Fri. Feb 23rd, 2024

    Ikea says it’s going to cut prices this year, and the company’s comments on deflation should be setting competitors on edge

    10 May 2021, Brandenburg, Waltersdorf: The logo of the furnishing company IKEA in the district of Schönefeld in the district of Dahme-Spreewald.

    Ikea’s CEO told Reuters it will stick to planned price cuts even amid the Red Sea shipping crisis.Houthi attacks on commercial ships in the Red Sea are disrupting global shipping.But Ikea CEO Jesper Brodin said prices are coming down in its supply chain as well.

    Companies across the board have been hiking prices massively in the last few years, citing relentless supply chain disruptions from the COVID-19 pandemic, geopolitical tensions, and Russia’s war in Ukraine.

    Now, Houthi attacks are disrupting commercial shipping in the Red Sea and driving fresh fears of another bout of inflation just as price rises are off decades-high levels.

    But, Jesper Brodin, the CEO of Ingka Group — which owns most Ikea stores globally — told Reuters on Monday that price pressures have eased, so it’s sticking to planned price cuts this year even with the Red Sea shipping woes.

    Speaking to Reuters at the World Economic Forum in Davos, Switzerland, Broden acknowledged “quite significant deflation” upstream in its supply chain. This means input costs are now lower for Ikea, so the retailer can pass on savings to consumers.

    Ikea also has enough inventory to offset price hikes from any supply chain shocks, Brodin told the news agency.

    Given consumers are getting squeezed financially, “this is not a year for us to optimize profits,” said Brodin. “This is a year to try to navigate on a thinner profit, but to make sure that we support people,” he added.

    To be sure, Ikea hiked prices in 2022, citing supply chain bottlenecks and higher raw material costs, but the furniture giant started cutting price late last year, citing easing price pressures. However, prices are still not back to pre-pandemic levels.

    It’s not just Ikea. US grocery giant Walmart signaled deflation in November as well — but that was before the Red Sea Houthi attacks dragged into the new year.

    Ikea’s acknowledgment of deflation on Monday came as some economists and politicians say companies have been deliberately keeping prices high to boost profit margins — even as the reasons driving high inflation improve. This phenomenon has been dubbed “greedflation.”

    A study of 1,350 international companies by two London-based think tanks — the IPPR and Common Wealth — showed profits of major energy and food companies outpacing inflation after Russia invaded Ukraine.

    Energy and food are key inputs into the broader economy so this contributed to inflation “peaking higher and lasting longer than had there been less market power,” according to the IPPR and Common Wealth report published in early December.

    Read the original article on Business Insider

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