Ikea invests €1.2 billion in Europe price cuts to lure cautious consumers

By Helen Reid

LONDON, Sept 1 (Reuters) - Swedish budget furniture retailer Ikea announced a new wave of price cuts on Tuesday as it tries to boost demand in Europe, at a time when the surging cost of housing in many countries has dented people's ability to move and curbed spending on furniture and homeware.

Ikea said it was investing €1.2 billion ($1.39 billion) in price cuts in total, with the aim of attracting cash-strapped shoppers and driving sales after two consecutive years of declining revenue. 

"The cost of living is increasing and it's getting tougher and tougher for many people," said Juvencio Maeztu, CEO of Ingka, the biggest Ikea  retailer worldwide, which operates Ikea stores in most European countries under the franchise model run by Inter Ikea, the brand owner and furniture supplier.

"For many people, home is a bedroom in a shared house, and it's even more important to offer storage and organised solutions," he added.

In Germany, Ikea's biggest market by revenue, the retailer said it cut prices on more than 1,500 products, like the Poang chair reduced to €119 from €179. In Britain, the Kallax shelving unit was reduced to £49 ($66.37) from £60 ($81.26) and the Alex drawer unit to £55 from £70.

"We try to constantly optimise the cost picture by redesigning the products from the beginning," said Jakub Jankowski, CEO of Inter Ikea, which sources from its own factories as well as third-party suppliers. A redesign of the Pax wardrobe line cut packaging costs by 70%, he said.

Greater automation and using renewable energy have also helped bring costs down, Jankowski said. Europe is a key manufacturing region for Ikea, with Poland, Italy, Lithuania and Germany among its top sourcing countries.

As it tries to attract new customers, Ikea has also opened seven smaller stores across Europe since January, shifting away from its traditional out-of-town big-box model.

Inter Ikea said its other franchisees had also agreed to price cuts: Sarton Group in the Balearic and Canary islands, Mapa in Turkey, Housemarket in Greece, Cyprus and Bulgaria, Miklatorg Group in Iceland and Inter Ikea Retail in Estonia, Latvia and Lithuania.

($1 = 0.8610 euros)

($1 = 0.7382 pound)

(Reporting by Helen Reid in London; Editing by Matthew Lewis)