Heavy investments in logistics and digitisation have taken quite a bite out of Ikea's profits in the past financial year, as the Swedish furniture chain has decided not to burden its customers with these costs.
“Preparing the company for the next 75 years”
Many were curious about Ikea's annual results after the world's largest furniture chain announced a reorganisation last week that entails the loss of 7,500 jobs. The management referred to the enormous transformation that awaits Ikea as a result of rising online competition and changing consumer behaviour.
Ingka Group, Ikea's most important franchiser, runs 367 stores and has grown by 5% in the past financial year. Operational profit however fell by 25% and net profit even plunged down by over 40%, from 2.47 billion euros last year to 1.47 billion now, as Ikea invested almost 2.8 billion euros. CFO Juvencio Maeztu stated in the Financial Times that this is all part of the plan: "We decided a year ago that we did not want customers to pay for the transformation", he explained. "It’s a conscious decision to lower the profit to finance the business transformation (and) we expect to keep the same level of profit for the next three years.”
For now, Ingka Group will be able to finance the investments independently: the group still has 21 billion euros in the balance sheet, which the CFO calls a good financial muscle. "We have been operating for 75 years with the same business model", he says. "From 2018-22, we have a big programme to change the company, to be ready for the next 75 years. We are investing like never before.”