Why prices are dropping at furniture retailers like Ikea
Furniture prices fell 3.7% over the last year, according to the latest Consumer Price Index report.
The furniture segment is one of a few to see prices go down lately, according to today’s CPI report. The furniture index fell 3.7% over the last year, and kept slipping last month. And Ikea, one of the biggest furniture retailers in the world, is no exception. The Swedish home store has been cutting prices on budget staples like the Billy bookcase and Kallax storage cubes, and executives say the price rollbacks will continue in 2024 across all markets where Ikea operates.
That weird supply and demand shock of the pandemic hit furniture sales harder than a sleep-deprived person stumbling into the corner of their bed the first morning of daylight savings.
First there was the pivot to working from home in 2020, said Marisa Ortega, a retail analyst at Mintel. Then in 2021 with record low mortgage rates, a lot of people upsized their homes.
“And you know that requires to fill more spaces in your home — more pieces for another living room and another bedroom,” she said.
That intense demand has subsided as mortgage rates have soared.
“If people are not buying houses, there is less need to look for furniture and home decor,” Ortega said.
At the same time, supply pressures like shipping costs have also eased. Most furniture is imported, said Michael Brown, a partner with Kearney Consulting.
“Coming in on ships that were very, very expensive. And that quickly dissipated,” he said.
Brown said Ikea has been uniquely positioned to save thanks to its clean modern designs, which are also more efficient to manufacture and transport.
“There’s not a lot of waste. There’s not a lot of shapes. They’re all pretty straight cuts, you know all connected by similar hardware,” he said.
Transportation and materials make up the bulk of furniture costs, which is why the spike in prices was transitory, said Gregory Daco, chief economist at EY.
“Meanwhile, on the services sector, you still have that labor component that remains quite expensive, and that continues to put upward pressure on services prices,” he said.
Labor isn’t a big part of the cost of furniture, Daco said — especially at Ikea. Which is why you’ve gotta pull the items from that big ol’ warehouse yourself and assemble them, with nothing but an Allen wrench and some Swedish swear words.