IKEA stores reported record annual sales despite global supply-chain disruptions and fast-rising costs, in what the company said was a sign of the Swedish brand’s appeal in uncertain economic times.
Sales rose 6.5% to 44.6 billion euros, equivalent to $43.3 billion, in the 12 months to Aug. 31 compared with the year-earlier period, Inter IKEA Holding BV said Thursday. Inter IKEA owns the IKEA brand, develops its products and manages its supply chain; stores are operated separately by franchisees.
“Homes now fulfill more functions and solve more problems than ever before. That means people need home furnishings and solutions at an affordable price,” said Inter IKEA Chief Executive
Jon Abrahamsson Ring.
In total about 822 million people visited IKEA stores during the period, up 6% on the previous year, the company said.
However, IKEA had to contend with enormous disruptions in the world economy which affected the home furnishings giant, Mr. Abrahamsson Ring said.
The war in Ukraine contributed to the supply-chain dislocation, with the company putting its four Russian factories, which produced furniture and wooden boards, up for sale in June. The sales process is ongoing, according to the company. Products made there specifically for the Russian market were discontinued, while others are now produced in other countries, it said.
IKEA also closed its 17 stores in Russia following the country’s invasion of Ukraine in February, costing IKEA about 2% of its revenue, Mr. Abrahamsson Ring said. As a result of the pullback, Ingka Holding BV, the franchisee that operates the majority of IKEA stores globally, said it let go about 10,000 Russian workers.
Elsewhere, Covid-19 related lockdowns in Asia, especially China, caused further headaches by disrupting production schedules, while port congestion made ocean freight more expensive and less reliable, he said.
Inter IKEA’s costs rose 6%-8% in the year to August, Mr. Abrahamsson Ring said. The company enacted some price rises in response but held back from implementing roughly €1 billion in further increases in recognition of the spending constraints that many consumers are facing, he said.
The company is combating price inflation by redesigning some products to “do more with less,” Mr. Abrahamsson Ring said, including using hollow spaces in some wooden furniture items to lower material costs. IKEA is also taking more direct control over key parts of the supply chain, such as plastics production, to control costs and ensure reliability of supply, he said.
Inter IKEA didn’t disclose the impact of higher costs on its bottom line. The closely held company is expected to report more complete financial information—including profit figures—at a later date.
Major franchisee Ingka opened 52 new stores during the 12 months to August, more than compensating for the Russian closures, said Tolga Öncü, Ingka’s retail operations manager.
E-commerce accounted for a quarter of Ingka’s sales during the period, up from 11% in prepandemic 2019, Mr. Öncü said.
The pandemic produced lasting shifts in demand, with home office and study equipment now very popular, he said.
In recent months Ingka has also seen heightened demand for carpets, heavy curtains and energy-saving electrical products, Mr. Öncü said, as consumers, especially in Europe, seek to make their homes warmer and more efficient resulting from big rises in energy costs triggered by the Ukraine war.
Stock levels in stores are back to normal prepandemic levels, with supply issues having eased, he said. A year ago, many stores were missing around a 10th of IKEA’s total product offering because of supply blockages, the company said at the time.
Despite cost inflation, prices of some flagship products such as bookcases and storage units have recently been cut in some European markets as embattled consumers hunt for bargains, Mr. Öncü said. Some lapsed IKEA customers were returning to IKEA because of its reputation as a low-cost brand, he said.
“Price really matters in times like this,” he said.
Write to Trefor Moss at [email protected]
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