IKEA commits €1.2bn to European price cuts

What IKEA is cutting

IKEA said the markdowns vary by market. In Germany, they average 20% on more than 1,500 products, including 27% off a Besta TV shelf. The UK gets 28% off Billy bookshelves, and Italy gets up to 29% off Kallax storage systems, with an average 22% off hundreds of lines there. Ireland is included.

Ingka Group, which operates most IKEA stores, will also invest €70 million to help offset inflationary and currency pressures in Asia and North America, the company said. The money is meant to help keep prices as low as possible for customers there.

The cuts follow years of price growth. IKEA cited Eurostat's harmonized price index for furniture and furnishings across the EU, which sits about 24% above its 2015 level, with Estonia up roughly 58%. IKEA has invested between €2 billion and €3 billion to bring prices down by about 10% since 2023.

Demand in Europe remains weak. IKEA's most recent full-year results showed retail sales slipping 1% to €44.6 billion, which the company blamed on its own price cuts and cautious consumers, even as customer visits and volumes rose 3%. The move follows two consecutive years of declining revenue. European consumer confidence remains at its lowest level in three years despite a recent uptick, after a sharp hit when the Iran war began in February; in the Netherlands, the national statistics office recorded confidence falling from -30 to -44 between March and April.

IKEA is not alone in cutting prices. Walmart said it will use $3 billion in tariff refunds to lower prices, Target will use nearly $1 billion in refunds the same way, and Kroger cut prices on thousands of products in May, Fortune reported. In the US, IKEA has warned that Trump tariffs could force it to raise prices; only 15% of its US products are sourced regionally, The Independent reported.

Lower margin

Juvencio Maeztu, chief executive of Ingka Group, said the investment is not a short-term campaign. "It's about making IKEA more affordable when people need it most, even if it means accepting a lower margin," he said in the release. He also said, "keeping prices low is our long-term commitment."

Maeztu told the Financial Times: "IKEA likes to reduce the price of the umbrella when it's raining. And it's raining for many customers, because the cost of living is increasing." He refused to comment on exactly how the cuts would affect results, other than to acknowledge they would hurt profitability. "Our entry point is to accept that it will lower results, because it's a time to side with the many people," he added.

An IKEA spokesperson declined to give Fortune the specific margin sacrifice. IKEA did something similar in 2023 to offset large price rises after the Covid-19 pandemic. That led to its first drop in revenues in a decade and a halving in profits, the Financial Times reported. Jakub Jankowski, chief executive of Inter IKEA, said: "I strongly believe this is not a one-off. We will continue to do it. It's a long-term commitment."

What happens next

IKEA is about to report full-year revenue figures because its financial year runs to the end of August. The effect of the price cuts is set to appear in next year's figures, the Financial Times reported. IKEA said a campaign in its 2024 fiscal year helped more people access its products, driving more foot traffic and a higher number of orders.

Maeztu said the company is also investing to make IKEA more accessible by opening many smaller stores as part of its omnichannel experience.