Ikea Morocco prices: the controversy is more than justified!

I have to admit, I’m a big fan of Ikea. Having lived in 4 different countries before Morocco, I particularly appreciated the fact that I could easily add to my Billy collection, or any other piece of furniture, from one country to another, without having to worry about a thing or a mismatch.

The aesthetic may be plain, but the value for money isn’t too bad: carefully dismantled and reassembled, my furniture has survived several moves. What’s more, when I lived in Germany, I was exactly 10 minutes from an Ikea shop – a constant temptation.

So I was one of the frustrated, impatient people waiting for just one thing: the long-promised opening of Ikea Morocco.

In the meantime, I had some furniture brought in from Italy, thanks to the family’s travels.

And I followed the rumours in the newspapers: Kitea and Mobilia were doing their utmost to delay the arrival of Ikea, the owner of the Kuwait licence was going to invest in Morocco, Marjane was going to stop selling alcohol to make room for Ikea…

The price buzz and Ikea Morocco’s response

If you’re in Morocco and a bit impatient, there’s no need to tell you about the bad buzz Ikea has just generated: with prices on average 30% higher than in France, and a much lower standard of living, Moroccans feel a bit like they’re being taken for a ride…

Ikea’s response was sober, evasive and totally misleading in substance, if not in practice, and above all, it was taken particularly badly by Moroccans.

Ikea Morocco states that all countries have different customs duties and tax regulations that affect the final price of IKEA products (…) many parameters are taken into account when setting the prices of their products, although the company does not necessarily wish to communicate on the nature of these parameters at the moment. “This controversy is taking on a dimension that is not justified at our level, since we consider our prices to be reasonable”, explains a manager at Ikea Morocco.

Well, you know us at O-Maroc, whether it’s Uber or Ikea, we like to get to the bottom of things, and this time we took a long, hard look.

Short and summary: it’s all hot air and there’s no justification for it.

Long opinion: read the article.

The factors that influence prices: transport, taxes… and marketing!

Compared with a “factory gate” price, transport costs will have an influence, as will customs duties and taxes.

For Ikea, transport costs are relatively unimportant, since one of the brand’s areas of expertise is the flat pack…

Customs on entering Morocco and VAT

That leaves customs duties, in the broadest sense, and VAT.

Contrary to popular belief, Ikea is not so much European. While the design workshop is in Sweden and the brand’s head office is in the Netherlands, its suppliers are widely diversified, with at least 40% of products manufactured outside Europe, mainly in Asia.

What’s more, for products manufactured in Europe, under the agreements with Morocco, the cumulative rule of origin means that we look at the origin of the raw materials and the value added by processing in a European factory to determine whether a good is ‘European’ or not.

As the value added by sawing wood planks is fairly low, it is possible that, with regard to Morocco, more than 40% of Ikea products are considered to be non-European.

In this case, they must pay :

• 25% customs duty
• 0.25% parafiscal import tax
• 12% tax on wood (in proportion to the value of the wood in the furniture)
• VAT on the value of the product + the 25% customs duty + the 12% wood tax + the parafiscal tax.

Of course, we don’t know the ‘factory’ value of Ikea products. But if we refer to practices in the sector, we can imagine that it represents a third of the final price.

So, let’s say a sofa sold for €799 in Italy, of non-European origin, with 30% wood in its value:

• the price excluding VAT in Italy is €655 (22% VAT)
• the factory price would therefore be €218
• the price after customs duties and wood tax would be €218 + €54.5 + €7.86 + €0.5 = €281
• which would give an in-store price (including VAT) of €1,010 in Morocco, around 11,000 dirhams.

However, the price offered as it appears on the screenshot taken by the Huffington Post is 17,395 dirhams, i.e. 57% more (45% if wood tax is applied to the full value)! That’s a lot for transport !

However, if we imagine that Ikea really crushes its prices, and that the factory price represents half of the final price excluding tax? In reality, this doesn’t change much, as the reduction in the final margin offsets the increase in the base price, and we’re still talking about 11,000 dirhams.

In fact, Ikea has discreetly lowered the price to 15,595 dirhams on their website.

Another mistake by the intern!

Or the CEO?

Because the simple calculation I’ve just done proves that no, even if you consider that IKEA furniture is subject to taxes because it’s non-European, these taxes don’t justify the staggering price difference with the country where Ikea is the most expensive in Europe!

Ikea prices vary in every European country

Cross-border commuters know this well. Ikea prices do vary from one country to another, and not consistently. One item may be cheaper in Italy than in France, while another may be the opposite.

So I looked at prices in Europe, and added up the following items, all of which are shown in the Huffington photo:

• Nockeby 2 seater meridian left
• Polarvide plaid
• Svalsta nesting tables
• Stickat Stool cover
• Adum carpet
• Ekorre Hammock armchair
• Alseda seat

To which I’ve added the Rimforsa tablet holder seen elsewhere.

Here’s the total price, country by country (converted into dirhams, to be clearer)

As a result, the French are really being taken for a ride with very high prices, and the difference with the cheapest country in Europe, Italy, is almost 90%, i.e. almost double!

Marketing positioning rather than local constraints

Pas mal de choses peuvent expliquer ces écarts gigantesques, entre autres un niveau de prix globalement élevé en France par rapport à l’Allemagne, une industrie du meuble italien très prisée, plein de choses…

Cerise sur le gâteau, si on va voir les prix des produits Ikea hors Europe, on s’aperçoit que les frais de transport ne justifient pas tout et qu’Ikea est tout à fait prêt à s’adapter à la baisse aux contraintes locales.

J’ai refait l’exercice avec l’Amérique du Nord (comparaison rendue un peu plus difficile, car le canapé n’est pas vendu là-bas), la Chine et les Émirats Arabes Unis.

The comparison with North America is not very fair, since the price of the sofa was calculated as having the same difference as the other prices. On the other hand, the difference between the two countries (USA and Canada) is very significant and proves once again that Ikea prices are primarily marketing.

Finally, prices in the Emirates are interesting, since the franchise holder who is investing in Morocco is Kuwaiti. Even in the Arabian Peninsula, he is clearly perfectly capable of maintaining a reasonable price level!

Why does Ikea consider its prices to be “reasonable” in

Morocco?

For several reasons, in my opinion, all of which are bad.

• Firstly, Ikea is counting on the Moroccan public’s real infatuation with quality European products.
• Secondly, Ikea is perfectly aware of the competition’s prices. Once and only once have I bought a Kitea shelf, at a much higher price than a Billy shelf in Europe, and with a much lower quality (shelves that bend under the weight, a plastic back, no possibility of buying replacement shelves…). A price that the competition justifies with the price of wood.
• Thirdly, by setting up in Zenata, Ikea imagines itself to be in an upmarket, bourgeois environment, where people will be prepared to pay a high price.

Three bad reasons, several mistakes.

Because while Moroccans are very keen on European products, they also know the price. Today, the Internet is there to globalise brands.

Of course, we are prepared to accept a higher price when it is justified. In this case, as my calculations show, it is absolutely not justified.

The second is to underestimate the weight of the grey market. At this price, I know many Moroccans who will bring back goods and sell them on Avito or other classified ad sites.

Let’s imagine I’m a Moroccan who regularly drives a van to Italy and back.

My famous sofa, which now costs 15,595 dirhams, and which costs €799 in Italy, how much would it cost to import through the grey market? In the worst-case scenario, i.e. one in which it would be fully taxed (25% + 12% on the total value), which is unrealistic… it would cost 14,300 dirhams on leaving customs.

In practice, it will only be taxed at 20%, which will give a value in Morocco of 10,500 dirhams, more than enough to undercut Ikea’s price, while maintaining a reasonable margin for this type of business.

Nevertheless, I wonder whether Ikea’s prices have not been calculated like this:

as high as possible without being too tempting to develop the grey market.

The last mistake is more serious: it’s a communication error.

I can well imagine that this controversy must have destabilised Ikea, which has – at last – embarked on its communication campaign. Not anticipating it was a big mistake. Responding by saying “our prices are reasonable and that’s that” shows contempt for the Moroccan consumer.

Globalisation also means uniform prices

I confess that when I started writing the article on Ikea, I had a completely different story in my head. It’s about a company that makes an effort to adapt to local markets and manages to bridge the gap between a standardised offer, the same everywhere, and the little local touch. I had read this article in particular, by an expat in China, about his visit to Ikea.

I wasn’t expecting to end up with a course in calculating the price of imported goods… but it’s a small advance on an article in preparation, in our business ideas, import-export is high on the list.

If you want to succeed in Morocco, you absolutely must not be too expensive!

The difference in price between two countries is only acceptable if it is justified and does not lead to selling at too high a price.

In the first case, you end up with a buzz like that of Ikea. In the second, there is no market.

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