floods.

something like that yeah yeah ah restoration .

hardware nine hundred. William camera is one thousand three hundred. But if you have been in a William camara, that makes sense. It's overPriced and its very small.

These are also small stores, restrained harvest, huge, complex few of them.

And these weird pales. That's a crazy business.

Have you been to the one in separate to scale? No, it's pretty good. wild. You think it's like a tech company headquarters, but no, it's the requested hardware building really.

Yeah, theyve been on quite. The transformation aren't going up market over the last couple decades. Lazy boy is hot and fifty seven dollars a foot.

None of this is on a spectrum of like bad to good because I can is intentionally not trying to maximize their dollar per foot here right there are trade us they're willing to make instead of maxims ing that now it's compared to the companies we mentioned on our costco episode. Costco is eighteen hundred dollars of foot. They are trying to exercise their dollar per foot.

Walmart is about six hundred. Target is about four hundred and fifty dollars. And then this is like crazy businesses just to compare to the all time greatest, Tiffany is three thousand dollars of foot for jewelery and is five thousand, five hundred dollars but smaller footprint?

Yes, I should remember this from our arms episode. Do they report sales pressure for I don't remember.

I don't think we talked about IT.

I don't think we talked about to do there.

IT doesn't feel like a thing they would report.

But I got to imagine that, that IT is as high of not higher than apple you .

think is higher than Tiffany.

Yeah, yeah.

You might be right.

We've spent a lot of time in our most stories recently. Canada test is some of the behavior that we have observed in there.

You're raising their Price for a no.

I think i'm lowering the it's interest. I don't really know .

how to think about this three and fifty number like they have a huge minos AR footage. They intentionally try to sell things as inexpensively as possible. The ultimate maximization function is it's almost like it's not margin dollars.

I think it's like number of items sold profitably at all. They want to sell more things to more people. Yeah.

I think IT comes back to this concept of the many, which again, maybe is a little hockey. But like I actually think this is true.

They've built one hundred billion dollars on the a of the money.

I hope at all. Yeah, IT is the many. That is the optimization. And so I think you're totally rate. I don't think they're going to optimize sales per square foot at all.

I think it's just like the square feet are all in function of the many right, and they own all the realistic. So they is not like their pain rent. They choose the location strategically and then they become a landor's other people in these new mega shopping centers.

Yeah the optimization functions is they want to provide as much value to as many people in the .

world as possible is why metric doesn't make any sense and offer I keep up with the exception of costco, which is its own thing. None of those other businesses also have their warehouses in their storms.

right. So then the last thing in the sort of snapshot of the business today is the market today. In twenty twenty four, with forty seven billion dollars in revenue, IKEA holds only a five point seven percent market share. This is an astonishing fragmented market. IT was when we started to the company and IT is .

today still right, which is so wild and they are by far the large player.

Yeah I mean, even if you look around, where else do people get furniture that gets the job done, looks good enough and is a good value to them? Target amazon wafer. But then you start to get quickly into, like more expensive cb two pottery barn. I mean, I get a walmart itself for feature bit.

Oh yeah, i've been shopping at the bit all episode to talk about this. This is like the crazier thing to me about this whole story. I kier has proved beyond a shadow of a doubt that furniture and home furnishings is an extremely large, extremely global, very attractive market.

One, two, I key and the whole set of other retail companies, costco probably being foremost among them, have also shown that becoming a scale global player in a consumer market is a good position to be in. Ika has no competitors in the vent diagram of those two things. They are the only globally scaled furniture and home furniture ings company. That's crazy.

Yeah okay. So i'm for shadow power. As we move in to analysis here, powers, can we be our next thing we examine? But just to name IT, this company is scale economies.

And so now that they have reached the escape velocity like they're through the takeoff fes in hamiltons parolin, you can't compete directly with them because there is no chance that you could be them on Price or on quality for Price. So it's almost like if there was going to be an ik, a competitor, they would have needed to start fifty to eighty years ago, a direct I A competitor. So the most credible way to compete with them is doing something different. I mean, probably the best competitive strategy is wafer, something that's born on the internet that does something with a completely different cost structure than they're capable of. Wafer is not a hair margin business, but they have built a whole business around the idea that they sell online, whereas I T N needs to figure out how to do that.

which as we've talked about, e commerce is a chAllenge. Yes, I you if you make IT your strength, yes, but you really got a skin today to see wave are becoming a global business on the scale of amErica .

way there's a five billion dollar market .

cap company long way to go. Now it's interesting, as I was saying, that part of me something like that so crazy. But you're right. Like let's think through how would you actually compete with I K.

If you wanted to build a globally skilled furniture brand? Well, an obvious one that pops out to me is okay, give the low and low media amends to ika and then compete at the top end like restating hardware is doing. The issue with that, though, about going global, is the taste at the high end are way more heterogenous and fragmented, especially across geography. Then they are at the middle and low lands.

Yeah, at a great point. You can't have a narrow product range, yes. So you have a more expensive overhead in producing a high variety of skills. Yeah probably the most credible competitor from my perspective with me as a customer is target.

I probably would look at target dot com and see if there are because they partner with all these designers, they have like a reasonable sense of taste. It's not like high and furniture and never will be and it's not the best designs, but it's like, okay, this is going the job done for a commodity thing in my house. They don't just sell furniture, but you know, targets of seventy billion dollar company. I don't think it's global in the way that I can is, again, it's like to your point, competing on just furniture and competing a global scale that's tough, tough not to crack.

Yeah I totally agree with you that within the U S R, in north america, target feels like the closest competitor to ika. However, exactly that target is in north american company who is not a global company.

yeah. So we're pretty squarely in power here. Normally, wouldn't we try to assess power? We say what is IT that enables the business to achieve persistent differential returns or put another way, be more profitable than their closest competitor and do so sustainably. We're asking a slightly different question here, which is what enables this business to own this market.

Omas uniquely exist. Yeah yeah.

When no one else is really competing with them directly or at least competing with them across everything they do.

Yep, i'm trying to think if we have encountered a business like this before.

you would have to counter position them because no one else can out scale economies. them. Maybe amazon would be the most credible because they have the scale if they were to make a real run at IT. I assume there's an aim zon basics line of furniture.

Yeah, amazon definitely has furniture.

There's not switching cost from a customer perspective.

It's Better. I'm thinking to that now like, yes, amazon definitely has furniture. Amazon is more or less global, more so every day, but there's a supply size scale economies. Vote here for idea, which is how on earth, if you're amazon, even if you're just a retailer, you're not designing our sourcing any of this furniture yourself. How on earth or you're gonna do the logistics around the world in the way that I K IT does, right?

Not to mention at this point, I K I think ten percent of their furniture is actually made in house that I ka they own their own manufacturer.

yes. And specifically, they own their own manufacturing for their highest volume and most strategic products for the hot dog products.

Yeah Normally when we do a power analysis were like looking at the competitors.

there's nobody to look at here, right?

I guess we should assess IT versus target in north america.

And I think IT really is just local competitors in any given market.

right? They're not in the same segment as William sonoma or restoration hardware. And these other companies who by the way.

also are not global .

yeah ultimately its scale economies. Everything about this is the same scale economies as costco. They take every dollar that they're not shipping up to the foundations, one of the two foundations and they're not using to try to figure out e commerce and they try to deploy IT in how do we further increase our fix cost space to reduce variable costs, like what are the ways in which we can design IT Better or manufacturing Better or investing another factory or something to reduce the Price for customers over time?

Yeah and I think that really is the only one that matters. I was tempted to say like our brands important here too and like yeah the idea brand great but compared .

to scale economies, well, the definition of branding is that you're willing to .

pay more for IT because it's from that brand, right? So right.

it's scale economies. IT should be cheaper every time because of scale economies. That and the interesting thing is cash really isn't the constraint.

This is a lot like the big tech com. It's got like you're talking about with meta. They have way more cash than they can ever strategically deploy. And so the way for them to obtain more power is just grow even more, but they're already using their cash maximum to the extent that they can grow without ruining some part of the business. And so time is kind of their constraint because time needs to mark hn in order for them to grow at whatever the rate they feel they can.

which also kind of comes back to there what could do? Crazy structure that .

enva set up, right, to make IT as durable .

as possible. You know, there's method to his mad this year. Time is arguably the thing that the company is most optimize zed for.

yeah.

So one question I have for you right before we move to play but is what is ika? Is IT primarily a store like a retailer or merchant? Or is IT a furniture brand that happens to have vertically integrated stores? I was thought about IT as like, oh, it's kind of costco ask because there in locations kind of like costco in in some ways, their business model in their obsession with thin margins and serving many people in high volume is costco ask. But they're not a merchant really.

I think they're a merchant at heart and evas a merchant at heart in the same way that sam walton, jim sana goal and cell Prices and pio's were in our it's the whole P T barna aspect that we are talking about with the early days. It's the show room right shop.

The competition incorporate their best ideas here.

That was the those and I think also that's where this focus on value for the many. I is a very merchant retAiling type dea you.

but the way that I actually manifests is this vertically integrated furniture and homework res brand that happens to have a really great experience for you to go by their products.

Yes, which is unna. Most merchants that are vertically integrated are focused on higher margins. They are not. Hm.

that's an interesting point. Like apple, this is the way in which I K is a lot like apple. An apple store sells apple products and a few other things, and I K A store cells, I K, E A products in a few other things.

But I K, A is focused on minimizing vergine and apple is focused on maximizing margins. Yes, super interesting. Okay, playbook. We've talked about some of this already, but just underscore this crazy corporate structure basically only helps them.

When I was first sticking into IT, I was like, I was going to have lots of trade off and proven cos. I mean, in the way that IT helps them, IT minimizes taxes, protects them from takeover. Vers ensures their durability.

They have the benefit of being a nonprofit CoOperation. There's no to a peas, which enables longer term thinking. They're protected from transitions of government power. You know, the tax savings. The european parliament Green party estimated that they saved a billion dollars in taxes between two thousand and nine and twenty 12 alone。 There is all these benefits.

not to mention IT neutralized what probably was realistically the biggest risk to the business, which was now our future family squabble in generations to come. That's just off the table.

absolutely. The only way in which IT hurts them is access to capital, but they don't need money. I can you come up with another way that the corporate structure is a can I mean, it's a con for society, I guess that deprives people from the tax dollars that they would have to .

pay otherwise or the participation as a index fun holder, equity holder in like the building of this business.

right? Oh, that's true.

But yeah, I mean, that's kind of where my mind was going off. Like well, maybe there is some like reputational. Hit to the company by having this crazy structure.

And for a long time, people believe there is you know tax dodge, which IT may also be. But at the end of the day, with my key is customer really IT doesn't matter. Nobody knows that .

cares about that. It's gna true if imagine they're ten times more successful and they are worth a trillion dollars or it's a real shame that the public is deprived from being an owner of all that value creation, right? Yeah, fascinating. The other big playbook theme here is all of this is basically only possible because in our beauty business, by reinvesting soly, the businesses own cash flows. All these other stuff, china does rely on that if .

there had been external capital and thus defective external stakeholders, even if IT was dead capital along the way, it's hard to imagine history playing out like this, right?

Costa managed to make IT work even though they raised a bunch of money.

Yeah, but they're not structured like this.

right? But they can make a lot of the same sort of long term thinking decisions. And in fact, costco even runs on thinner margins.

I K, gross margins are like midd thirty percent and costco are thirteen percent. But there is definitely this thing that we've talked about a few times, frugality as an edge. They originally built in the potato field as a way to save money.

But I ended up kind of creating and inspiring their business model that they need to create this destination experience. Yeah, the culture of frugality is interesting. Trying to buy materials at a discount, minimal sales staff, no finishes on on scene services, flat packing, no one has assistance.

I think actually the CEO is the only person of the company with an assistance. No one flies first class. They print on both sides of the paper.

Oh yeah. And the assistant thing, the C E, O may have a an administrative assistant these days, but for years in var had an assistant, but IT wasn't an assistant like an administrative assistant. IT was, like, is a sort of chief of staff. C, O, O, didn't he become C, E O after? Yeah, exactly.

But I kind of does actually beg this. So for g as an edge. But could they run clear?

Why is that the costco can have thirteen percent gross margins, but I kia Marks are goods up more? Is ika bloated? Is the fixed cost of running the business as I just gotten high to the point where you need high gross margins are to pay for all that overhead.

I think there's an explanation here, which is the costco. Let's put curcumin decide, costco is selling other companies and products. So therefore, at least with the non curcumin products, costco can take a lower margin because they're reselling these products.

they to develop them.

whether like he is designing, developing, producing.

So they should have a lot higher overhead. They should have a lot higher fixed cost space.

Yes, exactly.

H still feels like a big .

gap in costco. There is actually, again, turkle in aside third party products in costco, there are two margins happening. There's cos cos girls margin, but then there's also the supplier girls margin.

Yeah that's the right way to think about IT. We're looking at the sum of two margins when we're .

comparing I and costco.

Yeah, you're right. Yeah fair. This kind of falling one. They lean in the sweden .

super hard.

Most companies that go international try to embrace the local market and let their origin fit into the background. But that's just the opposite of the strategy that I car runs. I mean, in the meat balls, there is a little swedish flag that sticks out of the top of them. Every time you I am, you walk into the store and IT says, hey, H, J.

which is so funy has become the greatest swedish ambassador.

So true. So David, you're going to love this because it's like it's from the complete other side of the spectrum. Here's what idea does they sell a sense of place.

Oh wow, 2 mens and I ka separated at birth。 There we go. There we go.

For a listeners that haven't listened to L V H and her mash episodes, this borrows from the luxury playbook, and luxury companies sell a sense of place and mark their goods up ten to thirteen ex on the custom materials for that sense of place. And ika does the complete opposite.

Then you gotta mike, drop there. We should just end the season right. There is likely to get any Better than that.

No, IT isn't .

that he sells. Are said some place, amazing, amazing.

I do have one war, which is not nearly as poetick, but i'll just finished my section off. They have a very contrary and view on working capital. And this didn't really come up in the story ics.

I can't really find the right place for IT, but most companies common wisdom is you should keep your inventory low and you should minimize the amount of your capital that's locked up in working capital. And I K A has a very different optimization function. There's is about cost for the end of consumer and ensuring availability of products at all times keep customer confidence high.

So they're willing to do things like build up excess inventories during certain periods. If IT means getting a favorable rate from a manufacturer who might have extra capacity as long as IT means eventually their customers will save money when they do buy IT. And I think a huge part of this is the foundation and the other part of IT is the scale and the timelessness of their product lines.

They sell these things forever, so they know they'll eventually cell through that inventory. So if there's a good Price on IT, yeah, give me a thousand. sure.

The Billy book case is never go out of style.

right? Honestly, if I describe a Billy book case to you, there's not a simple way I could scribe IT. IT is straight lines with no facade.

The simplest book case that you could draw on a piece of paper, that's the beauty bookies. That's the lack shelf. That's the lack table.

So in their reporting, you cannot dig into IT. You see pretty high levels of working capital tied up, but they just don't care. Capital is not a problem.

They can't deploy the capital that they have. And so they may as well use IT strategic. And the other benefit the dog tells out of this is they get to be really, really supplier friendly. They can do things like net thirty terms when the rest of the industry is on net sixty or net ninety because they're just not cash constrained. So they sort of invest in the relationship with their manufacturers, and that's why they have what is that now sixteen hundred suppliers, fifty five countries, and the average supplier relationship is on eleven years long.

Yeah, to pick up on that point, I was just thinking about what is my biggest complaint about ika. And as a customer over several decades in my life, when have I been most frustrated with the company? It's when I go to the store and they don't have what I want in stock and i'm sure they know this too, does my number one biggest complaint, biggest negative experience I would ever have a nikia customer.

So like yeah hanging up more working capital and inventory for the sake of the value to the customer. Very worthwhile investment. yes.

Okay, one more. I wanted dad on this same thing that similarly didn't have the right place to put IT in the story. Is there supply and just how really, really smart and strategic?

Yeah did you read the whole book? Yep, there was like three or four books so you read, but you read a whole book on their supply chain.

yes. So there is a book called strategic outsourcing and category management lessons learned that I kia by magnet, carson and magnet was a senior executive in I, K. A supply chain for twenty five years.

This book is awesome. This is like the luxury strategy for supply chain. I haven't read that many supply chain sort of business school text books, but you hadn't .

read them many luxury books before.

I hadn't read them many luxury books. Here I can view this thing is amazing if you are at all interested either for like your own notification or if it's relevant to your business in supply chain like buy and read this book IT is so good and IT talks a lot about how they like became more and more strategic in their supply chain and specifically their sourcing over time at a ky.

And it's the kind of stuff you talked about of like, hey, you would think ordinarily we want to freeze our suppliers on terms, but actually what we really care about is continue of supply depth of relationship with these manufacturers. Let's do the opposite and embraced them. No sort of like one level.

And then the next big transformation is when they stopped thinking about sourcing and supply chain in terms of individual products and moved instead to like product packages, sweets of products and then whole categories, they could say like, oh, rather than sourcing poing armchair. That's a bad example because i'm sure they make that in house now. But like whatever product let's take, like a whole set of armchairs that are pretty similar.

And let's bid that out globally rather than in individual markets. And then you'll let us a sure get the best Price and then pass that on in value to consumers. But b build the deepest and most strategic relationship with the suppliers who are gone to make that for us.

And then we can also transfer technology to them to so stuff like the board on frame construction, they've done dozens and dozens of these technology advancements in fabrication, factory layouts and all sorts of stuff over the years, and they transfer that to their supplier partners. So a super cold then stuff like their distribution center or strategy. So you would think totally logically, almost like costco, the stores are the warehouses.

Well, over time, they found that oh, actually IT doesn't totally make sense that we keep one hundred percent of our products stocked at all of our stores. Instead, let's focus to my what I was talking about my complaint. Let's make sure that the fifty percent of our products that account for ninety percent of our sales are like really in stock at all of our stores. And then for the second half of our project catalogue, that accounts for g, the tail end of the power law, you know ten percent of sales. Let's do that across pan geographical distribution centers and keep actually a minimum of that in the stores with constant restarting so that we can maximize the space for the products that we know people are onna want lots are really, really, really great stuff.

fascinating stuff. You can only do with eighty one years of history and a lot of scale.

a lot of money, a lot of cash. Yeah.

right. Are I do with the quint testes?

With the quint testes? I've been thinking about this one. This is our new yeah, anyone.

You didn't listen to the meta episode, David. I renna ed this section because we've been struggling with how do we land the play? What's the end of episode? Look like, and David, you came up with this term.

the quint tesse. Yeah, we boil IT down after all this work we've done on the company, this long recordings, like what is the essence? What is the quint essential factor of this company? I had been planning to say this idea of the many and I think that there's a reason envie had had as testimony number one, investment of a furniture dealer.

But man, and the more we talk about this, I really think it's something a little more meta court, which like this is an end of one company. There is no other company in the world like this. IT is so ethereal and so many ways there is nothing else like this out there.

Yeah, we're put differently. I think mine is the combination of never taking a single outside shareholder plus enviers personality and the desire to serve the many equals this company. Yeah, all of those are necessary conditions and there's many more or two, but those are really necessary in order to create what I he added up becoming and structure .

that IT ends up with. I guess, maybe to put an even final point, that this is an end of one captain. The end of one term is a little overused to know post zero to one and the like.

We make the argument all the time. Like every company we cover on acquired as unique. That is the end of one company.

Amazon is an end of one company? No, but that's the point. That's all true.

I think this is like even another level. All the big tech companies, yes, they are all unique. Yes, they are all individual, but they're all big tech companies. There just is no other idea. There is nothing .

like IT that's interesting. No other vertically integrated retailer brand of the scale in a category. You hua, it's apple. But if they serve the many instead of the few.

you well, I guess arguably they do serve the money.

but they're a very high margins, right? But they specifically could serve five times more people than they do serve if they were willing to forgo margins. And maybe eventually they will, they might be on a path to that.

That's a good point. This company is apple. If they decided to also be android, essentially like we're going to own .

the whole market IT, seems like your definition is a brand that is vertically integrated, that is at fifty billion dollar a year scale and serves philosophically the many yeah .

in some ways that's .

what tesla is aiming to be. I means are not high margin cars. They're sold at the Price where they can be the best selling car in america.

It's hard to compete globally on evs since the U. S. In china are becoming pretty fragmented ecosystems.

Yep, but everything about tesla is rate manufacturing drive Prices as low as you can vertically integrate. They don't sell for any anise. There's no channel is no middle man. But like a brand of consumer good that is vertically integrated and sold at low margin to the many globally.

I'm just time a really tough time thinking about like I could think of retailers for sir.

Yeah super fascinating. All right. We have reached at the quantification of ika.

Yes, I think so. I was so glad we did. This company is in many ways sort of off the wall. It's like this private, weird structure. Nobody can invest in IT totally.

And I will tell you like if there's some reason i'm just like not as fired up about IT as compared to a cosa or and our MaaS, but like you study IT, it's really interesting and IT totally is end of one. I think the future to me is like not quite as clear as some of these other companies. I think there's like certainly a lot of question Marks around what they look like in any commerce world. In a world is shifting the urbanization, in a world where there now a big company.

what are they going to do with all this cash? right?

That's the reason watching them is going to be fun over the next decade. Two.

yeah, alright. Carbet.

alright. I've got to one is a show on netlist called detritus. I think a previous car out of mine was the show.

I think you should leave with tim Robinson. This is his first show with his body. He is sort of the I think he's like a co producer.

He appears in. I think you should leave all. So it's a little bit more storage driven and less get driven than I think you should leave.

But it's like totally the same tim Robinson sense of humor IT has me like dying laughing. So I highly recommend detroiters. The second one, I have a device I just recently bought the new super thin I ipad pro.

Oh, how is IT? IT is awesome. Uh then I had so sexy. There's something .

like really amazing about the promotion scrolling on a big screen or what I ve just sitting there and IT feels impossibly thin. I mean, I know that a marketing slogan, but like you feel IT in your hands and you're like, how was there in all day battery life in this? And the screen is much more enjoyable to sit and read things on the on there than looking my computer.

In fact, in particular, for each of these episodes now I read the worldly partner's research on the company. Recovering from front of the show, arvin and I was able to read the whole thing, take IT in, and a much more like enjoyable way when reading IT on the ipad versus sitting on my computer, scrolling like IT feels really good. And by the way, we link to that research in the shown notes, everyone who wants to go read fifty two, one hundred pages, analyzing in a very structured way the business of a .

listen to four hours, and then read another fifty, two hundred.

But I love that this ipad is like, so great.

I'm so tempted because, you know, I mean, we both have the ipad mini that we ve got for when we do things live with guess yeah.

this is too big news on stage.

Oh, oh, no. I see the ipad mini suck. And the thing that's worse about them is the screen.

It's awful. Apple doesn't love IT at all.

Yeah yeah like they really suck. It's a terrible product. We need IT for that specific case. And he was fine .

when I came out, but I just feels like the leftover parts been now I almost bought a new one. Like it's the same screen. It's like last year's dead processor from the iphone.

It's just a weird Frank and device. The size is very compelling. I wish had the ipad pro screen.

I wish IT was thin. He doesn't have to be thin. But like try. I wish you had a new processor. I don't know. I just it's a buber and they don't care and it's clear yeah they don't care.

I don't even know why they make IT, but I mean, I am glad they do because we can use IT for use case. But like, right, anyway, I I also have two car bouts. My first one is a rec AR about admitted, but I ve been enjoying so much this season, the T B school.

So man, IT is so awesome to have the Q B school specifically. But stuff like this on youtube, where for folks who don't know this is a youtube channel called the kp school D T O. Sulfone, who was a journeyman and fell quarter back for a decade, he breaks down film of counter back performances every week.

He breaks down the actual film from the whole know as they would do IT in nfl quarterback x room, like the all twenty two, couldn't quote camera angle where you see all twenty two players on the field, as opposed to what you see when you're watching highlights, are watching a game. When I first started watching, and I had IT as my car beat the first time, I was like, oh, it's just cool to see this like, I don't understand ninety percent of what he's talking about. I now understand a lot more and it's so awesome that consumers, like, i'm never gna play football again and certainly never going to play in the nfl.

But being able to appreciate and understand what courter backs are doing and what teams are doing and players are doing at this professional level just increases my enjoyment so much more. And especially this season when there's so many quarterback's ratio going on, I don't even listen to the talking heads anymore to talk about xy, you know, Anthony Richards and or bright Younger, whatever is like. Even if those talking heads wear nfl players and they know what's happening, they need to dumb down for the mass audience. I'd rather just watched .

the film with G. T. H. Do I feel like that with tibert? He just like sits there in silence whenever is going on in his head is not at the right level for what needs to be said.

I was like, I wanted know what's going on your head. yeah. Anyway, really enjoying IT been great this season.

And then my second car about another sports media related one, and was, did you watch ice cubes performance during the world series at the doctors game? I did not. That was so good.

I am. I'm a giant fans, so it's sort of paints me to say this. But so ice cube, I think he was game to of the world series of digger stadium, performed at the start of the game.

And he just walks out from the center field fence and then performs two songs, perhaps two songs, while walking to home play. It's just him in a camera, man. And like, I mean, you and I now have like, performed in an arena, and we know what that is like.

And one person, ice cube, with no backing vocals, live on tomic walking the length of a baseball field up to home play and just holding the stadium in the palm of his hands. It's like one of the most incredible performance ces i've ever seen. T in broad daylight is awesome.

I iq, nice game. Well, listeners, thank you so much for going on this journey with us. A huge thank you to our partners. Jp, more in payments that sig and crucial.

Please check out the link in the show notes to learn more about any of those companies in their fantastic products that we talked about earlier in the episode. We want to give three special thank you to jim sanko, the cofounder and former C E. O of costco, for his chat about I here as we are doing the research to b yn Bailey, the former president of I A U. S. And to large your hand yarn hyper, who is the chairman of the board of in ka group, is that right given or I guess to the I ka group within inker?

Yes, I think that is of I K A group which I think is the sort of Operating entity within ink a holdings yeah the the company.

And you read all of leading by design, right? That sort of the most on of autobiographical book.

Yes, this is the confusing one. The updated version of the book is called the I K S. story. The first edition of the book is titled leading by design.

But it's the same book yeah and the pride has the best detailed account of the blow by blow that we went through anyway. If you like this episode, go check out our episode costco on walmart or on .

amazon or .

arms or a mess. It's true that wasn't on my piece of favor here because I did not expect you to come up that way after this episode. Come discuss on slack.

Check out C Q two with Lewis fun on from dual lingo. Be super fund. Find A Q two in any podcast player.

And seriously, i'm sending IT to anyone I know writing a consumer startup. Is I just so many practical lessons? If you haven't taken the survey yet, please do. We'd really appreciate IT. Take three or five minutes, acquire dt m slash survey and you might win meta e bands or an A C Q dad hat or David might tell you a poing perhaps with some assembly. So thank you, David, for volunteering that on.

I'll in across .

country some. I'll see next time.

see the next time. truth? No, 哼。