Some 1.7 million households in Israel have received Ikea’s 2020 catalogue in the mail in recent weeks. It’s the same catalog the world over for the Swedish-based retail giant, which publishes it in 54 countries and in 38 languages. The same, that is, except for the prices. Those vary from country to country based on local conditions, such as the level of competition, costs and local regulations.
With the shekel’s having strengthened approximately 10% against the euro, the currency Ikea Israel uses to buy its inventory, the expectations would have been that local prices would be lower in 2020. But an examination of the 2019 and 2020 catalogs and Ikea’s website show that in most cases prices are the same and in a few cases have risen significantly.
That’s not all. Prices of the products sold in Israel are higher than in other countries. The gap is sometimes as much as 107%. A check by TheMarker found that of 50 items that appeared in the 2019 and 2020 catalogues, the prices of 44 items were unchanged from year to year, while the sums for six of them rose.
Price increases ranged between 8% and 32%, rather than the 8-10% drop the exchange rate should have caused. A pillowcase set priced at 95 shekels ($27.20 at current exchange rates) in last year’s catalog; costs 125 shekels this year, a 32% increase. A Vindum rug went up from 695 shekels to 850, a 22% rise.
Prices on bigger items increased sharply, too – a Gronlid sofa went up 9%, or 400 shekels, to 4,860.
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A spokesman for Ikea Israel didn’t relate to the difference between 2019 and 2020, but stressed that over time prices at its Israeli stores, which today number five, have fallen.
“Since we started Ikea operations in Israel in 2001, prices for shoppers have fallen by more than 20%, while we have preserved the customer experience and provided the best service and warranties to our customers. We are committed to continue reducing prices and do everything we can to justify the great trust our customers have given us,” Ikea said.
But not only did prices on many items grow this year, Israeli Ikea shoppers pay more than their peers in Sweden and in two neighboring countries – Turkey and Greece. That was the case for all the products examined by TheMarker and in most cases the differences were quite significant.
For example, in a Rosh Hashana promotion – one that the company uses to increase its market share by tempting shoppers with attractive prices for housewares competitive with disposable goods. That’s a boost for the environment in Israel, where consumers are among the biggest per capita users of disposable dishes and cutlery. But from a price perspective, Israeli consumers are paying more than others overseas.
Thus, a 24-piece cutlery set costs 195 shekels in Israel, which is between 14% and 54% more than in the three other countries we examined. The smallest price gap was with Turkey, but that was still 24 shekels less than the Israeli price. In Sweden, Ikea’s home country and an expensive place, the difference was 68 shekels, meaning the Israeli price was 54% higher.
Even for a simple serving bowl that costs just 25 shekels, a price that makes it a reasonable alternative to a disposable version, the difference between prices in Israel and the three other countries ranged from 16% to 40%, TheMarker found.
Anyone perusing the Ikea catalog can’t help but look at products marked as “new.” Those are the ones of greatest interest to the retailer’s regular customers. So, it is disappointing to discover that these new products were also considerably cheaper abroad than in Israel.
For instance, the Ekolsund recliner costs 1,595 shekels in Israel – between 329% and 38% more than in the other surveyed countries. In Sweden, Turkey and Greece, the average price for the chair was 1.195 shekels, 400 less than in Israel.
For smaller products, the price difference were even greater. A Stravklint pillow cover in the Israeli catalog runs for 25 shekels – dozens of percent higher than in the other three countries. Versus Greece it was 62% more, versus Sweden 76% more and versus Turkey it was more than twice the price.
Ikea Israel, which is owned by Canadian Matthew Bronfman and Shalom Fisher, have said that the price differentials are justified. But sources in the Israeli furniture-retail sector say the real reason is Ikea Israel’s dominance of the market. That gives it the market power to charge high prices. Even when it charges tens of percent more than its peers overseas, Ikea Israel’s prices remain competitive locally.
Two months ago there was a petition to file a class action suit another popular overseas company, Nespresso, on grounds that it was exploiting its dominant market position in Israel to charge excessive prices for its coffee capsules.
An expert opinion attached to the petition, which compared prices in 23 European countries, reviewed the cost components of products sold in Israel by overseas companies with the aim of undermining their basic claims.
It found that maritime shipping costs used by Nespresso and Ikea are cheaper than transporting the same goods by land the same distance. Israel’s corporate income tax rate is about the European average while labor costs in Israel are lower than the European average. Moreover, there is almost no customs charged on imports from Europe, which is the source of 70% of its product line.
“Because the Israeli market is expensive – starting with housing prices, moving on to supermarket prices and on to housewares – Ikea allows itself to sell here at these prices,” said one Israeli housewares executive, who asked not to be named. “Ikea isn’t in truth cheap but it offers value for the money, in other words good value for the price you pay.”
The executive calls it a “balance of terror” that Ikea has created in the Israeli market that deters others from trying to compete.
“The bottom line is that there is really no direct competitor to Ikea. New players are afraid to compete and the barrier to enter the industry is daunting -- in terms of investment in stores, in terms of Ikea’s dominance and psychology -- everyone says - ‘Look what happened to Kika – you can’t compete with Ikea,’” he said, referring to the Austrian furniture retailer whose Israeli store went out of business just months after it opened in 2011.
Another industry executive said that in other countries Ikea has more competition. In Turkey, he pointed out, there are a lot of domestic furniture makers, big local retail chains and big international chains like Walmart. In Eastern Europe, Kika is a major player
“At Ikea they know how to cut costs and how to make logistics and transportation more efficient. They benefit from this when they buy [inventory] in euros and sell in shekels,” the executive said on condition of anonymity.
They don’t pass on the savings from a favorable exchange rate to shoppers, he added. Industry sources said Israeli prices should be no more than 5-10% higher than abroad,
Sources close to the retailer admit that profit margins in Israel are higher than in much of Europe.
“To the best of my knowledge, Ikea Israel is very profitable, even relative to other countries,” said one source, who asked not to be named. Its margins have improved as it’s opened new stores and gained in purchasing power, the source said.