IKEA cuts prices and expands presence amid global economic turmoil

Against the backdrop of rising inflation and weakening consumer confidence, the Swedish company IKEA announced a large-scale price reduction program. In particular, the chain's restaurants around the world are expected to offer discounts of up to 50%, as well as free meals for children. The goal is to support customers in the face of high living costs and increase the availability of brand products.

The reduction in prices, as the company's management notes, will be a temporary anti-crisis measure. "Consumers are increasingly saving, preferring not to spend their savings. Confidence in the economy is declining, " IKEA Retail chief Operating Officer Tolga Onju told CNBC.

Previously, the company has already reduced wholesale prices by an average of 15%, which allowed local stores to reduce the final cost of goods. These measures cost IKEA 2.1 billion euros. Despite this, the brand's revenue for the year decreased by about 9%, while retail sales fell by 5.3%.

The company does not intend to stop at short-term measures and continues to expand globally. In fiscal year 2025, IKEA will open 58 new stores, including the first in Seoul and the fifth in South Korea.

Amid rising logistics costs and trade restrictions, many Western brands, including Walmart, Target, Costco and Nike, have announced price increases. IKEA, on the other hand, is betting on a deep reduction in price, despite negative macroeconomic factors.

Tolga Onju stressed that the company also faces the consequences of tariffs, especially in the US market, but is able to compensate for some of them without significant price increases for consumers in the US.

The greatest difficulties were recorded in China, where consumer demand continues to decline, and local companies are aggressively dumping. There are 39 IKEA stores in the country, but the Chinese market share in total sales declined to 3.5% in fiscal year 2023/24. According to Coresight Research, in May, the level of economic optimism among Chinese consumers reached its lowest level in two years.

The company's head of global research, John Mercer, noted that demand for large furniture will remain limited in the face of uncertainty. However, price flexibility can help IKEA grow its market share by moving consumers to more affordable solutions.

In the context of shifting consumer interest towards the public catering sector, IKEA relies on the development of the restaurant sector. In addition to price initiatives, the company will introduce new dishes adapted to the tastes of the Asian consumer. In particular, it is expected to launch falafel in the menu of restaurants and grocery sections of the brand.

An additional strategic direction of IKEA is working with the so-called "silver economy". We are talking about consumers over the age of 50. According to analysts, by 2040, the share of citizens over the age of 60 in China will reach 30% - against 15% in 2024. This audience demonstrates sustainable consumption and high financial stability. In response to this trend, the company is testing new lines of textiles and furniture designed for multi-generational families and older consumers.

According to analysts, IKEA remains one of the few international brands that can maintain global competitiveness in the segment of affordable furniture and household goods, without resorting to radical price increases. However, the long-term sustainability of such pricing policies will remain a subject of observation and evaluation.