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Ikea is cutting the average selling price of its furniture worldwide as inflationary pressures ease for the flat-pack retailer even as economic conditions worsen.
Sales at the world’s largest furniture retailer increased by 6.6 per cent to €47.6bn in the year to the end of August, but only thanks to higher prices as volumes fell.
Ikea was forced to go against its practice of lowering prices over time during the Covid-19 pandemic when higher costs for raw materials and transport led it to pass on the increases to customers, an uncomfortable position for the retailer.
“We came into 2023 with higher prices than we wanted. We have lowered prices at the end of 2023 and into 2024. Supply costs started to come down for us,” said Jon Abrahamsson Ring, chief executive of Inter Ikea, the owner of the brand and concept.
Jesper Brodin, chief executive of the main Ikea retailer Ingka, added: “These are times to buckle up. It’s not going to be an easy ride in the next few years. What I see this year is due to interest rates being where they are our customers are challenged. So we have been taking down our prices, every market is investing in lower prices.”
Ikea executives said that the sharp input price increases they had experienced in recent years were reversing, allowing them to start cutting their own prices from a high level and start offering all products again after a period with poor availability due to supply challenges.
But they conceded that they were unsure of whether this would help stimulate consumer spending as many countries face the prospect of recession.
“In what ways does it stimulate consumption? Is it possible to generate growth through affordability? During the Lehman Brothers crisis [in 2008] it was possible in northern Europe, but not southern Europe,” said Brodin.
Ikea is also bucking the trend of many retailers cutting back on the number of stores they operate. Ingka, which operates 537 stores of various sizes, opened 60 new locations last year including city-centre stores in Copenhagen, Madrid and San Francisco as well as smaller-plan and order points.
“It is like the death of the book,” said Brodin, referring to prophecies about the end of the store. The number of visits to its stores increased 7 per cent to 697mn last year while Ikea is increasingly using them as fulfilment and logistics centres for its online business.
Ikea has undergone a wide-ranging transformation in the past five years, moving away from purely offering big-box stores out of towns to having more shops in city centres and offering more services such as delivery, assembly and planning to customers.