Home:  Global Wood p01.gif (127 bytes) Industry News & Markets

Why are IKEA's Furniture Prices Dropping in 2024
[Mar 13, 2024]

Swedish home and furniture company Ikea has been cutting prices across a number of countries as global inflation eased, as it boosts its investments in price reductions.

The company is further expanding its price cuts in 2024 across all of its markets globally, aiming to dial back price increases that were introduced in 2022. This move comes as the cost for transportation and raw materials decreases.

¡°We are doing it in all the markets where we operate,¡± Tolga Önc¨¹, head of retail at Inkga Group, the biggest owner of Ikea stores, told CNBC on Monday.

¡°This is the moment for companies like Ikea to invest in pricing rather than profitability,¡± he said, adding that a lot of people now have ¡°thinner wallets.¡± The price cuts, which started in Europe in September, have led to an increase in customers, as well as an increase in items sold by the retailer, according to Önc¨¹.

Between September and November, Ingka has invested more than 1 billion euros ($1.1 billion) in price cuts across markets it operates in, according to Reuters.

In Canada, the price of its popular Billy bookcase has fallen by 20% since the company invested 55 million euros to trim prices for over 1,500 products, Ingka said in January.

Here is the Why

The furniture segment is one of a few to see prices go down lately, according to today¡¯s CPI report. The furniture index fell 3.7% over the last year, and kept slipping last month. And Ikea, one of the biggest furniture retailers in the world, is no exception. The Swedish home store has been cutting prices on budget staples like the Billy bookcase and Kallax storage cubes, and executives say the price rollbacks will continue in 2024 across all markets where Ikea operates.

That weird supply and demand shock of the pandemic hit furniture sales harder than a sleep-deprived person stumbling into the corner of their bed the first morning of daylight savings.

First there was the pivot to working from home in 2020, said Marisa Ortega, a retail analyst at Mintel. Then in 2021 with record low mortgage rates, a lot of people upsized their homes.

¡°And you know that requires to fill more spaces in your home ¡ª more pieces for another living room and another bedroom,¡± she said.

That intense demand has subsided as mortgage rates have soared.

¡°If people are not buying houses, there is less need to look for furniture and home decor,¡± Ortega said.

At the same time, supply pressures like shipping costs have also eased. Most furniture is imported, said Michael Brown, a partner with Kearney Consulting.

¡°Coming in on ships that were very, very expensive. And that quickly dissipated,¡± he said.

Brown said Ikea has been uniquely positioned to save thanks to its clean modern designs, which are also more efficient to manufacture and transport.

¡°There¡¯s not a lot of waste. There¡¯s not a lot of shapes. They¡¯re all pretty straight cuts, you know all connected by similar hardware,¡± he said.

Transportation and materials make up the bulk of furniture costs, which is why the spike in prices was transitory, said Gregory Daco, chief economist at EY.

¡°Meanwhile, on the services sector, you still have that labor component that remains quite expensive, and that continues to put upward pressure on services prices,¡± he said.

Labor isn¡¯t a big part of the cost of furniture, Daco said ¡ª especially at Ikea. Which is why you¡¯ve gotta pull the items from that big ol¡¯ warehouse yourself and assemble them, with nothing but an Allen wrench and some Swedish swear words.