The global retail landscape is currently facing numerous challenges, and Ikea, a renowned name in the furniture industry, is not immune to these changes. Jesper Brodin, the CEO of Ikea's parent group, recently shared insights with Business Insider about how shoppers are adapting to save money.

Ikea's Response to a Challenging Economic Year

Price Cuts and Customer Attraction

In response to the economic downturn, Ikea has made a significant investment of $2.1 billion in cutting prices on its popular products. This move has not only helped the company attract more cash-strapped shoppers but has also allowed it to lure customers away from pricier competitors. By focusing on affordability, Ikea has seen an increase in customer footfall, despite a challenging year. For instance, at its new Oxford Street store in London, which is set to open next year, Brodin admitted that this strategy is paying off. "People have the same needs, but they have much less money in their wallet," he added.However, this price-cutting strategy has not come without its challenges. Ikea saw its annual sales drop for the first time since 2020 in the year ending August 31. Sales fell over 5% to 45.1 billion euros ($47.5 billion) in fiscal 2024. But Brodin remains optimistic about the long-term prospects of the company.

Consumer Sentiment and Shopping Habits

Consumer sentiment right now is reminiscent of the days after the 2008 recession. Inflation has cooled, but consumption habits have changed, and people are finding ways to cut spending. DIY projects, for example, have been hit by high interest rates, making homeowners less likely to borrow money for home improvement projects. As a result, Ikea customers are largely engaging in needs-based shopping, picking up essential items like a new bed or kitchen table before considering non-essential purchases.Popular purchases tend to follow life cycles, such as those related to college or the arrival of a first child. These events are not typically affected by the economic picture, according to Brodin. This indicates that Ikea's core customer base remains resilient in the face of economic uncertainties.

Adapting to Supply Chain Issues

The pandemic sparked a surge in demand for home furniture, but it also led to supply chain issues for Ikea. "It was hard for us to fulfill all the needs," Brodin said, adding that store closures during lockdowns helped the company adapt more quickly to online shopping. During the last year or so, the home furnishing sector has been facing a decline driven by higher interest rates and inflation. But even as interest rates start to fall and inflation cools, Brodin does not expect an immediate recovery. "It tends to take a little bit of time for people to come back to open their wallets and to engage financially," he said.This sentiment is also echoed in China, where retailers from Starbucks to LVMH have been affected by the struggling economy. "There is a large stimulus package coming from the government right now, which is helping, but people have been holding on to their money," Brodin said.Ikea's new central London store is aimed at urban dwellers, catering to their specific needs in a challenging economic environment. The company continues to innovate and adapt to meet the changing demands of its customers, demonstrating its resilience in the face of adversity.