IKEA prices will likely rise due to supply chain pressures
If you're looking to buy a new Ektorp sofa, some Dröna storage bins, or Huvudroll meatballs at IKEA, prepare to budget more for your shopping trip. The international retailer saw its profit margins shrink during the pandemic.
The potential gains in Fiscal 2021 from soaring online sales were offset in part by lower sales numbers at stores due to many locations being shuttered during lockdowns as well as higher materials costs due to global supply chain problems (including labor and transportation shortages), according to Inter IKEA Group, the holding company for the IKEA brand and related companies.
Its profit in Fiscal 2021 was 1.4 billion euro (about $1.6 billion), down from 1.7 billion euro (about $2 billion) in Fiscal 2020, which is a nearly 18% drop.
"This year IKEA e-commerce accelerated and now accounts for 26% of total retail sales. But stores welcomed only 775 million visitors compared to more than 1 billion in FY19," Inter IKEA Group CFO Martin van Dam said in a statement. "To keep products affordable and meet changing customer needs, we've invested heavily in the IKEA supply chain."
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Although most lockdowns have lifted, allowing IKEA retail locations to reopen, the company continues to face challenges, he said.
"Although our costs increased, we did our utmost by keeping the prices to our retailers stable in FY21," van Dam said. "Though we can't continue to secure fixed prices to the retailers under these challenging conditions, we also plan to absorb part of the increased costs during FY22."
The key part of that sentence is that IKEA can absorb only "part" of the higher costs in this fiscal year. That means customers will likely see higher prices. How much higher will depend on how much of a hit IKEA's related divisions and its main franchisee are able to take.