As many retailers face inflation and raise prices, Ikea says it’s doing the opposite even as shipping difficulties ramp up in the Red Sea. The store, known for assemble-it-yourself desks and chairs, is dropping the prices on some popular products, in what experts say is an attempt to lure cost-sensitive shoppers.
The company’s Canadian website already features hundreds of items it claims have lower prices, ranging from cookware to lighting to the well-known “Billy” bookcase.
For example, a Billy with glass doors is listed as previously being $249.00 and is now selling for $199.00 on ikea.ca, and the “Svartpoppel” white pillow has dropped in price from $12.99 to $9.99.
Ikea’s website shows price reductions as of Jan. 25, (Anis Heydari/CBC)
Doug Stephens, founder of the Retail Prophet consulting firm in Toronto, pointed out that Ikea has more ownership of what goes into its products than other companies — it’s involved in everything from manufacturing to shipping to the retail stores.
This gives Ikea a greater ability to unilaterally control costs, with “control over virtually every aspect of the supply and value chain,” according to Stephens, who pointed out he believes the company would want to leverage that.
Stephens suggested competitors might have difficulty catching up.
“There aren’t many companies that would have the kind of leverage and leeway within their operations that Ikea has. And this is a big sword to wield … certainly a very difficult thing for virtually any competitor to match,” Stephens said.
Furniture prices in Canada actually deflated in 2023
Ikea’s move comes as furniture prices in Canada have dropped, according to Statistics Canada.
While the consumer price index showed that overall inflation was 3.4 per cent from December 2022 to December 2023, the rate of inflation for furniture over the same amount of time was -2.7 per cent.
Inflation might be easing but don’t expect prices to fall
Canadians have been paying more for everything as prices surged during the pandemic. But as inflation eases, prices will remain high and some economists say that’s a good thing.
This means that furniture prices actually didn’t show the effects of inflation, but the opposite — deflation.
That being said, some of Ikea’s price decreases are more substantial than that rate of deflation. The dark blue Billy bookcase with glass doors, for example, is dropping in price by about 20 per cent.
But not all bookcases — BIlly or otherwise — are dropping in price.
In a statement emailed to CBC News, Ikea admitted that “many factors” go into whether a price can be reduced. The company said it’s investing $80 million in lowering prices on more than 1,500 products.
“This investment is not a time-limited sale or offer,” wrote the company.
Ikea’s profit up over the past year
Ikea could be leaving money on the table by making this move, according to marketing professor Nicole Rourke.
“The finance person at Ikea, you’re probably a little nervous,” said Rourke, who teaches marketing and business administration at St. Clair College in Windsor, Ont.
“There is the downside that you’re not making as much per unit that you’re selling.”
However, Ikea may have room to manoeuvre in that respect. The company’s retail sales and profits went up substantially in its 2023 fiscal year, which ended Aug. 31. In Canada, sales increased by nearly 11 per cent, to $2.9 billion.
Ikea profits went up substantially in 2023. (Submitted by Nick Antson)
Worldwide, it was a similar story. According to the company, while inflation increased its costs, global profits also rose to $2.39 billion by the end of the fiscal year — up from $1 billion the year before.
The company partly attributes this to a “reduction in global supply disruptions,” saying that as international supply chain problems eased, transportation and inventory costs improved for them.
More volume could balance out lower prices
“I think what they’ve done here is actually a brilliant marketing and public relations move,” said Stephens, the retail analyst.
Customers who come away from Ikea with a positive impression may shop there more. That could balance out the reduced profit from price cuts — or actually contribute to an increase in total sales.
These wine glasses were already marked down on a visit to Calgary’s Ikea store on Thursday. (Submitted by Nick Antson)
“The offset in volume might actually provide some cushion against the reduction in profit margins,” said Stephens, who believes Ikea may see an increase in total sales.
Rourke, the marketing professor, shares that perspective. She pointed out that Ikea may gain valuable market insight from how consumers react to the discounts.
“If, all of sudden, they see they just sold 5,000 more lamps because they lowered the price by $20, they’re going to get some real concrete data that says, ‘These are the consumers that are price-sensitive, and we’re going to target our ads to them,'” she said.
Red Sea issues won’t change plans: CEO
Attacks on ships travelling the Red Sea by Houthi militants in Yemen, who say they are acting in solidarity with Palestinians, have disrupted global commerce. Some shipping giants are rerouting vessels around the southern tip of Africa, a longer and more expensive journey.
Those higher transport costs have spurred fears of new inflationary pressures just as consumers were getting some relief from prices starting to come down. But Jesper Brodin, CEO of Ingka Group, the parent company that owns most Ikea stores, said he still sees “quite significant deflation” in the company’s supply chain.
This photo released by the Houthi Media Center shows a Houthi forces helicopter approaching the cargo ship Galaxy Leader in November. Conflict in the area has caused shipping delays and cost increases for some companies. (Houthi Media Center/The Associated Press)
While lowering product prices may hurt profits, Brodin also said IKEA tends to take market share when consumers are under financial pressure.
“This is not a year for us to optimize profits,” he said in Davos, Switzerland, in mid-January, ahead of the World Economic Forum’s annual meeting.
“This is a year to try to navigate on a thinner profit, but to make sure that we support people.”
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
