IKEA announced plans to invest approximately $1.4 billion (about 1.2 billion euros) in Europe to lower product prices. This measure covers home goods, kitchen products, and storage items, with an expected average price reduction of between 15% and 25%, indicating that the retailer is focusing on affordability as a key aspect of its current business strategy.
Continuing the previous price reduction strategy
This is not the first time IKEA has significantly lowered its prices on a large scale. Since 2023, the company has invested approximately 2 to 3 billion euros in price reductions, with overall prices already being lowered by about 10% previously. This additional investment indicates that IKEA does not view price cuts as a one-time promotional strategy, but rather continues to attract consumers with tight budgets at lower prices.
IKEA management stated that they are willing to accept a short-term decline in profit margins as a result of this approach. The company has not disclosed by how much the profit margins will be reduced, but from their stance, it seems that IKEA is willing to sacrifice some profit margin in exchange for a recovery in sales volume and customer traffic.
Inflation and housing costs are weighing on consumption
Behind this round of adjustments is the persistent pressure on European household spending. In 2022, the inflation rate in the eurozone soared to a high of 9.2%, leading to an increase in furniture prices as well. According to data from the European Union Statistics Office, the EU furniture price index is currently about 24% higher than it was in 2015, with some markets experiencing even greater increases.
In addition to inflation, rising housing costs are also suppressing furniture consumption. With the increased cost of moving, the demand for families to change homes and purchase new furniture has weakened, which was originally an important source of growth for the furniture retail industry. For companies like IKEA, consumers do not completely stop visiting their stores, but they become more cautious about the amount they spend on each purchase.
Sales under pressure, but passenger flow is picking up
IKEA's latest annual performance shows that its retail sales in Europe decreased by 1% to 44.6 billion euros. However, both store visits and the number of items sold increased by 3%. This change indicates that consumers are still visiting the stores, but the average amount spent per visit has decreased.
Looking at the broader retail industry, IKEA's approach is not an isolated case. Recently, Walmart, Target, and Kroger in the United States have also announced price cuts to alleviate the financial pressures on families. Large retailers are making new trade-offs between costs and profits, which is becoming a common choice in an environment of high living costs.
Second-hand business is being advanced in parallel.
In addition to direct price reductions, IKEA is also expanding its second-hand furniture business. After testing an online second-hand platform in 2024, the company officially launched it in five countries this year, allowing consumers to buy and sell second-hand IKEA furniture.
With price cuts and the development of second-hand platforms going hand in hand, it appears that IKEA is adopting a long-term strategy of "enabling home consumption at a lower cost." Whether this strategy will lead to a recovery in sales in the future still depends on whether European consumers' confidence and the pressures on the housing market ease.
