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IKEA posts record profit as it entices cost-conscious shoppers

Source : REUTERS
Last Updated: Wed, Jan 23, 2013 02:10 hrs
(Blank Headline Received)

By Anna Ringstrom

STOCKHOLM (Reuters) - IKEA Group, the world's biggest furniture retailer, posted a record net profit on Wednesday for the 2011/12 year, helped by sales and market share growth as budget design enticed austerity-hit shoppers.

Net profit at the privately-held Swedish firm, known the world over for low-price, self-assembly, flat-packed furniture, rose 8 percent to 3.2 billion euros in the 12 months through last August.

IKEA says it is relatively resilient to economic downturns as these make cost conscious consumers turn to cheaper goods.

"Customers are getting more and more value conscious, which makes IKEA a better choice," IKEA said in an annual summary.

Operating profit, however, shrank by 3 percent to 3.5 billion crowns as the group stuck to a strategy in recent years to cut prices to customers, while costs for raw materials and higher inventories increased.

IKEA has only in recent years started opening up the books on its results.

Chief Executive Mikael Ohlsson told Reuters in an interview that IKEA had decided to keep larger stocks than usual in the year to improve product availability in stores.

Revenue grew by 9.5 percent to a record 27 billion euros, with stores open a year or more accounting for a 4.6 percent increase in local currencies, as the group gained share in all markets.

Ohlsson said like-for-like sales growth in crisis-hit Europe, where IKEA has the bulk of business, had stayed fairly constant over the past few years.

He predicted group comparable sales around 5 percent in the next few years. "We have been on that level the past 3-4 years. In this economic climate it seems that the customers' value consciousness, in combination with our lowering prices, allows us to do about 5 percent."

EYE ON INDIA

Ohlsson said IKEA would this fiscal year open 5 to 6 stores, all in existing markets, after 11 new openings in 2011/12.

IKEA last year unveiled plans to boost expansion to 25 new stores per year - hopefully reached in 2015, Ohlsson said - and double sales by 2020.

He said IKEA, after cutting prices by 0.8 percent in 2011/12 and 2.6 percent the year before, would continue to do so at around those rates in coming years.

Germany is IKEA's biggest market, followed by the United States. Ohlsson said new markets on the horizon were Serbia, Croatia and South Korea, and Asia's third-biggest market, India.

India is expected to approve IKEA setting up stores after a key investment board on Monday gave a go-ahead.

After India last year approved 100 percent foreign direct investment in single-brand retail, IKEA posted plans to invest 1.5 billion crowns to open 25 stores there.

"I hope that long-term we will be strong in Europe, North America, Russia, China and India. Because we will then have a balance between mature markets and markets that are developing strongly, where many, many people create their homes in a new way," Ohlsson said.

(Reporting by Anna Ringstrom; Editing by Tim Dobbyn)



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