NEW YORK (AP) — Well known for stylish but affordable housewares, Sweden’s Ikea Group is cutting prices on some big-ticket items as it seeks to outfit more homes around the globe.
From couches to bed frames, the price cuts are part of new president and CEO Mikael Ohlsson’s response to continuing demand for low prices and compact furnishings as the global economy sputters. Ikea has cut prices 2 percent to 3 percent each year in the past decade, but Ohlsson is after higher-profile reductions: A sofa that cost $699 a year ago now goes for $499, a queen bed frame that went for $299 a year ago is now $199, and a coffee table that was $20 in the 1990s now sells for $7.99.
The 52-year-old Ohlsson says more families have joined Ikea’s mainstays of students and the post-college crowd, especially in the U.S. And many of those families are bringing more generations together under one roof. For them, Ikea is offering more double sinks for bathrooms and more sofa beds with storage underneath.
Ohlsson, who started his Ikea career in 1979 selling rugs, has built on predecessor Anders Dahlvig’s bigger push for flat-packing, which saves the chain on shipping. Since taking the helm in September 2009, Ohlsson has further consolidated packaging. And he plans to move more manufacturing to the U.S. for more efficient distribution in Ikea’s second-largest market after Germany. Ikea’s first U.S. factory opened two years ago in Danville, Va.
Some of the cuts also benefit the environment. Shipping one sofa flat — squeezing five onto a pallet instead of three — has cut thousands of truck trips, for instance.
Ohlsson says he draws on his life experiences — his parents were both teachers, and one set of grandparents were farmers — in offering new solutions for customers and new efficiencies for the company. As in farming, he says, there are no quick fixes for the iconic blue and yellow big-box retailer, and he must harvest ideas from the field.
He made waves last year with his decision to ease the secrecy that flourished at Ikea ever since Ingvar Kamprad founded the chain in 1943 as a mail-order company. The company’s first public financial summary shows profit rose 11 percent to 2.5 billion euros ($3.47 billion) and revenue 1.4 percent to 21.85 billion euros ($30.34 billion) in fiscal 2009. For the year that ended last month, revenue rose another 8 percent, and Ohlsson plans to release more details.
Here are excerpts from Ohlsson’s interview with The Associated Press earlier this month.
Q. How is your approach different from your predecessor’s?
A. I spent the last 16 years in group management. I worked very closely with Anders. In one way, we are continuing that journey. On the other hand, we are trying to make our price range even more attractive. We are looking at keeping out unnecessary costs so we can pass those savings to the customers. We are also building sustainability into everything we do. We are continuing to develop unique cultural Ikea values, so that we can remain a small company in (our) thinking … everybody working together in an open, transparent environment.
Q. Speaking of transparency, did pressure from the outside to release the first-ever earnings report?
A. No. It was just time to do it. Ikea is not on the stock exchange. We are foundation-owned. But it’s important for co-workers to know where Ikea is going. It felt good. It shows that we are strong.
Q. What are the biggest factors affecting shoppers right now worldwide?
A. We see customers are becoming much more value-conscious. Energy costs are going up. Housing costs are going up. Food costs are going up. Everybody wants a mobile phone or laptop. So the pressure on the wallet is higher and higher. … Everywhere we are gaining market share. The tougher the economy, the more we gain market share.
Q. What’s a big lifestyle change from the Great Recession?
A. Multigenerational living is becoming bigger. In the factory down in Danville, we are producing a sofa bed with large storage. It’s $599. It’s a huge success in the U.S. This is probably not what you normally put in the living room if you don’t live in Manhattan. But this is what people are putting in their living rooms.
Q. How key is it for you to get inside shoppers’ minds?
A. I started out by selling carpets. I had always felt that it’s in the store with the people, in the factory with the people, in people’s homes … where you get input and knowledge. I could never see myself sitting in an office all the time. … I tend to look not so much at competition. We look at people’s lives and what we can do to make them better.
Q. What are your expansion plans?
A. Ten years ago, we thought that there would be a shift from traditional to emerging markets, but the fact is that we have grown as much in Italy, France, Spain as in the emerging markets. So there’s plenty of room for Ikea in most markets.
Q. What made you get into retail after studying industrial design and marketing in college?
A. As a student I had an apartment, and from the kitchen window I saw Ikea. I took a bicycle and went out and asked if they had a job. You saw there was a unique culture at Ikea where co-workers were valued. I was given responsibilities where I could make decisions. When I finished my studies, that journey continued.