It’s rare to go shopping these days without feeling like buying basic things has burned a hole through your pocket. But furniture company Ikea wants to be the exception.
The Swedish company, which has 471 stores across the world, has since midway through last year made it its mission to make home furnishings more affordable despite elevated inflation rates in many of its major markets. That’s an unusual choice for any retailer, given price hikes have become somewhat ubiquitous—whether that’s in fizzy drinks or clothing.
But for the CEO of Ikea’s parent company, Ingka Group, it wasn’t a difficult decision to make.
“This is not rocket science, really. When we lower our prices, in particular when we are in times [like] now when people have less money in their pockets, interest rates are up and so forth … we’re growing customers, we’re growing market share, and we’re actually growing quantity,” Ingka Group’s Jesper Brodin said in an interview with CNN Business published Tuesday.
Ikea is able to do what other retailers haven’t, because manufacturing costs have fallen recently. Ikea, in turn, wants to pass that on to the budget-constrained shopper.
“It’s interesting right now, because we have inflation in the customer, but we have massive deflation upstream. So, right now, we’re lowering prices more than we’ve ever done,” Brodin said.
Keeping up with the cash-strapped consumer
To be sure, it’s taken Ikea a few years and several hurdles—including macroeconomic volatility and geopolitical tensions—to get to this point. The company passed on the costs of supply-chain snarls, the closure of its Russia business, and high energy costs in 2022, which helped swell its profits by 9% that year. It has since seen some of these tensions ease, and made the pivot to slashing prices toward the end of its 2023 financial year, in August.
“Last year we focused a lot on reducing operational costs and improving efficiency by investing in technology and training for our coworkers, repurposing our stores, and introducing more affordable services. At the same time, we see positive economic developments globally connected to supply and raw material prices—the price of metal, for example,” Ingka Group COO Tolga Oncu said in a statement.
Ingka Group’s deputy CEO, Juvencio Maeztu, told Fortune in November that the company was setting aside $1.1 billion to absorb price increases rather than passing them on to the consumer. In the past financial year, Ikea’s retail sales—which included its furniture, services, and food products—were up 6.6% year over year to €47.6 billion.
“People have thin wallets, but they still have needs, dreams, and frustrations,” Maeztu said. “That’s why Ikea has become a destination for those who want to maximize the value of their money. Ikea is made for crisis, so to speak.”
Major economies like the U.S. and U.K. are still facing high but easing prices—a sign of optimism that interest rate action over the past few years is working to curb inflation. The CEO of Walmart, the world’s biggest retailer, said in November that the worst was probably behind us as we enter a “period of deflation.” Some food retailers got creative with addressing raging prices on basic goods by slapping on price warning labels to alert the consumer, or cutting prices on food items used during the holiday season to make them affordable for all.
While Ikea has taken it upon itself to help ease the burden on shoppers, the company still faces other challenges. Last month, the furniture maker said that it will experience delays and potential stock constraints given the escalating attacks by Houthi rebels on commercial vessels crossing the vital shipping route through the Red Sea.
