Ikea posts first drop in revenue since 2020 after cutting prices

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Ikea spent more than €2bn last year on lowering the prices of some of its most popular furniture, leading to the flat-pack retailer’s first fall in annual revenues since 2020 even as it sold more goods.

Revenue at Ikea fell 5.3 per cent to €45bn in the year to the end of August, but executives said the world’s largest furniture retailer sold a higher volume of items as it reduced prices by an average of about 10 percentage points.

“We went all in on affordability this year,” Jesper Brodin, chief executive of the main Ikea retailer Ingka, told the Financial Times. “For us, we celebrate not when prices go up but when we’re capable of taking down prices so we become more accessible to people.”

Ikea lifted prices considerably during the Covid-19 pandemic when costs for transport and raw materials surged. But the move discomforted executives at the furniture retailer, headquartered in the Netherlands, which tries to decrease the price of its products over time by making their design and transport more efficient.

The pandemic also led to an increase in spending on furniture as people spent more time at home, but that trend reversed last year, hurting the wider market. Ikea said it maintained its market share despite its falling sales.

Jon Abrahamsson Ring, chief executive of Inter Ikea, owner of the brand and concept, said in a separate interview that the foundation-owned business had made a deliberate decision to bring prices back to roughly their pre-pandemic levels.

“For a couple of years, we went in a direction that we didn’t want to go. Lowering prices is in our DNA. Last year, we lowered them on average by 10 percentage points, which is something we have never done before,” he added.

Ikea discloses its annual financial information in two stages — sales in October, and profitability and its balance sheet next month. Ring conceded that such a hit to the top line — its first annual fall in revenues since 2020 — would make it “challenging” for profitability.

But he stressed that by not being on the stock market, Ikea was able to take decisions even if they led to short-term falls in sales. “We are not public and [don’t] have that kind of pressure. We can be very long-sighted and do the things we think are best for Ikea and strengthen our position and have very positive effects in the long term,” he added.

Brodin said that Ingka, which accounts for about 90 per cent of Ikea’s sales, had spent €2.1bn on lowering prices, as inflation and high interest rates “put enormous pressure on people’s wallets”. Volumes — the amount of items it sold — rose 6 to 7 per cent, he added.

Ingka chose about a quarter of its products in markets such as the UK and Germany and decreased their prices by 20 to 25 per cent, helped by falling transport and raw material costs, according to the chief executive.

Talking about Ikea’s current financial year, Brodin said: “The main scenario we have is of normalisation — of inflation, of interest rates, of consumer confidence. Last year was probably a pathway to normalisation.”

Ikea recently launched an internet platform that allows consumers to sell their used furniture directly to others. A pilot is taking place in Oslo and Madrid until Christmas, and Brodin said the company would then look at rolling out Ikea Preowned worldwide after being surprised at the interest in the platform.