Facing declining profits adn increased competition from online retailers, IKEA, the world’s largest furniture retailer, is undergoing a significant restructuring. The Swedish company, known for its accessible designs and flat-pack furniture, reported a 26% drop in profit last year as it navigates shifting consumer preferences and a more crowded marketplace including Amazon, Temu and Shein. Now, under new leadership – a first for the company – IKEA is pursuing aggressive pricing strategies, supply chain adjustments, and an expanded omnichannel approach to maintain its position as a global retail leader.
IKEA is navigating a challenging period marked by sluggish sales, rising wood costs, and increased competition from online marketplaces like Amazon, Temu, and Shein. The furniture giant, known for its distinctive blue and yellow logo, is undergoing what company leaders are calling its “biggest transformation in history.”
The company’s financial results reflect these pressures. Inter IKEA, the global IKEA franchise provider, reported a 26% decline in profit for the fiscal year ending August 31, a result the company attributes to price reductions implemented to maintain competitiveness.
“Consumers want price, convenience, and speed, and they are more than willing to switch retailers to get it,” said Clarisse Magnin, a senior partner leading the consumer goods and retail sector at McKinsey & Co. “Online marketplaces are changing the rules of the game. They are executing purchase, logistics, and customer outreach at scale. Even the biggest established players must contend with this force.”
The shift in the retail landscape has prompted introspection within IKEA, the company that pioneered the flat-pack furniture industry, now valued at nearly $20 billion globally. The maker of the iconic Billy bookcase is now in the third phase of its extensive overhaul. As part of this transformation, IKEA has, for the first time in its history, appointed non-Swedish leaders to head its two main entities: Inter IKEA, which owns the brand and supply chain, and Ingka Group, which operates the majority of IKEA stores.
Jakub Jankowski, the new CEO of Inter IKEA, emphasized the need for resilience in a September interview. “We are wonderfully good when everything goes smoothly; now we must work on being very resilient and able to respond even when things don’t go according to plan,” he said. Jankowski, a 49-year-old veteran of the company, assumed his role on January 1.
Building a More Resilient Business
IKEA’s unique ownership structure, as a privately held company with a complex web of stakeholders, provides a degree of flexibility uncommon among global retailers. Shielded from the pressure of quarterly earnings reports, the company can reinvest profits rather than distribute dividends, a strategy that has helped it weather past economic shocks, including the oil crisis of the 1970s, the 2008 recession, and the COVID-19 pandemic. However, the current confluence of stagnant housing markets, rising interest rates, weak consumer spending, and aggressive online competitors is testing the limits of that financial cushion.
“They will need to continue to develop their ability to meet customers where they want to be served,” noted Sara Rosengren, a professor at the Center for Retailing at the Stockholm School of Economics. “Low-cost competition is emerging and impacting retail generally. In IKEA’s case, competition is also coming from platform players like Amazon, as well as furniture brands selling directly to consumers, which offer more specialized selections and different price points than IKEA traditionally focuses on.”
IKEA’s restructuring efforts center on expanding its product offerings, bringing stores closer to customers, and accelerating delivery times. After decades of opening stores on the outskirts of cities and then expanding into urban centers from New York to Paris, IKEA recently tested a new format called “Lada” (Swedish for “barn”) for cities with populations of approximately 100,000 to 200,000. The company is also expanding its online services, while a new hybrid model ensures that large stores serve as both showrooms and logistics centers.
“The store will always remain the backbone of the IKEA experience in a world of omnichannel retail,” said Juvencio Maeztu, a 57-year-old Spaniard who took over as CEO of Ingka Group last year.
Maeztu and his counterpart at Inter IKEA plan to pursue aggressive pricing, strict cost discipline, and the expansion of the omnichannel model to counter digital marketplaces like Temu and Shein. These companies are expanding into home goods and furniture, bringing intense price competition. Online specialists, including Wayfair and platforms like Amazon, have also raised customer expectations for convenience and delivery speed.
“In the U.S., Wayfair and Amazon are obvious competitors,” said Fredrika Inger, who leads IKEA’s global range and design operations. “Competition is also growing from marketplaces like Temu and from supermarkets adding home furnishings. It’s healthy pressure that makes us better.”
Investing in Timberland
Securing a reliable supply of its most important raw material—wood—is another critical focus. After sanctions cut off Russian and Belarusian timber, IKEA has strengthened its presence in Central and Eastern Europe. Ingka Investments, the investment arm of the group, now owns more than 330,000 hectares of forest. In October, it paid €720 million for forest land in Latvia and Estonia, its largest acquisition of this kind to date.
This expansion has drawn environmental scrutiny. Greenpeace and other organizations have criticized the brand for sourcing wood from sensitive areas, including the Romanian Carpathians, allegations IKEA denies. While the company has set a goal to reduce emissions by half between 2016 and 2030, environmental groups challenge this target. The brand was recently nominated for a “Swedish Greenwashing Award” for talking about sustainability while maintaining high sales volumes.
Despite these challenges, IKEA remains a global powerhouse with 808 stores, approximately 222,000 employees, and annual retail sales of €44.6 billion. Its stores continue to attract customers; foot traffic in the last fiscal year increased slightly by 1.8% to approximately 915 million. E-commerce now accounts for 28% of sales, and the retailer ranks highly in several global consumer surveys. It is also one of the few companies from Sweden—a country with a population of just over ten million—that is a household name worldwide, alongside Electrolux, Spotify, and H&M.
