Lowering Prices by Finding Alternatives for Wood, Zinc, and Other Materials
The world's largest furniture company, IKEA, is revising its furniture designs. Amid concerns of an economic recession and soaring inflation, coupled with a sharp rise in raw material prices due to last year's Ukraine war, furniture demand has declined. In response, IKEA is changing its designs to reduce the raw material costs per piece of furniture.
On the 25th (local time), The Wall Street Journal (WSJ) reported that IKEA is reviewing product designs to lower prices while increasing profitability. It is evaluated that IKEA is attempting design changes to maintain price competitiveness based on the judgment that maintaining functionality at an affordable price is IKEA's core value.
According to the WSJ report, IKEA has started experiments to reduce the proportion of wood in its trademark wooden furniture. Through this, it decided to use lighter and cheaper plastic instead of wood for drawer doors and drawers. Additionally, instead of zinc, which doubled in price after the Ukraine war, IKEA plans to use inexpensive recycled aluminum to produce bathroom hooks and other items.
IKEA has also taken steps to reduce costs for its bestseller, the Billy bookshelf. This product was first introduced in the IKEA catalog in 1979 and has sold over 140 million units to date, averaging one sale every five seconds. IKEA lowered the price of the white version of the Billy bookshelf by changing the varnish used, reducing the price by 20%. As a result, it became cheaper than the wood version, and internally, IKEA is reportedly exploring ways to lower the price of the wood version as well.
Jesper Samuelsson, IKEA's product manager, stated that they have been striving for years to find ways to reduce the price of wood products by 25-30%. IKEA does not use solid wood for wood products but attaches thin wood pieces called veneer to particleboard. Since veneer panels are expensive, they are focusing on replacing them with paper foil.
Last year, IKEA began producing and selling Billy bookshelves made with paper foil in China first, and plans to sell them in the U.S. and European markets next year, WSJ reported. The Billy bookshelf made with paper foil is sold in China at 499 yuan (about 135,000 KRW), a 29% reduction from the previous 699 yuan. The white version is sold at 399 yuan.
Additionally, IKEA reduced production costs by decreasing the amount of steel and plastic used in the backrest of the Flintan office swivel chair. For the Ronning table, which previously had solid wood legs, the version released last year uses hollow wood veneer legs instead of solid wood, significantly lowering raw material costs as well as transportation expenses, WSJ reported.
The reason IKEA is revising its designs like this is due to deteriorating profitability. Previously, IKEA raised product prices repeatedly after COVID-19 due to rising raw material and logistics costs. In Korea as well, several price hikes were implemented last year, followed by price reductions on some popular items like the Billy bookshelf earlier this year.
According to the annual results announced in November last year, sales over 12 months increased by 7.7% year-on-year to 27.6 billion euros (about 40.5 trillion KRW), but profits halved to 710 million euros. Juuzane Baidejuna, Global Supply Manager at Inter IKEA Holdings, said, "Our budget is the consumers' wallets, and their wallets are thinner than ever."
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