Ikea price cuts power market share advance

Swedish furniture giant Ikea has outperformed the punishing big-ticket market and increased market share despite a sales slip.

Ikea’s turnover here and in Ireland fell 3% to £1.15bn in the year to August 31, boss Martin Hansson told Retail Week.

Like-for-likes fell by the same amount as store numbers remained static at 19.

Despite the sales decline the world’s largest furniture retailer increased UK share from 6.1% to 6.3% as rivals suffered more severe trading falls, Verdict research cited by Hansson showed.

Ikea made a “big investment” in lowering prices by 5% in the year – despite costs rising – investing £15m in bed prices alone.

The initiative helped drive market share gains as cash-strapped shoppers sought value, but Ikea is “taking a hit from a results perspective,” admitted Hansson. Ikea has lowered prices by a further 1% this year.

He said the retailer has been “doing quite well” since year end and that Ikea is “quite happy” with last year’s sales result.

“The market share development is good news, and is coming from our existing units as we haven’t added any space,” he said. “We are the market leader and we are strengthening that position.”

Hansson said Ikea performed especially well in big-ticket categories after investing in kitchens and bathrooms.

Online sales climbed 20% in the year as the retailer revamped its back office operations.

While the stagnant housing market and rising fuel prices have hit Ikea customers’ propensity to spend, Hansson said that in tough conditions it has widened its customer base, attracting “people with more money and people with less money”.

Hansson said Ikea is outperforming because it is providing space-saving solutions for Brits living in ever-smaller homes.

Ikea has ploughed £30m into store revamps as it “prepares for the uplift” in the market. “We are investing more now than we did last year,” said Hansson.

For instance, the retailer has introduced an in-store picking service since year-end, whereby staff pick customers’ product from a shopping list for home delivery.

Hansson said Ikea would like to open more stores but has to overcome planning hurdles in order to do so. It is awaiting a decision on a planned Reading store.

Ikea, which will disclose the year’s profits in the new year, has also bought a wind farm in Huntly, Scotland that will offset five stores’ energy consumption. “It’s good for the environment and will improve profitability,” said Hansson.