Ikea warns of potential hit from Donald Trump’s tariffs as earnings halve

Unlock the White House Watch newsletter for free

Ikea’s annual profit almost halved to the second-lowest level in at least a decade as the flat-pack furniture pioneer warned that trade barriers from US president-elect Donald Trump would hurt its push to cut prices.

Net profit at Ingka Group, the main Ikea retailer that runs 90 per cent of the group’s stores, fell from €1.5bn to €806mn in the year to August due to a campaign to shield consumers from higher inflation, as well as the cost of its exit from Russia.

The privately held retailer, based in the Netherlands and owned by a Dutch charitable foundation, sold 14 Mega shopping centres to Gazprombank last year, but declined to specify the price or the hit to profits. It spent €2.1bn cutting prices in a bid to improve the affordability of its products, leading to a 5 per cent drop in revenue to €41.9bn.

“In essence, we are built for purpose,” Juvencio Maeztu, Ingka’s deputy chief executive, told the Financial Times. “This year, we are walking the talk . . . It’s not so easy to say bye bye to €2.1bn but it’s so brave.”

Ingka’s net profit was the lowest it has been in the past decade apart from 2022, when supply chain woes and rising raw material costs dragged it down to just €287mn. In 2019, the last year before the Covid-19 pandemic, Ingka, one of the two main companies in the complex structure making up the Ikea empire, recorded a net profit of €1.8bn.

Ikea was unnerved by having to raise prices due to surging inflation following the pandemic as it traditionally reduces the cost of products steadily over time.

“It was a conscious decision not to optimise profit but to maximise affordability for the many people,” said Maeztu, adding that the company’s structure and ownership enabled it to make long-term decisions.

Ikea expected to keep prices broadly unchanged this year and the first months of its financial year had developed well with “us selling more volume”, said Maeztu.

About five-sixths of Ikea’s profits are reinvested into the business with the remainder used to fund the charitable work of the Ikea Foundation.

Ikea is anxiously watching the threats that Trump’s second administration could impose tariffs on imports from China, Mexico and Canada, and possibly the EU. The US is Ikea’s second-biggest market for sales with 13.2 per cent of the total — or about €5.5bn annually — behind only Germany.

The world’s largest furniture retailer sources about 70 per cent of its products from Europe with nearly all the remainder coming from Asian countries such as China, India and Vietnam.

“In the long term, trade barriers are not supporting affordability . . . For us, what is important is that we are determined to make Ikea as affordable as possible for the many people,” said Maeztu.

Ikea had tried to add flexibility to its supply chain after the pandemic and was coping well with the disruption in the Red Sea for sea freight from Asia to Europe as a result of attacks by Houthi rebels on vessels, added Maeztu.


Source link

Total
0
Shares
Related Posts