Supply chain chaos hits Ikea profits

Ikea has warned that it faces a more difficult year after logistics logjams and store closures hit profits.

Inter Ikea, the worldwide franchiser for the Swedish furniture and homeware retailer, said net profit fell 17pc to €1.43bn for the 12 months to August. 

The chief financial officer, Martin van Dam, said the current financial year would be more challenging amid inflation in raw material prices and supply-chain challenges.

The biggest problem is that Ikea’s growth is being held back because it cannot meet demand, he said: “Supply-chain disruption creates by its definition a disappointed consumer.”

Ikea still expects sales to rise this year, but at a slower pace than in the past.

Inter Ikea had €250m of additional costs due to labour and transport shortages last year. Those costs will rise further this financial year, it added. 

The company already gave a bleak outlook for the retail sector last month, saying it expected shortages from the supply-chain crisis to remain an issue until mid-2022.

Franchisees are increasingly testing smaller formats to add click-and-collect sites as consumers order more online, Mr van Dam said.

Shortages of transport containers and blocked-up ports have snarled logistics for retailers around the world. The turmoil has led to warnings about slower sales growth and higher costs from clothing retailers including H&M to Asos.

To cope with the situation, Ikea has been prioritising and focussing its offerings on the most popular products.  

Inter Ikea’s franchisees had record sales of €41.9bn in the most recent financial year.

DIY makers have benefited as consumers working from home renovated their houses.

After keeping prices stable last year, Ikea said it will partially absorb cost increases this year, passing on some of the rises to customers.