The world’s largest furniture retailer IKEA on Wednesday reported a sharp drop in its annual net profit after slashing prices to try to attract more budget-conscious customers to its big blue stores.
Ingka Group, IKEA’s largest franchisee, reported net profit of 800 million euros ($841.28 million) for the year ended Aug. 31, up from 1.5 billion euros for the year previous. Its operating profit margin was 3% for an operating profit of 1.3 billion euros, down from 2 billion euros in 2023.
The retailer, which operates stores in 31 countries and accounts for 90% of IKEA’s global sales, said it was prioritizing affordability over profits, investing 2.1 billion euros in the cut prices on items ranging from bookcases to bedding.
Ingka Group’s turnover fell 5.5% from last year to €41.8 billion, including €39.6 billion from IKEA’s retail sales, but the company said the price cut helped increase store traffic by 3.3% and visits to its website by 28%.
“Sales have been developing well since the beginning of the fiscal year, which confirms that although we sell at a lower average price, we sell more quantities and we have access to many more people,” said Juvencio Maeztu, deputy general director and financial director of Ingka Group, in an interview with Reuters.
Quantities of items such as $229 mattresses and $149.99 cabinets sold by IKEA have increased thanks to price reductions, Mr. Maeztu added. Previous price increases had reduced the volume of products sold.
“We have reduced prices significantly and we plan to keep them at this level,” Mr Maeztu said.
Germany is IKEA’s largest market, accounting for 15.5% of sales, followed by the United States, France, the United Kingdom and Italy.
Earlier this month, Inter IKEA, the owner of the world’s largest furniture brand, reported higher profits for 2024 thanks to lower interest payments, despite a sharp drop in revenue after cutting prices of all its product lines.
Inter IKEA manufactures the group’s products and owns the brand, which it franchises to the Ingka group and others.
The private Ingka Group, which reinvests 85% of its profits in the company and pays 15% to its owner, the Ingka Foundation, said its financial independence allows it to invest for the longer term.
Ingka, which also operates shopping centers around the world, sold its latest asset in Russia earlier this month, after selling its shopping centers in the country in September last year.
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