IKEA, the world’s largest furniture brand, reported a substantial rise in profit for 2024 despite an 8.9% decline in revenue due to significant price cuts. Inter IKEA, which owns the brand and supplies its franchise stores, lowered product prices by an average of 15% over the year to regain affordability after earlier price hikes during supply chain challenges in 2021 and 2022. Popular items, including iconic BILLY bookcases, saw noticeable reductions, prompting higher customer demand.
Chief Financial Officer Henrik Elm noted that this move brought prices “back to where we were pre-COVID,” helping IKEA retailers pass along a 10% price drop to consumers as costs for commodities like wood decreased. The price cuts pushed Inter IKEA’s annual revenue down to 26.5 billion euros ($28.58 billion) for the fiscal year ending August 31. However, the uptick in customer purchases contributed to an operating profit boost, bringing it to 2.3 billion euros, a notable increase from 2.2 billion euros in the previous year.
Strategic Moves in the Baltics and Factory Investments
While lower prices cut into Inter IKEA’s wholesale revenue and impacted its franchise fees (3% of net sales from retailers), the company still saw net profit jump to 2.2 billion euros, up from 1.6 billion euros last year. This increase was primarily due to lower interest expenses following a major loan repayment. In addition, Inter IKEA announced plans to acquire IKEA retail operations in Estonia, Lithuania, and Latvia from Hof Group, a deal expected to close in December pending regulatory approval.
To further support its global manufacturing, IKEA opened a new factory in Slovakia and expanded an existing one in Sweden. About 10% of its products come from IKEA-owned factories, while the rest are sourced externally.
Looking Ahead: Potential Further Price Reductions
Elm hinted at the possibility of further price cuts in the coming year, though no exact figures were provided. By maintaining affordability, IKEA aims to strengthen its market position, attracting more customers who value lower prices during challenging economic times.
Jaja has a degree in journalism and took classes in international law and business communication. Her career spans roles at prominent international media outlets, including International Business Times, Celebeat and Delightful Philippines. As a news editor, Jaja covered a wide range of beats, including legal, business, economy, cryptocurrency, personal finance, gaming, technology, and entertainment.