IKEA owner sees cost pressures rise after hitting profits

The IKEA logo can be seen on shopping carts inside an IKEA store in Navi Mumbai, India on December 17, 2020. REUTERS / Francis Mascarenhas / File Photo

STOCKHOLM, Nov. 3 (Reuters) – The owner of the furniture brand IKEA said on Wednesday he would hike prices due to supply chain problems until 2022, after reporting declining year-over-year profits full due to rising costs of transportation and raw materials.

Despite record demand as people spend more time at home due to the pandemic, the pre-tax profit of Inter IKEA Group – franchisor of store owners and responsible for procurement – has fallen 16% over the years. 12 months to August to reach 1.71 billion euros ($ 1.98 billion). Compared to the 2019 fiscal year before the pandemic, profit was down 4%.

“The global pandemic affected our operating profit in fiscal year 21. The main cause was the sharp increase in the prices of transport and raw materials in the second half of the year,” said the private company Inter IKEA in its annual summary.

The company, which mainly derives its revenue from product sales to its franchisees, said in October that retailer sales totaled a record 41.9 billion euros, up 6% year-on-year and 1% compared to fiscal 2019, confined consumers having spent more than ever. at home, and despite product shortages. Read more

“Keeping IKEA stores and warehouses stocked has been a challenge. Supply chain disruptions have resulted in a substantial drop in the availability of products that we have not yet recovered from. We expect this to continue until FY22, “he said on Wednesday.

CFO Martin van Dam told Reuters that the ripple effects of the global supply chain crisis and high energy prices could last for some time.

“FY22 for us will be a more difficult year with more challenges,” he said in an interview.

“The scarcity and the price of raw materials, then the logistical problems – that means that it will be difficult to develop in fiscal 22. Of course, we expect growth, we are going to go there, but it is going to be very, very hard work in our supply chain, as well as with our retailers. “

Van Dam said he expected procurement costs to increase further in the current fiscal year.

Inter IKEA kept product prices at retailers stable over the year, but said it would pass some of the higher raw material and transportation costs on to store owners this fiscal year.

“While we cannot continue to guarantee fixed prices to retailers in these difficult conditions, we also plan to absorb some of the increased costs in FY22,” he said.

Van Dam said store owners would then have some freedom to decide whether, or to what extent, they should pass the higher prices on to buyers.

($ 1 = € 0.8633)

Reporting by Anna Ringstrom Editing by Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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