IKEA owner to raise prices amid supply chain challenges, warns increases could last far into 2022
IKEA's move comes amid strong demand from customers working from home during the pandemic
IKEA furniture is about to get more expensive as the Swedish retailer's parent company, Inter IKEA Group, expects to raise prices far into fiscal year 2022.
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According to Inter IKEA Group's financial summary for fiscal year 2021, the company has struggled to keep its warehouses and stores stocked amid a "steep increase" in raw material costs driven by transport and labor shortages. Inter IKEA Group noted that it spent 250 million euros to mitigate its supply chain disruptions during fiscal year 2021.
"As many other retailers, we have challenges with availability and supply, impacted by the global shipping disruptions. We are continuously working to improve the availability of our products," an IKEA spokesperson told FOX Business in a statement. "We have and we will put a lot of effort to keep our prices as stable as we possibly can – yet it’s hard to predict how the global disturbances might impact in the coming months."
Inter IKEA Group chief financial officer Martin van Dam emphasized that while the company "can’t continue to secure fixed prices to the retailers under these challenging conditions," it plans to absorb part of the increased costs during fiscal year 2022, while the rest will likely be passed off to consumers. It is also prioritizing keeping its most popular products in stock.
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The move comes as IKEA saw strong demand from customers who are working from home during the pandemic. In order to meet demand, IKEA opened a mix of traditional IKEA stores, new smaller formats, e-commerce and test locations during fiscal year 2021.
IKEA franchisees’ total retail sales reached 41.9 billion euros, an increase of 5.8% over fiscal year 2020, driven by a 73% surge in e-commerce sales and increased interest in home furnishing. Halfway through the financial year, more than 150 IKEA stores were closed due to local lockdowns. When most of IKEA's stores reopened in late spring, the company welcome 775 million visitors, down from 825 million visitors in fiscal year 2020, resulting in a store sales decline of 8%.
Inter IKEA Group recorded total fiscal year 2021 revenues of 25.6 billion euros and a 17% decline in net profit to 1.4 billion euros ($1.7 billion) in the 12 months through August.