Ikea feels the pinch of slowing market

Ikea is the latest big-ticket retailer to complain of falling sales as the slowing housing market takes its toll on consumer spending.

Anders Dahlvig, the chief executive of the privately-owned Swedish company, told the World Retail Congress in Barcelona yesterday that the chain will need to lower prices to remain competitive.

"We are feeling the downturn in some important markets, for instance the US, the UK and Germany," Mr Dahlvig said. "On other the hand it is an opportunity because in bad times the competition is hurting as well.

"We have to continue to reduce our prices because people have less money – if we want to keep up growth that is where we have to make investments," he said.

Ikea, which has 260 shops across the world, is by no means the first retailer to suffer. A survey by Grant Thornton, the accountancy group, earlier this month, showed that almost a quarter of UK-listed retailers issued negative trading statements in the first three months of 2008, compared with just 10 per cent last year.

And although overall like-for-like retail sales were up by 1.5 per cent in February, discretionary spending is taking a hit. "Despite some continued discounting, clothing and footwear were down on a year ago. Consumer confidence has fallen further to all-time lows. Shoppers are still very price-conscious and reluctant to splash out on major purchases," said the most recent report from the British Retail Consortium.

Homewares and furniture are particularly affected. Land of Leather and SCS Upholstery have both reported falling sales in the last month alone. Homebase saw a 5.3 per cent decline in like-for-like sales in the eight weeks to 5 January.

And DSG International, which owns Currys and PC World, issued a stark profits warning after poor Christmas trading that sent shares plummeting to a 12-year low.

"Big-ticket home-related items have seen some very weak trading numbers so it is no surprise Ikea is beginning to find it difficult," Christian Koefoed-Neilsen, an analyst at Panmure Gordon, said. "And if you don't have the scale of purchasing that Ikea has got and as much power over suppliers then it is more difficult to get lower prices without directly affecting your margins."

The problems are the classic consumer response to contractions in the property market. "Falling house prices means negative performance from DIY chains, furniture retailers and also electronics shops," Ira Kalish, the director of consumer business at Deloitte Research, said.

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