Ikea warns of price increases amid supply chain challenges

The Swedish furniture giant suffered a drop in full-year profits as a result of the supply chain crisis. It warned that it would be forced to pass some of these costs onto its franchise outlets, which would then be free to charge customers more. 

Pre-tax profit at Inter Ikea Group, the business that oversees the brand’s franchises and is in charge of supply, fell 16% to £1.7bn in the year to August. This represents a decline of 4% compared with pre-pandemic levels. 

Ikea  admitted its bottom line was dented by “the steep increase in transport and raw material prices in the second half of the financial year”.

The retailer added: “Keeping Ikea stores and warehouses stocked has been a challenge. Supply chain disruptions led to a substantial drop in the availability of products that we have yet to recover from. We expect this will continue far into FY22.”

Chief financial officer Martin van Dam told Reuters that Ikea anticipates further increases in supply chain costs in the coming months and warned that 2022 would be “a more difficult year with more challenges”. 

Ikea admitted that it “can’t continue to secure fixed prices to the retailers under these challenging conditions”, but said it planned to “absorb part of the increased costs” next year. 

Van Dam conceded, however, that store owners would be able to decide the extent to which they would pass on higher prices to shoppers.

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