The business model that brought IKEA annual sales of over 20bn euros, which targets the lowest possible costs, was the reason why the Romanian plant, held by its production unit, Swedwood, was forced to close down.
The retailer is pursuing a maximum cut down in costs across all production and sales stages, and the increase registered by these indicators, in an area where IKEA has a production facility, has forced the plant to exit the market. In recent years, the Swedwood facility in Suceava unit has seen its raw material costs go up by 70%, while in 2005 the plant started to post losses, which hit a cumulated value of 10m euros, so that the firm last month decided to shut down production.
As a rule, when it decides to invest in production, the Swedish retailer wants to cover the entire cycle, from the production of timber to components, and finally a furniture plant.
In 1999, Swedwood started a 12m-euro investment in Romania, but it did not succeed in launching plans for the other two activities that would have ensured more efficient cost control.
"Research showed it wouldn't be able to secure long-term supplies for this level of integrated production, so that the firm decided to give up the business," says Kelemen Balaci, head of Suceava plant.
The timber the plant used came from Suceava, but because of rising prices the firm also resorted to imports.
After 2003-2004, Swedwood went into the red.
On the other hand, turnover rose by just 39% in six years, so that in 2007 the plant generated only 1% of Swedwood's entire production. In Romania, Swedwood last year generated turnover worth 16.3m euros and 2.8m-euro losses.
Under the circumstances, Swedwood last month decided to close the plant, which entailed 500 layoffs. The plant located on a 5.2-hectare area, which includes 15,000 built square metres, was put up for sale. "We're seeking an investor that can revive production. Only if this is not achieved, will we consider selling off assets," says Balaci.
As the Suceava plant closes, IKEA will also give up production of a range of massive wood furniture products, mainly sold in Western states.
The plant closedown is part of a programme meant to boost the group's efficiency, which has also involved layoffs in Slovakia and Sweden. "For the moment, we are not considering reopening the Suceava plant, but we're not completely ruling out the idea of Swedwood's returning to Romania in the future," said Ingrid Steen, information manager of Swedwood International AB.
The first entity with which IKEA arrived in Romania was the representative office, through which it acquires furniture and home decor products from domestic producers. The office was opened in 1992, and at present the number of suppliers the group works with revolves around 40. The most "visible" unit of the Swedish group on the domestic market is the IKEA store in Baneasa.
Swedwood Romania SRL
Opened in 1999, in the wake of 12m-euro investments in Suceava county
In 2005, announced it could invest a further 35m euros in the construction of a new facility
In 2007 reached 16.3m-euro investments and 2.8m-euro losses
Production in Romania is the smallest among the states where Swedwood holds facilities
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