Ikea reports higher profit despite revenue hit from price cuts

INTER Ikea, the owner of the world’s biggest furniture brand, reported higher profits for 2024 thanks to lower interest payments, despite a sharp decline in revenues after it cut prices across its range of products like BILLY bookcases.

The price reductions are an attempt to boost Ikea’s affordability after it hiked prices significantly in 2021-2022 when supply chain disruptions raised raw material costs.

Inter Ikea, which supplies the stores to which it franchises the Ikea brand, lowered its prices by an average of 15 per cent over the year, chief financial officer Henrik Elm said, allowing Ikea retailers to cut prices for customers by an average of 10 per cent, after the cost of commodities like wood fell.

Price cuts drove Inter Ikea’s revenues down 8.9 per cent to 26.5 billion euros (S$37.8 billion) for its financial year ending Aug 31. But Inter Ikea said lower prices were encouraging customers to buy more, helping to boost operating profit to 2.3 billion euros, up from 2.2 billion euros in 2023.

“You could say that, in rough terms, we are back to where we were pre-Covid in prices, if you would adjust it for inflation,” said Elm, adding that the company aims to bring prices down further this year but could not give an estimate.

Price cuts impacted Inter Ikea’s wholesale sales to retailers and also hit Inter Ikea’s franchise fee of 3 per cent of net sales that it collects from them.

Still, net profit jumped to 2.2 billion euros, up from 1.6 billion euros last year, mostly due to lower interest rate expenses after it settled a large loan last year.

Inter Ikea opened a new factory in Slovenia and is expanding a factory in Sweden as part of investments in its manufacturing. Around 10 per cent of the products Inter Ikea sells are made in its own factories, with the remainder sourced from external suppliers.

The Ikea franchisor also said it signed a deal to acquire Ikea retail operations in Estonia, Lithuania and Latvia from current franchisee Hof Group, with the purchase set to close in December 2024 if it gets regulatory approvals.