IKEA Owner Reports 32% Earnings Drop Amid Tariff Costs and Price Cuts - Furniture Industry Analysis

This analysis is based on the Wall Street Journal report [1] published on November 7, 2025, which detailed IKEA’s significant earnings decline.

Inter IKEA Group’s financial performance reflects broader challenges facing the furniture retail industry. The company reported a 32% decline in net profit to €1.5 billion ($1.7 billion), with operating profit falling 26% to €1.7 billion ($1.98 billion) for fiscal year 2025 [1][2]. Total retail sales decreased to €44.6 billion ($52.01 billion), marking the second consecutive year of decline [2][3].

The earnings deterioration stems from three primary factors: strategic price reductions of approximately 10% over two fiscal years (costing €2-3 billion), rising supply chain costs, and tariff-related uncertainties [1][2]. The North American market, accounting for 10% of IKEA’s sales, has been particularly affected by U.S. tariff announcements on China, Mexico, and Canada [1][4].

The furniture industry is experiencing unprecedented cost pressures, with S&P Global data showing household durables and specialty retail firms had negative tariff sentiment of 2.5% in Q2 2025 [5]. IKEA specifically cited “higher sourcing costs including the costs for increased tariffs, which have been partly absorbed” and noted that commodity prices and logistics costs rose in the second half of the financial year [1][2].

: The furniture retail landscape is splitting into distinct strategic approaches. While IKEA pursues aggressive volume-driven price cuts, Williams-Sonoma maintains premium positioning with strong profitability (17.9% operating margin in Q2 2025) [6]. Meanwhile, Wayfair continues struggling with online furniture challenges (3.2% net loss margin in Q3 2025) [7].

: The October 2025 tariff announcements represent one of the biggest shake-ups the furniture industry has faced in decades [10]. Companies are implementing various mitigation strategies including frontloading inventory, diversifying sourcing beyond China, and increasing warehousing capacity [5][1].

: Despite macroeconomic challenges, furniture e-commerce is accelerating. Q4 2024 was the best quarter since 2022, with nearly half of all furniture purchases now occurring online [4][5]. The US market leads globally with 62.3% of online searches being transactional [5].

: Williams-Sonoma dominates its segment with 49.30% market share, followed by Leggett & Platt at 26.68% [8]. In the broader market, Ashley Furniture Industries maintains leadership while IKEA North America generates approximately $40 billion in revenue [9].

:

• Continued tariff uncertainty creating cost inflation pressure [1][5][10]
• Aggressive competitive pricing leading to margin compression [1][3]
• Supply chain disruptions requiring additional inventory and warehousing costs [5]
• Consumer sensitivity to economic conditions affecting discretionary spending [4]

:

• Supply chain diversification creating competitive advantages for non-China suppliers [5][10]
• Digital transformation enabling improved customer experience and operational efficiency [4]
• Premium positioning strategies demonstrating sustained profitability potential [6]
• Domestic manufacturing opportunities as trade dynamics shift [10]

The furniture retail industry is at a critical inflection point, with traditional business models being challenged by geopolitical factors, competitive pressures, and changing consumer behaviors. IKEA’s current strategy involves accepting short-term margin pressure to drive volume through price cuts, having allocated €2-3 billion to reduce prices by approximately 10% over two fiscal years [1][2]. The U.S. furniture stores industry has grown at a CAGR of 2.3% between 2020 and 2025, reaching $172.5 billion in revenue [4].

Companies are implementing various strategies to navigate the challenging environment, including frontloading inventory to avoid tariff impacts, diversifying sourcing beyond China, and investing in digital platforms [5][1][4]. The ongoing tariff uncertainty represents a significant risk factor, with economists predicting that tariffs will raise prices for imported furniture and potentially affect even American-made products through increased parts costs [10].

The competitive landscape continues to evolve rapidly, with different players pursuing distinct strategies ranging from volume-driven price leadership to premium positioning and online-focused models. Success in this environment will require careful balance between pricing strategy, supply chain resilience, and customer value proposition [1][6][7].