Significant increase in sales due to price decrease at Ikea
Ikea faces a significant decrease in sales following its strategic price reductions, as stated in their latest financial reports. Revealed in August, the overall sales for the year reached 45.1 billion euros, a 5.3% decline compared to the previous year. This dip in sales can be attributed primarily to the lower pricing strategy, as per Inter Ikea, the holding company.
Coinciding with this decline, the company experienced a challenging economic climate and a shrinking furniture market. These difficulties resulted in a nearly simultaneous slowdown in sales in various markets worldwide, as reported by CEO Jesper Brodin. He added that this situation was last experienced in 2008.
In response to these challenges, Ikea implemented average price hikes of 9% in 2021 due to increasing procurement costs and supply chain issues caused by the pandemic. However, in September of the preceding fiscal year, Ikea embarked on a new approach, reducing prices to stimulate sales and attract more customers to its stores. This move resulted in a 4.5% rise in physical store visits and a 21% increase in online visits.
This price reduction strategy came at a cost of 2.1 billion euros to Ikea. Still, Ingka Group, the primary operator of Ikea stores, considered it a prudent decision. "It put pressure on sales," acknowledged Ingka Group, but the sales of furniture products actually increased, which was "very important" for Ikea's sales-centric business model.
In anticipation of a market recovery, Ikea aims to return to growth by 2025. Lower interest rates could potentially stimulate this upturn, leading to increased demand for furniture like beds, sofas, and shelves as people move homes and establish new living spaces.
Other retailers in the furniture industry might consider emulating Ikea's price reduction strategy to boost their sales, given its positive impact on store and online visits. Despite the initial financial penalty, Ikea's focus on sales growth and its sales-centric business model eventually led to an increase in furniture product sales.
