Ikea’s profits have fallen by almost a fifth in the UK despite a 12% increase in sales amid the impact of soaring costs, as the company said it could not rule out further price increases in the new year.
The world’s largest furniture retailer said sales had benefited as shoppers returned to stores in the year to August 31, while online tooks dropped to 35% of annual sales, compared with 45% a year earlier when pandemic restrictions drove up internet shopping.
The Swedish retailer fared well as shoppers continued to seek out more kit for working from home, while the reopening of stores led to more ad hoc purchases.
Total sales rose to £2.2bn, topping pre-pandemic levels for the first time. However, operating profit slid to just under £50m, down from more than £61m a year earlier, because of higher energy bills, rising prices costs from suppliers and increased freight. Ikea said profit margins had also been hit by not passing on the full effect of its rising costs to shoppers, despite upping prices this summer.
Peter Jelkeby, Ikea’s country retail manager for the UK, said its supply chain had been stabilizing and service levels improving but “inflation is not yet over for us”. Although price increases for shoppers could not be ruled out, he said: “We have to be competitive and affordable and we are working very hard on improving our offer.”
He said shoppers were looking for ways to save money and energy, with people buying insulated curtains, water-saving taps and energy-saving light bulbs.
The company has tried to keep costs down and trade more sustainably by cutting waste, which is down by 50% on food, and is switching to electric vehicles for deliveries to customers’ homes. The group already has 24 electric vans in operation and will switch all home deliveries to electric or other zero emissions options by 2025.
Jelkeby said that Ikea would also be expanding its furniture buy-back scheme, which is now present in all stores and has already resulted in the return of 28,000 items.
Ikea is also attempting to make it easier for shoppers to buy its products by opening three small “planning and order points”, in Aintree, Preston and Stockport over Christmas and new year, and is testing online collection lockers in seven Tesco car parks as part of its efforts to be easier to reach. Three more Tesco sites are in the pipeline.
The latest small stores come after Ikea opened a UK high street store in Hammersmith, west London this year and announced plans to open an outlet in the former Topshop store on London’s Oxford Street next autumn.
The company is also spending £33m on a new distribution center for its online business, which will open in Dartford, Kent in May next year.