Ikea Considering Shifting More Production to North America

According to a report by the Financial Times, in light of ongoing global trade disruptions, including the Houthi attacks on commercial vessels in the Red Sea, Ikea is contemplating moving more of its production closer to the U.S.

Current Production Footprint and Challenges by Ikea:

Ikea’s global supply manager, Susanne Waidzunas, highlighted the company’s relatively small production presence in North America. The current geopolitical tensions and trade disruptions have prompted Ikea to consider expanding its footprint in this region to mitigate risks.

Waidzunas mentioned that Ikea sees significant opportunities in South and Central America and the U.S. This strategic shift aligns with a broader trend among businesses aiming to nearshore or restore production to ensure more reliable supply chains.

Market Dynamics of Ikea:

According to Qima’s 2024 Sourcing Survey, 54% of businesses in the U.S. and 50% in the E.U. are incorporating nearshoring and reshoring into their supply chain strategies for 2024.

This would bring Ikea’s production closer to a significant customer base, as the company operates 73 stores in North America.

Historical Context and Current Operations:

Ikea previously operated a factory in Danville, Virginia, which it closed in 2019. This facility produced wood-based furniture for the U.S. and Canadian markets. Only about 10% of the products Ikea sells in the Americas are produced locally, with 51 home furnishings suppliers across the region.

The Red Sea crisis has forced major shipping lines to divert their routes, leading to delays and product shortages. Waidzunas indicated that Ikea has adapted by increasing safety stock levels but continues to face high pressure across the supply chain.

Broader Geopolitical Concerns:

In addition to the Red Sea crisis, the global supply chain is also affected by Russia’s war in Ukraine and escalating U.S.-China trade tensions. These challenges have created a more volatile and dynamic environment, necessitating strategic production and supply chain management adjustments.

Despite these challenges, Ikea continues to invest heavily in China, committing 6.3 billion yuan ($870 million) over the next three years to enhance omnichannel retail, demand-sensing technologies, and automation. China remains a crucial part of Ikea’s supply chain, with more than 460 suppliers and service providers.

Future Outlook For The Ikea:

Ikea aims to reduce dependencies on specific countries or trade lanes and is exploring early ordering and stockpiling strategies to prepare for peak shopping periods.

The company’s consideration to increase its production footprint in the Americas reflects a strategic move to ensure stability and resilience in its supply chain amid global uncertainties.