Ikea cuts prices as material and shipping costs ease

Ikea has returned to cutting prices on some of its main products after a supply chain shock and a sharp rise in raw material costs earlier forced the world’s largest furniture retailer to pull back from its strategy of making items cheaper.

Jon Abrahamsson Ring, chief executive of Inter Ikea, which owns the brand and concept, said it had absorbed more than €1 billion of cost increases before it raised prices by an average of 9 per cent at the end of last year.

He added that the December price increases “really hurt us in our hearts” as Ikea likes to cut prices of its products over time. In recent months the group had started investing in lowering the cost of popular items such as Kallax shelves and Klippan sofas, he said.

“Ikea is not immune to inflation. But we held back on price increases,” said Jesper Brodin, chief executive of main Ikea retailer Ingka. “It is our business model to try to cut prices, not just something philanthropic. Already in summer we started to decrease prices in our key [product] families.”

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Companies around the world have been hit hard in the past year by a sharp rise in costs for transporting goods and raw material prices. But there have been signs in recent months of prices for container shipping and some commodities coming down.

Ikea, which according to Mr Brodin prides itself on serving people with “thin wallets”, has struggled to keep some of its most popular products in stock due to the problems in the supply chain. But the Netherlands-based retailer has now built up sufficient stockpiles of some key products that it can try to entice shoppers within the cost-of-living crisis through lower prices.

“Already today we are seeing opportunities where we can invest through conscious and strong price investments. We are focusing even more on designing for the low-price segment,” said Mr Ring, who noted that such products account for half of Ikea sales.

Ingka had, for example, lowered the price of some Kallax shelves in Poland by 20 per cent, which had increased sales by 50 per cent; in Belgium, it lowered prices of Billy bookshelves by 10 per cent and boosted sales by 60 per cent; while in the Netherlands it cut prices of some cooking products by 20 per cent.

Ikea posted record revenues of €44.6 billion for its financial year to the end of August, up 6.5 per cent compared with the previous period.

Mr Brodin said the past year had tested Ikea “like never before” as it dealt with supply shocks, the war in Ukraine that led to the shuttering of its Russian business which had accounted for 4.5 per cent of sales, and the tail end of the Covid-19 pandemic.

Inter Ikea said that shoppers had returned to its stores – both its classic large out-of-town shops and smaller city centre ones – with sales increasing by 13 per cent. However, online sales fell by 10 per cent year-on-year.

Mr Ring insisted that was not a problem as online sales at Ikea have risen from just above 5 per cent of total revenues five years ago to 22 per cent currently, and that the drop last year was natural as shoppers in many countries had only being able to buy from its website during the pandemic.

Ikea reports full-year profits later in the year. – Copyright The Financial Times Limited 2022