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Ikea Cuts Price of U.S. Shelves as Spending Holds Back Recovery

Ikea Cuts Price of U.S. Shelves as Outlook Dims
Shawn Gary looks for a product number on a shelving unit for a customer inside an Ikea store in the Red Hook neighborhood of Brooklyn, New York. Photographer: Daniel Acker/Bloomberg

Ikea, the world’s biggest home-furnishings retailer, has slashed the price of its Billy bookshelves in the U.S. by 17 percent as unemployment and a sluggish housing market weigh on consumer confidence.

U.S. outlets now sell the signature bookshelf for $49.99, compared with the $59.99 listed a year ago, according to data compiled by Bloomberg News from the Netherlands-based company’s website. Based on dollar prices, the average cost of the item in 39 countries rose 13 percent to $62.49 in that period.

With unemployment above 9 percent and housing starts about 73 percent below a 2006 peak, confidence among American consumers is at the lowest in more than two years. Payrolls growth stalled last month, and President Barack Obama proposed a $447 billion jobs plan last week to boost growth.

“Housing is not participating in the recovery, so consumer spending related to housing is not growing,” James Shugg, a senior economist at Westpac Banking Corp. in London, said in a telephone interview. “Given that furniture’s been the worst category in a pretty sick retail sector, it doesn’t surprise me that you’ve seen pretty hefty price reductions.”

The U.S. economy expanded less than previously estimated in the second quarter, prompting some Federal Reserve officials to call for more stimulus. Furniture sales fell 1.1 percent in July from a year earlier, while overall retail sales grew 6.5 percent, data on Aug. 12 showed.

Ikea Index

An index compiled by Bloomberg News showed the price of Billy shelves fell from a year earlier in 21 countries served by Ikea relative to a global average. The biggest decline on the index was recorded by China, with a 27 percent drop.

Based on that measure, prices rose in 15 countries, led by a 34 percent gain in Hungary and a 30 percent increase in the Dominican Republic. Data for two countries wasn’t available to make a year-on-year comparison.

Globally, the lowest dollar prices for Billy shelves were in the Netherlands, where they cost $42.82, and France and Belgium, where they were listed at $49.97. The highest were in the Dominican Republic and Israel, with prices of $111.54 and $96.87 respectively.

Prices were collected Sept. 7 and converted to U.S. dollars at the average exchange rate over the past 30 days. The dollar dropped against all but one of the currencies of the U.S.’s 16 most-traded peers in the year through Sept. 9.

The Economist magazine’s Big Mac index, which also compares dollar prices in a gauge of international pricing power, showed in July that the most expensive place to buy the McDonald’s sandwich this year was in Switzerland, at $8.06. Hong Kong was the cheapest, with Big Macs on sale at $1.94.

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