How IKEA is doubling down on price cuts to attract cost-conscious customers
Ikea shoppers will see price cuts of up to 50% at many of the company's restaurants globally, as the Swedish retail giant aims to attract cost-conscious consumers.
The steep price cuts will be a temporary measure to help consumers "stretch their budgets" at a time of heightened economic uncertainty and high cost-of-living pressure, the company said, without specifying when the cuts will come into effect. The home and furniture retailer said it would also offer free meals for children.
"Consumer confidence has decreased. People are holding on to the money that they have in their pockets or in savings," Tolga Öncü, COO at Ikea Retail, told CNBC's Emily Tan Wednesday.
The flat-pack furniture seller slashed wholesale prices by an average 15% last year, allowing retailers to cut prices for consumers.
Efforts to enhance affordability cost 2.1 billion euros to the company last year, according to Öncü, even as lower prices saw revenue drop about 9% and retail sales decline 5.3%.
Ikea also plans to open 58 new stores globally during fiscal year 2025 ending in August, with its first outlet in Seoul — fifth in South Korea — up and running since April.
By cutting prices so deeply, Ikea is bucking the trend as a slew of Western retail brands have warned of price hikes, passing onto consumers part of the higher duty costs importing into the U.S.
Retail giants such as Walmart, Target, Costco and Nike said in their latest quarterly earnings reports that they have already raised prices or plan to do so in the coming weeks.
Although global firms took a sigh of relief after the Trump administration had suspended sweeping "reciprocal" tariffs for three months and struck a preliminary deal with China, Walmart CEO Doug McMillon said in May that "we aren't able to absorb all the pressure given the reality of narrow retail margins."
Ikea is not "immune" to the higher tariffs, which are expected to fuel inflation and weigh on consumer confidence, said Öncü, although it has been able to "somewhat absorb the impact and not pass on the total impact to customers in the U.S."
The price reductions are, however, an urgent need in China — a key market for IKEA — where local businesses are cutting prices aggressively to stay competitive and attract customers amid sluggish consumer demand.
IKEA has 39 stores in China, although the share of its global sales in the country has been sliding in recent years and was at 3.5% in 2023-24 financial year.
"Big-ticket demand in China will be held back by decreased consumer confidence," said John Mercer, head of global research for Coresight Research. Mercer pointed out that "economic optimism" among China-based consumers fell to its lowest level in well over two years in May.
"There will be limits to how much a big-ticket retailer can stimulate demand in an uncertain context, but an aggressive price stance is likely to support market-share gains as cautious consumers trade down," Mercer added.
Retailers in China are betting big on food and beverage as one of the few offline segments where consumers continue to spend, though with less emphasis on value and cost, said a marketing agency advising European brands operating in China.
Ikea is looking to expand its home furnishing product range to tap into China's growing elder population.
Öncü emphasized the need to tap into China's "silver economy" — a sector that provides goods and services for people over 50. "Multi-generational homes are increasing. That's why we have introduced the new bedding and range. We are now testing to answer to those needs that has come from the silver economy in China," Öncü said.
"If anyone knows how to cater to global consumers with a highly price-competitive offer in furniture and furnishings, it's IKEA," Coresight's Mercer said, but "whether planned price cuts will be sustainable is for IKEA to determine."
The Swedish company said it also planned to introduce new items catering to Asian cuisine and flavors, which it hoped would bring in around 8 million new customers.
"We will soon launch our very first falafel, adding this popular food to our restaurants, and later, to our Swedish food markets," Lorena Lourido Gomez, global food manager at Ingka Group, the worldwide franchiser for the brand, said in a statement.
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