IKEA CLOSES U.S. FACTORY. “..cost of raw materials in the United States is too high” By Todd Horwitz, Bubba Trading.

 



IKEA Closing its Only U.S. Factory 

This week, Ikea announced that it will be cutting 300 jobs by closing its only U.S. manufacturing hub. The facility is located in Danville, Virginia, and has been operating since 2008. The Danville factory’s primary role was producing wood-based furniture, primarily shelves and storage units, for stores in the United States and Canada. Ikea plans to move the production to Europe to—somewhat paradoxically—be able to keep costs low in its North America stores.

That implies that it’s more expensive to make furniture in the United States than it is to make it in Europe and then pay to ship it across the Atlantic. Ikea says that the cost of raw materials in the United States is too high to justify the plant, when the same products can be made in Europe for a fraction of the price.

“This was an extremely difficult decision to receive. 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, Virginia, for the long-term,” said Bert Eades, the site manager at IKEA Industry Danville, in a statement. “We will do everything we can in the coming months to support our co-workers through this change as they look for new jobs and training opportunities.”

Danville City Manager Ken Larking said the loss of IKEA’s roughly $500,000 in annual tax revenue will hit the city budget, but the manufacturer’s presence has been a net benefit to the city. IKEA met the terms of an agreement to make a capital investment in Danville of $85.5 million and created at least 271 jobs, according to Mr. Larking.

In exchange, state and local officials provided the manufacturer about $3.8 million in incentives. IKEA also was allowed to lease its 94-acre site for $1 a year, with the option to buy the land for $1. IKEA made that purchase earlier this year, Mr. Larking said.

Danville officials didn’t offer the company additional incentives to maintain its presence in the city, because higher U.S. raw-material costs were IKEA’s primary issue with the plant’s operations, he said.

Both the company and local officials said IKEA will work with Danville to support laid-off employees in job searches. Mr. Larking said IKEA will assist city officials in finding a new occupant for the nearly 1-million-square-foot facility.

Todd “Bubba” Horwitz

IN ASSOCIATION WITH

Financial Markets and Political Commentary
 

Tags

, , ,

Related Posts

About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.