STOCKHOLM - Higher wood and metal prices and tariffs caused a drop in profit for Inter Ikea Group, the owner of the Ikea furniture brand.
The company reported a 58.9 percent increase in fiscal year net profit and an 11.5 percent increase in revenues. But after adjusting for goodwill writedowns from acquisitions, profits saw around a 12 percent drop. Costs outpaced wholesale sales, mainly for wood and metals, the company said in a statement.
“Increased prices for raw materials and other resources, together with growing tariff charges pressured results in (fiscal year 2018),” the company said.
“We see raw material and materials costs increasing," Inter Ikea CFO Martin van Dem told Reuters in an interview. "We see tariff challenges. We see salaries gradually increasing. And by that definition, we get an in-price onto our products that is challenging."
Van Dem said the company could charge retailers a higher price, but it would interfere with Ikea's low pricing commitment.
Investments in the supply chain, range development and in new store concepts and services also played a role. Ikea has been opening city-center showrooms in hopes to appeal to a growing number of shoppers hesitant to travel to its big out-of-town warehouses. The company is also offering furniture assembly services.
Online sales are up, van Dem told Reuters, and it's forcing the company to make changes to its supply chain to provide alternate ways to deliver products to end consumers.
Like many furniture manufacturers, Ikea is being forced to adapt to the United States-imposed tariffs on China. The U.S. is Ikea's second-biggest market.
At the end of August, Ikea ran 422 stores in more than 50 markets worldwide. The company has an estimated $3.32 billion in furniture, bedding and accessories sales at its 44 U.S. stores during the 2017 fiscal year, reports Furniture Today.
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