Ikea transformation knocks a third off profits in 2018

The cost of transforming Ikea’s business model from a big-box, out-of-town retailer to focus on e-commerce and small city-centre stores has weighed heavily on 2018 profits at the Swedish firm.

Ikea’s parent firm Ingka Group said pre-tax profits fell to €2.1 billion (£1.8bn) from €3.3bn the year before.

It said this was the because of the impact of “significant steps” the business has started to take to “accelerate transformation” to make Ikea more accessible and relevant in a new era of retail and fit for purpose for the future.

“Now, more than ever, is the time to be bold, to embrace all the opportunities together with our co-workers and the realise the Ikea vision by creating a new world of Ikea,” said Juvencio Maeztu, deputy chief executive and chief financial officer, Ingka Group.

“We are just in the beginning and a lot remains to be done.”

As Ikea strips away layers of bureaucracy and looks to bring the business “closer to where people live, work and socialise” it said an estimated 7,500 jobs worldwide would be made redundant mainly in “global functions”.

But it said 11,500 new jobs would be created over two years.

In total, the Swedish firm invested €2.8bn over the year, mainly in bulking up its e-commerce capabilities, including opening 14 new distribution centres to shorten lead and delivery times for online shoppers.

There was also major investment in new retail formats in city-centre locations.

Mini-shops were opened in Stockholm and Madrid this year, while in mid-October, the furniture firm opened a kitchen and bathroom studio in London’s Tottenham Court Road.

A new city-centre store is planned to open in Paris next summer, with more to come.

Ikea has also been expanding in shopping centres, opening three new European shopping centres in the Algarve in Portugal, Lublin in Poland and Zagreb in Croatia, and three more about to be built in China’s fast-growing urban hubs in Changsha, Shanghai and Xian.

The firm said Ingka Centres, which operates Ikea’s shopping centres, would work closely together with its retail arm in the future to “increase accessibility of Ikea in city centres.”

As part of its ambition to use digital platforms to better meet the needs of its tech-savvy customers, Ikea bought on-demand affordable furniture assembly firm TaskRabbit in its financial year, between September 1, 2017 and August 31, 2018, which is now integrated in the firm’s UK and US businesses.

Revenue from Ikea stores grew by 4.7% adjusted for currency impact, while online sales jumped 45%.

The UK was Ikea’s fourth largest market by sales volume, with Germany number one, followed by the US and France. China was number five but was the firm’s fastest-growing market.

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