Cheap (21 page)

Benjamin Franklin wrote, “Remember, time is money. He that can earn ten shillings a day by his labor, and goes abroad or sits idle one half of that day, though he spends but six pence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides.” Economists, too, consider time in monetary terms, often represented in their calculations as “an opportunity cost.” While this makes sound theoretical sense—we say we “spend” both money and time, after all—in practice it does not always apply. Research shows that most of us fail to calculate the opportunity cost of time, and when reminded of it, we tend to underestimate its value.

As consumers our reaction to the passage of time tends to be inconsistent, sometimes even schizophrenic. The same person willing to wait thirty minutes in line for a free ice cream cone might a few hours later be willing to pay double the supermarket price for a half-gallon of ice cream at a convenience store. Waiting in line at an ice cream truck to score a deal seems worth the time, while standing in line at the supermarket simply to save money may not.

Markdowns may be calibrated mathematically, but their impact is felt viscerally—and deeply. As do sex, alcohol, and drugs, markdowns tap into our brain’s pleasure center and sap our reason. Distracted, we make mistakes. We overvalue what we say matters very little, such as saving a few pennies, and undervalue what we say matters very much, variety, quality and—most important—our time. Our preoccupation with low prices makes it easy to forget that every penny we save on markdowns must be taken from someone else or, failing that, extracted from the value of the object of our desire. In discount nation, what once was solid, permanent, and dependable has become disposable, ephemeral, and dicey.

Despite his resolute belief in progress, des Pereires had always detested standardization. . . . From the very start he was bitterly opposed to it. . . . He foresaw that the death of craftsmanship would inevitably shrink the human personality.

LOUIS FERDINAND CELINE, DEATH ON THE INSTALLMENT PLAN

No One Will Bother You.

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SIGN AT THE ENTRANCE TO AN IKEA STORE

 

 

 

 

 

Gillis Lundgren was an industrious man, and determined. A skilled carpenter working out of his home in the remote farming village of Almhult, Sweden, he had been hired by a local furniture dealer to build and deliver a table. Lundgren was comfortable with his tools, and crafting the piece was simple enough. But delivery was another matter: Try as he might, he couldn’t cram the thing into the trunk of his Volvo PV445 Duet Station Wagon. After several failed efforts and some thought, he attacked the problem in a manner familiar to young boys the world over: “Oh, God, then,” he was said to mutter, “let’s pull the legs off.”

Lundgren’s client that day in 1956 was Ingvar Kamprad, the farmer’s son who years later would be among the world’s richest men. A precocious and prescient entrepreneur, young Kamprad instinctively recognized the auspicious implications of Lundgren’s desperate fling at furniture dismemberment. “Flat packing,” as he came to call it, not only allowed large tables to be crammed into small vehicles, but it also squeezed the air out of the packaging process, thereby eliminating the cost of shipping vast quantities of empty space. In one stroke, two noisome problems were solved.

Kamprad hired Lundgren into the company he called IKEA, where flat packing soon became an informing concept. In addition to minimizing shipping costs, flat packing deftly unloaded the time-consuming and expensive chores of delivering and assembling furniture onto the one person reliably willing to do it for free: the customer. Without knowing it, Lundgren had laid the groundwork for one of the great marketing gambits of the twentieth century: the discreet transfer of costs from seller to buyer.

Flat packing and all that went with it not only saved money, it liberated tables and chairs and bookshelves from historical reference. Rather than being passed down from generation to generation, accumulating nostalgic heft, furniture was cut loose from its history. For scores of millions of IKEA customers the world over, heirlooms gradually became obsolete. Why settle for dusty hand-me-downs when the stylish and new cost a pittance?

Half a century after Lundgren’s groundbreaking epiphany, Spike Jonze, the quirky director of
Being John Malkovich, Adaptation,
and a slew of terrific music videos, produced a commercial for IKEA. The spot opens on a blandly furnished urban apartment. A young woman walks into view, unplugs a red reading lamp, hauls it out to the curb with the garbage, and returns to her sofa and the glow of a sleek new replacement model. The camera pans back to the street. The lamp, shivering in the bluster and cringing like a beaten dog, seems almost to weep. We know this is only a lamp, but this wind and this cringing makes us want to weep, too. Suddenly, a man with thinning hair and what sounds like a fake Swedish accent appears out of nowhere and addresses the camera. “Many of you feel bad for dis lamp,” he deadpans, rain pelting his face. “Dat is because you are crazy. Duh lamp has no feelings. And the new one is much bedder.” The ad is funny, hip, irreverent, and a tad embarrassing. Why cry for an inanimate object? It’s a lamp, not a lover, for God’s sake, and a new one
is
so much better. The ad provokes an uncomfortable thought: If objects have no feelings, does that mean we really are crazy to care about them?

IKEA itself seems to be of two minds on the matter. On one hand, the company denigrates nostalgia. On the other, it creates pet names for everything it sells, from sofas to ice cream scoops. There are Lack coffee tables and Rusig rugs and Kura loft beds. There is the Galant drawer unit and the Bomull twin fitted sheet. There is a method of sorts to this madness. Bathrooms, for example, rely heavily on Norwegian lakes for their names. This has nothing to do with retail convention. It is hard to imagine Home Depot christening a kitchen sink “Sweet Pea” or Wal-Mart naming lightbulbs of various wattages after small towns in upstate New York. If IKEA thinks it’s crazy to care deeply about objects, why does it sell a wok named after a girl?

Answering this question requires a bit of self-reflection. What is IKEA to us? With its focus on sharp design and Scandinavian élan, its sly, ironic commercials, its conspicuously progressive outlook, IKEA appears to be the anti-Wal-Mart: a classy, high-minded company where value and good values coexist. Image may not be everything, but sometimes it’s enough. Cognitive scientist Kathryn Fitzgerald of FKF Applied Research Neuroscience in Los Angeles has made a study of retail strategies and how customers respond to them. Wal-Mart can’t escape its downscale connotations, she told me, but IKEA has artfully decoupled low price from its unsavory side. “IKEA is an example of using youth, friendliness, and other brand personality traits along with design innovation to make the notion of buying low-priced furnishings socially acceptable,” she said. “Retailers of this sort use style and other cues to make sure their low prices don’t come along with heavy low-status baggage.” Target takes a similar approach, as does H & M and a number of other low-price purveyors. “They are all trying to establish trust that the low prices aren’t merely a signal of poor products,” Fitzgerald said.

Price is a vital consideration for any business, the bottom line being the bottom line after all. But for IKEA, price is no mere variable or signal; it is the starting point. Wal-Mart, Target, Lowe’s, and other Big Box discounters scour the globe for low-price suppliers from which to buy their low-priced goods. IKEA takes matters one step further: It
designs
to price, commissioning its suppliers to build not a mug, per se, but a custom-designed 50-cent mug; not a kitchen table and two chairs, but a custom-designed kitchen table and two chairs for less than one hundred euros. Every year IKEA challenges its suppliers to lower their prices, and every year it challenges its designers to dream up still cheaper objects to sell, whether new ones or updated versions of classics. A facsimile of the very table Lundgren deconstructed so many years ago retails at this writing for an astonishing $69. I asked a master furniture maker what he thought of this, and he responded with awe. “It’s mind-boggling,” he said. “I couldn’t buy the wood for that price, let alone build the thing.” He wondered how IKEA could manage it. I figured the best way to find out was to go straight to the source.

 

 

 

IKEA HAS CARVED its corporate headquarters out of a converted sugar factory in Helsingborg, Sweden, a historic coastal city with a fine view of Denmark over the strait of Oresund. The company is one of the city’s largest employers but maintains such a low profile that a cab driver circled the building several times before reluctantly stopping at what we both knew had to be the correct address. Given IKEA’s knack for playful design, the faceless, stumpy brick structure was disappointing. But inside all was brightly lit exposed brick, lofty and frenetic. The sleek open cafeteria echoed with the babble of multilingual employees cradling signature blue and white mugs. I had arrived smack in the middle of
fika,
the obligatory communal coffee break that is a charming hallmark of Swedish life. I later learned that Swedes, Danes, and Finns drink more coffee per capita than any other nationality, perhaps to keep roused through the short, dark winter days. I accepted a cup gratefully and went off to meet IKEA president and CEO Anders Dahlvig.

Dahlvig wasn’t drinking coffee and didn’t appear to need any. Focused and deliberate, he is a plainspoken MBA with what appears to be a deep inner calm. Dahlvig explained that IKEA is legally not Swedish at all but a holding of Ingka Holding, a Dutch company that itself is owned by the tax-exempt Stichting Ingka Foundation. In 1982 founder Kamprad donated all his shares to Stichting Ingka, thereby creating the world’s flushest charitable foundation. In 2007, Stichting Ingka Foundation had a net worth of at least $36 billion, devoted to “innovation in the field of architectural and interior design.” Architectural and interior design is not the usual target for philanthropy, and Dutch foundations are subject to very little oversight or regulation, so it’s hard to know where all the money goes. One observer thought he knew, telling
The Economist
: “Clearly, the Kamprad family pays the same meticulous attention to tax avoidance as IKEA does to low prices in its stores.” That Kamprad is a tax refugee living in Switzerland gives some level of credence to this speculation.

IKEA’s core mission, Dahlvig said, is fundamentally philanthropic: “to create a better everyday life for people by being cost conscious and working within small means.” To that end IKEA positions itself as the great equalizer, a force for spreading Scandinavian levels of comfort around the globe one Lack table or Kura bed at a time. Dahlvig is aware of the trade-offs involved, but IKEA, he says, is no Wal-Mart. “Cost is a big concern, the main concern,” he said. “But there is no evidence that the cost goes up when you make a cleaner, more orderly factory or buy wood not from virgin forests but from well-managed forests only.”

Dahlvig’s abrupt segue from price to trees was not random. IKEA is the third largest consumer of wood in the world, just a step or two behind discounters Home Depot and Lowe’s, and just a step or two ahead of Wal-Mart. The timber used in the wood products sold by these chains comes mostly from Eastern Europe and the Russian Far East, where wages are low, large wooded regions remote, and according to the World Bank, half of all logging is illegal. Forests in this region are on the decline, especially forests of high-demand varieties such as oak, ash, birch, and Korean pine. In pursuit of these and other valuable species, illegal loggers cut in restricted riverbanks, fish-spawning sites, and other conservation areas, and they bribe officials in exchange for documentation that the timber they poached was acquired legally. In 2007, the
Washington Post
published a penetrating and exhaustive investigation of illicit forestry practices that focused on Vostok, Russia, where villagers earned roughly a hundred dollars a month felling trees and hauling logs. The Russian logs were milled into planks by low-wage Chinese workers and shipped to border towns in low-wage China. More wood, much of it illegally harvested, poured into China every day from timber depots in Indonesia, Malaysia, the Mekong Delta, central Africa, and the Amazon. Most of this wood goes to make cheap tables, chairs, bookcases, and other wood products sold by discounters, especially in the United States.

Wood is in theory a renewable resource, but environmentalists warn that the demand for cheap Chinese-made furniture—half of all timber in the world is traded there—has stoked a “cut and consume” cycle that is destroying the world’s forests at a rate unprecedented in human history. This harvest is not sustainable, and what is being taken—and what is being lost in the largest sense—is not renewable. Illegal logging operations generally locate in remote areas that are difficult to oversee, including wildlife habitats and conservation land. Over the long haul, deforestation contributes mightily to climate change, accounting for over 18 percent of global carbon dioxide emissions—more than the entire global transport system or the whole of the industrial manufacturing sectors. Despite knowing this, few players on the global scene, be they factory owners, wholesalers, retailers, or customers, are motivated to question seriously the provenance of their wood products. Questions would only raise the price.

 

 

 

DAHLVIG assured me that IKEA was asking questions and demanding answers. The company’s timber, he said, is harvested legally, a claim often made by other discount retailers as well. But unlike most other companies, IKEA has gone beyond lip service to take the extraordinary step of hiring a team of forestry experts to monitor its suppliers. Dahlvig graciously introduced Yale-educated forestry coordinator Sofie Beckham. Beckham supervises IKEA’s international forestry interests and seems deeply knowledgeable on all things arboreal. Her lecture on tree anatomy, complete with diagrams, was informed and fascinating. Just as Native Americans once used every part of the buffalo, from the snout to the hoofs, IKEA suppliers use every part of the tree, including the twiggy, knotty, and prickly bits disdained by traditional furniture makers. IKEA, Beckham said, is very mindful of sustainability, aiming to be “as close as possible to our suppliers, to keep an eye on them as well as to keep our prices low. It’s very clear to IKEA that if we don’t satisfy the environmental side, [eventually] we aren’t going to have any wood to work with.” She said IKEA has fired suppliers for using illegally harvested wood. Unfortunately, this approach is unlikely to prevent all or even most infractions because the suppliers are too many and too dispersed to ensure adequate monitoring. “As IKEA has grown, the challenge of monitoring tree harvesting has grown,” Beckham said, adding that the number of monitors and enforcement officers has not grown with it. Her team consists of eleven forestry monitors worldwide—five in all of vast China and Russia combined, certainly not enough eyes and ears to closely monitor such a massive enterprise. Dahlvig said that he regretted this but could do nothing about it. Hiring more inspectors would be costly, adding to the price of his company’s products. This, he said, was unacceptable.