Ikea has made an unprecedented number of job cuts as it faces declining sales for the first time in its 65-year history. However, industry observers do not believe the world’s largest furniture retailer is on the wane.
In an unusual public move by the normally private retailer, founder Ingvar Kamprad revealed that the 5,000 global job cuts already made this year would not be enough, and that Ikea’s rapid expansion strategy would have to be scaled back to control costs.
Kamprad said: “We need to decrease the number of staff further, particularly within manufacturing and logistics. It’s about adjusting to sales being a lot less and becoming more efficient.”
Kamprad said sales are running at about 7 per cent below target.
But those who think Ikea’s crown is slipping are mistaken, according to MHE Retail chairman Edward Whitefield.
He said: “Ikea’s sales are probably down by around 5 to 7 per cent on a like-for-like basis, but the furniture sector is down about 15 per cent globally.
“Ikea is cutting costs, but I don’t see signs of internal problems. This is just a response to a trimming of sales. I have absolutely no doubt Ikea will emerge from the recession even stronger.”
Whitefield said: “You have to put the current recession in perspective: it’s the worst in almost 50 years. And Ikea’s planning would have been done in 2007, when there was a strong upward curve in sales.”
He highlighted Spain, the UK and US as markets that have suffered badly in the wake of a collapsed housing market and declining consumer confidence. “The level of house sales dropped by more than 50 per cent in Spain and the US,” said Whitefield.
Last month Ikea abandoned efforts to open stores in India after failing to persuade the government to raise its foreign ownership limit on single-brand retail businesses from 51 per cent to 100 per cent.
It will also not open any more shops in Russia because of what it called the “unpredictability of administrative processes”, which many believe referred to the culture of corruption and “back-handers” in the country.
Whitefield said it is unsurprising Ikea is focusing on countries where it has critical mass. “The key thing is Ikea has reacted, and will be back on stable momentum again in two years. Ikea’s proposition is really superior, nobody comes anywhere near it.”