Housing downturn hits Ikea

Ikea, the Swedish retail chain, is suffering like-for-like sales declines in some of its major markets and has warned that the pattern could spread across Europe as falling house prices hit flat-pack furniture sales.

“It is especially when the housing market is down [that] it certainly affects our type of business,” said Anders Dahlvig, chief executive of Ikea, the world’s largest furniture retailer.

“We see it not only in markets [such as] the US or UK . . . but we see it in Spain, we see it in Italy, we see it in Germany.

“Of course this will probably spill over to other European markets as well; I can see that in the coming months.”

“We see a decline in the growth of our like-for-like sales and in a couple of our markets we also have negative growth at the moment,” he added.

Speaking to the Financial Times before the start of the World Retail Congress in Barcelona, Mr Dahlvig said overall sales this year would still better the €19.8bn ($31.2bn, £15.81bn) in the year to August 31 2007.

Ikea, privately owned, does not have to publish its profits .

But Mr Dahlvig said the company would be deliberately taking a hit to margins because it did not want to pass on higher raw materials prices to cash-strapped consumers.

“In the current decline people, of course, have less money and if you want to keep up the growth that is where you need to make your investments,” said Mr Dahlvig, whose popular Billy bookcase sells for £49 in the UK.

He said he was “positive” about weathering the downturn.

This was partly because some shoppers who would normally buy higher-priced furniture were trading down to Ikea because higher utility bills and the impact of the credit squeeze were leaving them less willing to spend.

The Ikea chief executive said the company would not be responding to weaker market conditions by scaling back expansion plans that had turned it into an international force.

“In bad times the competition is hurting as well and I feel it is an opportunity for Ikea,” he said. “What we’ll see going forward is more expansion in emerging markets.”

However, the company will not be making any move into India in the near future as Mr Dahlvig is unwilling to operate under the restrictive retail investment laws. “We’re trying to persuade the government to change the legislation,” he said.

The UK government is also under pressure from Ikea.

The retailer is keen to open more stores in its fourth biggest market.

However, planning rules have limited the sites where Ikea can open its huge stores and so the company is adapting by opening in city centres. Southampton will soon follow the first such city centre site in Coventry.

Mr Dahlvig said “the government hasn’t been very willing to listen” to its pleas to relax planning regulations, which would allow it to open more big blue box-style stores across the country.

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