Ikea and Co.: What furniture reveals about inflation – economy

In the furniture store, customers want to look at sofas or kitchens, but discount signs often catch the eye first: “Everything has to go”, for example, it says, “up to 75 percent on marked goods!” Virtually nothing works without exclamation marks and capital letters.

But now there are some indications that the discounts in the furniture trade are likely to become rarer or smaller in the future. Temporary bottlenecks and higher costs, for example for wood or transport, could lead to higher furniture prices in the long term. It is one of many contributions to the comparatively high inflation these days.

Before the outbreak of the corona pandemic, large parts of the economy were trimmed to tight cycles: overly full inventories were considered more of a financial burden than an expression of precaution. During the crisis, factories and ports that were closed at times, as well as scarce freight capacities, showed the limits of this mentality – and materials such as transport became more expensive.

Wood, the most important raw material in the furniture industry, has become more expensive by more than 60 percent in the past year, like that Federal Statistical Office reports, the prices for chipboard have increased by 23 percent. Never before had the authority reported such price increases for building materials. She also refers to the high demand at home and abroad.

The delivery times for many pieces of furniture have become two to three weeks longer

“People make themselves nice at home,” says Jan Kurth, head of the Association of the German Furniture Industry (VDM): Those who spend more time at home due to the pandemic and spend less money on travel, for example, sometimes take the opportunity to renovate. “But we also had a bit of wind from the front.”

According to Kurth, many furniture manufacturers are struggling with bottlenecks and supply chain disruptions. As a result, it takes an average of two to three weeks longer for furniture to be ready for delivery. And almost all primary products have become massively more expensive: not only wood and upholstery foam, but also packaging material and electronics. “The industry cannot simply breathe that away,” says the head of the association. “There is no way around passing it on, it’s the same in other sectors of the economy.”

It is by no means only material costs that determine the final price of a cupboard or chair. But at least in the wholesale trade, the “wood inflation” is already making itself felt: At the beginning of this year, furniture and carpets, lamps and lights were six percent more expensive than a year earlier, according to reports the Federal Statistical Office. For private individuals, the price increase has so far been somewhat smaller: Furniture and lights were 4.5 percent more expensive in January than in the same month last year, reports the authority.

However, private individuals have so far benefited indirectly from the fact that manufacturers and dealers often agree on the purchase price for furniture a year in advance. The VDM is now urging both sides to negotiate prices again during the year. Otherwise, many manufacturers would soon have a problem, warns Kurth. But the trade association for furniture and kitchens is still covered: “If the shortage of goods and delivery problems persist, then there can of course be further price increases,” says Managing Director Christian Haeser. But we have to wait and see how this is reflected in retail.

Market leader Ikea increased its prices by an average of nine percent at the beginning of the year

Europe’s largest furnishing group Ikea is already clearer. According to the Swedish company, the aim is to keep prices as low and constant as possible. But increases are unavoidable at the moment. At the beginning of the year, Ikea increased prices by around nine percent on average worldwide. For reasons of competition, the company does not reveal how much more expensive Ikea furniture is in this country. It is difficult to predict how the supply problems will develop in the coming months.

Ikea is now concentrating on having the best-selling products in stock – also for the respective season. Other furniture, on the other hand, may also be temporarily unavailable depending on the branch. Compared to other furniture retailers, Ikea relies more on low entry prices than on endless discount campaigns. The group now has all the less leeway to simply omit a few special offers in order to cushion higher costs.

Open detailed view

The extent to which companies want to raise prices is a standard question in economic research – even apart from furniture. The Ifo Institute puts them to many companies every month in a survey. The research team then calculates what percentage of respondents want to raise their prices in the next three months – and subtracts the proportion of those who want to lower prices. At the end there is an index that relates to the entire economy in Germany, most recently at one new high rose: 46. For the wholesale trade in wood and furniture, the figure was even over 70, and for the retail trade in furniture it was a good 61. If one believes the Ifo Institute, facilities are likely to continue to become more expensive.

The VDM assumes that the furniture industry will probably not sell much more in terms of volume this year than in 2021. Nevertheless, the association expects sales to increase by around ten percent – mainly driven by higher prices. These are simply necessary from a business point of view, says Kurth.

And what can be done in the future to no longer be so dependent on fluctuating world markets? “We’ll see that we get supplies closer to the site than we did in the past,” summarizes the head of the association the mood in the industry. Similarly, Ikea says the group wants to expand its range to include more regionally sourced products. It seems that something can be learned from this crisis after all.