How Much Does IKEA Overcharge Australians?

There's no shortage of coverage about how Australians pay more for the exact same product compared to their US counterparts. We know, for example, that tech giants (like Apple and Microsoft) overcharge Australians for hardware. We also pay more for downloads. And if you look outside of tech, Australians pay more than Americans for just about anything -- everything from fashion to watching a movie in a theatre. This article is about another area in which we pay more: decorating our homes.

With Australian house prices at sky-high levels, surely, we need a break in outfitting them you would think! … Apparently not. We'll be diving deep into the data instead of using anecdotal examples so that we know exactly how much worse off we are.

The company we'll be exploring? Australia's most popular furniture supplier: IKEA.

If you are thinking of buying a piece of furniture (or anything) from IKEA, trust me, you'll want to read this. We can save you, on average, 31 per cent of your hard-earned dollars.

Australians buy a lot from IKEA

When we say IKEA is Australia's most popular furniture retailer, we aren't saying it for hype or out of intuition. We looked at data. From month to month, IKEA pops up as one of the most frequented retailers in Australia, let alone in the furniture segment.

Based on the analysis of anonymised and aggregated spending data, we found that Aussies spend more on IKEA than we do in Freedom, Domayne , Matt Blatt or Nick Scali, by a large margin. In fact, we spend a comparable amount of money in IKEA as we do at Harvey Norman -- even though the latter also sells electronics. To give you some idea: We spend as much at IKEA as we do at David Jones.

Here's the graph of total spend in each leading furniture chain averaged for March to May 2014.

Australians pay more for IKEA than those in the US

So given we spend an enormous amount of money with IKEA, that should mean we are getting a good deal, right? After all, if IKEA products are bad value, we would go to the Freedoms or Nick Scalis of the world.

Well, as it turns out, "good" is a relative term. We'll look into this later in the article.

For now, we'll simply answer the question of how IKEA AU (NSW/Vic) prices fare against those in IKEA US? Here are the numbers, if we assume that AUD 1 = USD 0.94:

Each point on the horizontal axis stands for a product that's available in both the US and AU. There are 2933 such products in the IKEA catalogue sample.

To be fair, there are some products that are more expensive in the US than they are in Australia (represented as the negative bars in this graph). Here, for example, is a product which was sold for $US399 in the US (albeit in store only) and just $299 in Sydney.

But for the most part, Australians are paying through the nose. In fact, 76% of all products in our sample are more expensive in Australia than they are in the US. The biggest difference being more than 5 times the US price.

Here, for example, is a product in which we pay 147% more if you lived in Sydney or Melbourne:

It costs a whole lot more to fit out your house -- everywhere in your house.

Here is a home floorplan of how your costs look in Sydney and Melbourne instead of New Jersey. You can find detailed category comparisons at the end of the post.

What does this mean for the average Australian shopper? Depending on what you want to buy, you might be better off buying your piece of IKEA furniture from the US and have them ship half-way across the world.

Seriously!

On average, Australians pay about 31.44% more than Americans when shopping in IKEA. But that varies from department to department. The price differential ranges from 48% in secondary storage to 10.33% in IKEA FAMILY products.

Looking at the data, it would easily make sense for Australian small business owners (whom we will assume are only interested in office furniture) to buy from US IKEA and have them shipped to Sydney.

Every new home owner should at least do the comparison.

If, on the other hand, you're buying products from the IKEA FAMILY category, then don't bother. It's probably not worth it.

And that's not even the juicy part. If international shipping is prohibitive, read on. But first, let's explore some potential reasons on the difference

So why the gigantic price difference?

So the logical question here is, why is there such a big difference in price between AU and US?

Well, there are several theories.

Theory 1: Australia is simply a more expensive place to do business in. We pay more for things, but we also make more money than people in the US. This, coupled with the fact that Australia is geographically isolated, means it's also going to cost more to get the product here. Our smaller population doesn't give IKEA as much scale as yankee country.

Convinced? Maybe.

Theory 2 sounds just as plausible: IKEA enters the market to be the cheapest choice in the local area. So if that means the cheapest comparable alternative to their Sofa X costs $1,599, they'll price Sofa X at $999 - even if they sell Sofa X for $599 in the US. The market, effectively the competitors like Freedom, Domayne, Nick Scali and so on - give IKEA license to do this.

I believe there's more to the story so I dug a little deeper…

Wait… Australians in Perth and Adelaide pay even more?

If theory 1 is correct, then we should see a (pretty) constant price throughout Australia. And if theory 2 is correct, then we should see price differentials across our states.

Luckily for us, IKEA has two separate websites for WA/SA and the rest of Australia. Why?

Well, because believe it or not, we pay different prices in WA/SA and VIC/NSW (our sample include 4188 items that the two markets share). Here's the graph of the price differential between WA/SA and NSW/VIC (each column represents a product). As you can see, it's about half and half -- half more expensive and half cheaper.

Here's an example in which WA/SA is paying less than NSW/VIC:

And here's an example where it's the opposite:

As I noted above, on average, the two Australian markets pay pretty much the same price for IKEA products. But again, averages can be deceiving. The price differences fluctuate between category to category, and as you saw, product to product. So even locally, it makes sense to compare -- especially if you're planning to furnish your new home.

So it seems both theories have some merits. Yes, as a whole, Australia is more expensive than the US. But local stores also adapt to local environments. And you, as a consumer, can use this to your advantage.

What you should do to get the best IKEA bargain

Well, that depends on what you intend to purchase and how many items you intend to purchase in IKEA.

According to our data, only about 30% of purchases from IKEA are greater than AU$100. If we assume these are for products that are small in size, I suspect it'd be worth it to have them shipped from the US to Australia. This is especially true if you plan to buy lots of small items.

Remember though, you have to pay an import tax of 10% if the total value of the shipment is more than $1,000.

But if you're planning to buy large furniture, then a bit more work is required. Buying a single sofa from the US and having it shipped here is simply not going to be worth it. But if you're furnishing a house for five-figures, then it's a whole other story.

And remember, this analysis is based in AU Vs US. But IKEA also has stores in China, Singapore and by this year, Indonesia. Take this example:

In Singapore, the same sofa costs 36% less:

And in China, it costs about half of what Australians pay:

And while shipping from the US can be expensive, shipping from China or Singapore is less so.

What you'll be doing, if you choose to do this, is called "parallel imports". Big corporations hate it when their customers do that, so don't expect IKEA China to ship the product to Australia for you.

Instead, you'll need someone to do it for you. There are several alternatives.

  1. You can get someone you know who live overseas to help you buy and ship the stuff.
  2. If you don't know anyone who live overseas, ask people you know locally who immigrated to Australia. They are likely to know someone at their home country. (You can pay that person for their effort, of course)
  3. If that doesn't work out either, there are classifieds like good ol' Craigslist. If you can't trust the craigslist crowd, you can use a service like TaskRabbit in the US. There are also popular TaskRabbit-like services locally in Singapore and China (which you can find out about by posting the question in a local forum).
  4. Maybe consider a turnkey solution: Shipporter.com.

Or do what I did: I spent nearly $1,500 in IKEA when I visited China and have the stuff shipped back home. The savings from that alone was worth my plane ticket.

As for shipping, you have several choices. Having your IKEA products shipped by air is going to cost a lot. Instead, do what the company does: ship ship. Instead of using FedEx, try other freight companies. And if you don't want to deal with freight companies, check out international moving companies.

End Note: Where we got our data

OK, so first off, where did we get our data? Well, we scoured IKEA's US website and the two AU websites. Yes, IKEA has TWO separate websites for the AU market. One for WA/SA and another for the rest of the country.

We compiled about 5000 items off each websites to build our database and conducted extensive research to compare.

Here are some detailed comparisons by category comparing Australian (NSW/Vic) and US prices across 2933 IKEA products:

Category % Difference
IKEA FAMILY products 10.33%
Dining 14.25%
Food 16.58%
Outdoor 17.28%
Eating 17.74%
Cookware 20.20%
Bathroom 25.58%
Small storage 26.71%
Laundry 31.30%
Bedroom 31.80%
Living room 33.59%
Textiles & Rugs 34.65%
Decoration 35.75%
Hallway 43.23%
Kitchen 43.83%
Children's IKEA 44.52%
Office furniture 46.08%
Secondary storage 48.13%
Overall 31.44%

How much does IKEA really overcharge Australians? Here's the data. [Pocketbook]

Andrianes 'Andre' Pinantoan heads up marketing at Pocketbook. He's an accounting graduate but hates crunching numbers. When not pumped full of caffeine and working away, he spends his (equally crazy) time with his wife and 1 year old son. You can find him on Twitter @andreispsyched or Google+.


Comments

    WTF. Hardly Normal is 2nd? WHY, PEOPLE, WHY?!

      My guess would be due to a factor of cost and range. I've bought a fair bit of stuff from the local Harvey Norman over the last few years and in just about every situation they did me a better price than anywhere else (including online retailers such as appliancesonline etc). I don't dispute that GH himself is a bit of a dick, but when shopping for major appliances/furniture I find it's hard to go past HN.

      Because we have one of the biggest retail chains throughout the country, one of few that offers all furnishings from bathrooms, kitchen, dining, outdoor entertaining, bedrooms, electronics, laundry, all under one roof. If we could merge with bunnings and coles you could shop at one store for everything.

      Is it just Harvey Norman, or the Harvey Norman group (Including Joyce Mayne)?

    Thanks for the detailed analysis Andre - it is most appreciated!

      Thanks George!

    Reason is this, Perth and Adelaide do not have major ports to my knowledge. Most stuff is shipped to Melbourne since it has Australia's biggest port, then put on a truck to its destination city. Those costs must be recouped so the price goes up in those areas as trucks and the drivers are not cheap to run, $28+ per hour for driver (12+ hour drive to Adelaide for example) plus the running costs of the truck. All in all it slowly adds up.

      Specifically to IKEA, i couldn't say, but you'd be surprised how much comes into Australia via the Fremantle port and then put on a truck or train and distributed all over.

      This is definitely a plausible theory but until I see some data, I'm a bit skeptical about it. Corporations always use geography, etc, to justify the Australia Tax, but you could say the same about these things in the US - yet all the states in the US has one price.

      Another plausible theory is theory 2 I pointed out in the post.

        Thanks Andre (I'm not sure if this thread is still alive an if you will get this) for an interesting article and bringing some of these things to light.....after reading your article I came across this one in my research on Ikea....could you look into this further..I would say this truly isnt fair if they are not paying tax and giving back to Aussie econpomy...and only taking. Thanks...http://www.smh.com.au/business/comment-and-analysis/ikea-pays-a-low-amount-of-tax-20140831-10ak6j.html

      Reason for what? 57% of the products sold both in WA/SA and NSW/VIC are either the same price or more expensive in the eastern states... you've provided an answer for a problem that doesn't exist?

      Are you serious?
      So because you are grossly ignorant you are going to advance a nonsensical answer? Good thinking.
      FYI - Fremantle Port is just minutes from Perth and it handles about the same import quantity as Port Botany and slightly less than the Ports of Brisbane and Melbourne.
      Google only takes a minute and solves a world of stupidity!
      http://www.portsaustralia.com.au/aus-ports-industry/trade-statistics/?id=1&period=13

    1/ because they are everywhere
    2/ because they are everywhere!!!!!!!

    Just a note on the IKEA SA/WA bit, those 2 stores are franchises.. where as the others are IKEA owned.

    I still don't understand why the prices aren't consistent across Australia. Is SA/WA a /different/ IKEA to the ones running in the eastern states? The article points out the discrepancy but doesn't explain why the prices are different between the east and central/west.

      Hi Molokov - as others have pointed out, there are several theories:

      1. IKEA WA/SA is owned by a franchise and they are allowed to price differently.
      2. IKEA imported their products through one port in Australian and have them trucked across the country - so they have to recoup that cost.
      3. They just adapt to local markets - which is theory 2 in my post.

    They are all the same, I have a Stihl chainsaw MS251, it's $329 in the USA & $849 here....same saw. Same ripoff.

    I couldn't find it mentioned in the article, but the US prices dont include sales tax (because it varies state to state) while the Australian prices do. We still end up paying more, but it's slightly better than it looks.

      Thanks for the note Stove!

      This. I wonder what the graph would look like if Angus compared solely on ex-GST prices to compare apples with apples.

    IKEA at Tempe barely relabels its Chinese manufactured goods in English - it's like all our stock is simply excess from the Chinese market. They must be saving costs there.

    Just a side note..Ikea in NSW, QLD and VIC is owned by IKEA. Ikea SA and WA is franchised out to a private company.

    I honestly don't think a lot of locals go to Australia for furniture. There are plenty of other options for storage and sofas and that kind of thing, not to mention that it's pretty easy for us to get our hands on some pallets or plywood and build something on our own in a jiffy. For plates and cups and other household items I'm not quite sure that holds the same though. But knowing now that they're seriously overcharging us, it might change my mind the next time I think of going!

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