The Swedish furniture company Ikea is on a cost cutting spree and would be shutting down its only factory in the United States in December this year. The factory is situated in Danville, Virginia and all production work in the factory would be shifted to Europe.
The company says that the logic behind the decision is that it would be able to better cut costs of operations in Europe.
“We made every effort to improve and maintain the competitiveness of this plant, but unfortunately the right cost conditions are not in place to continue production in Danville,” site manager Bert Eades said in a statement, reported media house CNN.
There are about 300 employees in the Danville facility which was started operations in 2008. The production unit currently manufactures a variety of wooden products including shelves and storage units.
The high price of raw materials was pointed out as one of the justifiable factors behind the decision of the closure, said Ikea. According to the company, raw material costs are significantly higher in the US compared to Europe. There are multiple factories operated by Ikea in Europe including plants in Poland, Russia and Sweden.
A tweet in 2018 from US Senator Tim Kaine, a Democrat from Virginia, expressed worries among the employees at the Danville plant about the impact on cost of production because of tariffs. Many of the raw materials are currently imported by the plant, Kaine said in the tweet.
“Just toured IKEA’s Danville manufacturing plant. Asked if the tariffs worry them. They’re ok for now, but because they import a lot of raw materials, they’re concerned about what’s to come. We have to stop this rash policy before it hurts even more U.S. businesses and workers,” Kaine had tweeted in 2018.
Since that tweet by Kaine, tariffs on imports of particle board, a common Ikea material, from China, has been imposed by the Trump administration.
However the decision to close down its only US manufacturing unit was not because of tariffs, Ikea said on Tuesday. The company instead confirmed that US supplies fulfills the requirement for particle board used at the Danville plant.
A total of about 20,000 people are currently employed by Ikea in its owned manufacturing facilities in nine countries.
Ikea has cut jobs in some other parts of its business because of a change in its business strategy designed to adapt to the rising use of online shopping platforms by consumers. Investments in online pickup services and digital fulfillment centers have been made by the company in recent times. The company had acquired an online marketplace for finding gig workers – TaskRabbit, in 2017. Another strategy of the company to attract the younger consumer base is to open up smaller stores in large cities.
Announcement of laying off of about 7,500 employees, or 5 per cent of its global workforce, was made last year by the Ingka Group, which is the Swedish holding company that owns and operates most of Ikea’s stores. The company strategy of opening up of 30 smaller stores in major cities across the world within the next few years was also made at that time.
(Adapted from CNN.com)