IKEA puts €1.2 billion into lower prices across Europe

IKEA is investing €1.2 billion in price cuts across Europe as it seeks to bring back customers who are becoming increasingly cautious about spending amid high living costs and a difficult housing market. For the world’s largest furniture retailer, the move is more than a marketing campaign — it is a bet that affordability can once again become the main driver of consumer demand.

IKEA’s decision shows how much Europe’s consumer landscape has changed. Even mass-market home furnishings are increasingly being treated as purchases that can be postponed. After sales declined over the past two years, IKEA is now turning to significant price reductions in an attempt to revive demand.

Europeans are postponing major purchases

Consumer demand is being squeezed from several directions at once. High housing, energy and everyday living costs are leaving households with less money for furniture and home improvements. At the same time, the lack of affordable housing is making it harder for many Europeans to buy their own homes, reducing the need for major purchases associated with moving into a new property.

Germany, IKEA’s largest market, has already seen price cuts on more than 1,500 products. These include popular armchairs, storage systems and other household goods. Similar measures are being introduced in the UK and other European markets.

For IKEA, this means deliberately trading part of its short-term margin for the prospect of higher sales volumes. The company is betting that lower prices will encourage customers back into its stores even while confidence in household finances remains weak.

IKEA is trying to cut costs, not just prices

Lower prices do not simply mean that IKEA has accepted lower earnings on the same products. The company is also restructuring its cost base.

Inter IKEA, which is responsible for the range and supply chain, is focusing on product redesign, greater automation in manufacturing and wider use of renewable energy. A significant part of IKEA’s production chain remains in Europe, including in Poland, Italy, Lithuania and Germany.

That matters for the wider European market. IKEA is not simply trying to pass higher costs on to consumers but is looking for ways to structurally reduce the cost of making and supplying its products. This approach is becoming increasingly important for companies serving mass-market consumers, as there is less room for further price increases.

Stores are getting smaller

The changes also extend to IKEA’s physical retail network. The company plans to open seven smaller stores in Europe this year, adapting to a market where consumers increasingly live in smaller homes and may be less willing to spend time and money travelling to large out-of-town stores.

It reflects a broader transformation in European urban consumption. For decades, IKEA built its business around large stores where customers could shop for an entire home in one trip. The company is now having to adapt to cities where housing is becoming more expensive, apartments are getting smaller and consumers expect greater convenience.

Ultimately, IKEA’s strategy is not simply about selling products more cheaply. It is about convincing Europeans that furnishing their homes can still be affordable even as households reassess their budgets.

Price is becoming European retail’s main weapon

IKEA’s move comes as European consumers face renewed economic pressure. Inflation in the euro zone accelerated to 3.3% in August from 2.9% in July, largely due to higher energy prices. European stock markets also came under pressure at the start of September as rising energy costs fuelled concerns about inflation.

In this environment, retailers are finding it increasingly difficult to raise prices while maintaining sales volumes. Consumers are not disappearing, but they are becoming more selective: comparing offers, postponing non-essential purchases and looking for greater value for every euro spent.

That creates a paradox for IKEA. The company needs to invest billions in making its products cheaper at precisely the moment when inflation and geopolitical risks are putting renewed pressure on its own costs.

Yet the strategy could also become a long-term bet on the European consumer. If IKEA can reduce its costs enough to maintain lower prices without continually sacrificing profitability, it could gain a competitive advantage in a market where the battle for cautious consumers is only intensifying.