Ikea cuts prices across Europe to ease cost-of-living pressures
Ikea is cutting prices across hundreds of products in Europe, including in Ireland, in a bid to attract customers struggling with rising living costs. The Swedish furniture giant is spending €1.2 billion ($1.3 billion) on price reductions for items such as the Billy bookcase and Kallax storage units, with cuts of up to 28% on certain products, as reported by the BBC.
The move comes as the company has seen revenue decline over the past two years, with the rising cost of living reducing people's ability to invest in new furniture and home renovations, according to the BBC. The Irish Times reports that the world's largest furniture retailer will cut costs on about 1,500 products by 15 to 25% across more than 20 European countries, citing a company announcement on Tuesday. European consumer confidence remains at its lowest level in three years, despite a recent uptick, taking a sharp hit after the Iran war began in February amid concerns about inflation and higher energy prices, the Irish Times reported.
A long-term commitment, not a short-term campaign
Ingka, the franchisee that operates most of Ikea's European stores, said the cuts were "not an activity or short-term campaign," according to the BBC. Juvencio Maeztu, chief executive of Ingka, explained the rationale: "Ikea likes to reduce the price of the umbrella when it's raining. And it's raining for many customers, because the cost of living is increasing. So this is exactly the right thing for Ikea to do," he told the Financial Times, as quoted by the Irish Times.
Maeztu elaborated on the company's approach: "It's about making IKEA more affordable when people need it most, even if it means accepting a lower margin." He added, "The cost of living is increasing and it's getting tougher and tougher for many people." In a further comment, Maeztu said, "For many people, home is a bedroom in a shared house, and it's even more important to offer storage and organised solutions."
Jakub Jankowski, chief executive of Inter Ikea, the owner of the brand and concept, stressed the long-term nature of the price cuts. "I strongly believe this is not a one-off. We will continue to do it. It's a long-term commitment," he said, as reported by the Irish Times. Jankowski added that Ikea's integrated supply chain made it easier to cut prices in Europe, and that the retailer would use €70 million to reduce prices in the Americas and Asia as well.
Impact on profits and previous efforts
Ikea acknowledged that the price cuts may hurt its profitability. The BBC reported that Ikea said it could make the cuts by finding savings throughout the supply chain, such as packaging costs, but acknowledged profits may take a hit. Maeztu refused to comment on exactly how it would affect results, other than to acknowledge it would hurt profitability, according to the Irish Times. "Our entry point is to accept that it will lower results, because it's a time to side with the many people," he said.
This is not the first time Ikea has taken such action. The Irish Times reports that Ikea did something similar in 2023 to offset large price rises caused by rising logistical costs after the Covid-19 pandemic. That move led to its first drop in revenues in a decade and a halving in profits, the publication noted. The BBC also noted that Ikea has reduced prices several times in recent years, even as it caused a hit to the company's revenue and profit in its most recent earnings report.
The price reductions vary from country to country. In Germany, a Besta TV shelf is reduced by 27%, in the UK Billy bookshelves are 28% cheaper, and in Italy Kallax storage systems are cut by up to 29%, according to the Irish Times.