Is IKEA Profitable? In short, yes, IKEA is profitable. After years of keeping its financial records a secret, IKEA divulged its profits for the first time in late 2010. Then, the company’s profits were $3.4 billion during the 2009 financial year, an 11.3% increase from the previous year. IKEA’s sales overcame the global economic slump to reach $23 billion, a 1.4% increase in that period.
The company’s sales recovered tremendously during the 2010 financial year to hit $24.3 billion, a 7.7% rise. Despite making losses during the COVID-19 pandemic season, the company managed to remain afloat. In 2021’s financial year, IKEA’s global gross profit was approximately $13.6 billion, an 11.73% increase from the previous year.
As of 2021, IKEA remains one of the most valuable furniture retailer brands globally, valued at approximately $18 billion. The company runs 445 stores and is available in the globe’s major markets.
Timeline of IKEA Financial Growth and Funding
Ingvar Kamprad founded IKEA in 1943. The company is globally known as a home furnishings and furniture retailer. Since its inception, IKEA has overgrown to become one of the largest companies in the industry. It’s one of the first groups in the international ready-to-assemble furniture sector.
The public cannot buy IKEA’s shares because it’s privately owned. The company’s complex business structure is designed to eliminate the need for an IPO (initial public offering). Ingvar’s passion for entrepreneurship started at a young age when he started selling matches, pens, seeds, and Christmas cards from the back of his bike. Here is IKEA’s timeline of growth.
1943-2000: Ingvar’s father gave him a small amount of money, which he used to establish the company. Furniture would be introduced into IKEA in 1948. The company’s inaugural home furnishing catalog was published in Sweden in 1950. IKEA launched its first showroom in 1953 in Älmhult.
During this time, IKEA struggled with the high cost of furniture damage during transportation through mail orders. To counter this challenge, the company invented self-assembly flat-pack products. IKEA opened its first store out of Sweden in 1863 in Norway.
In 1970, a fire caused the company massive losses, but it was a blessing in disguise as it marked the beginning of a self-service area where customers could pick their preferred products, carry them, and assemble them in their homes.
Other stores were launched throughout the decade and beyond before the founder finally established the company’s vision. In 1980, Ingvar sought an ownership structure to facilitate independence and an abiding business perspective to give IKEA eternity. IKEA acquired TaskRabbit in 2017.
2020-2022: IKEA accelerated transformation, increasing sales and improved financial performance. The company also acquired Geomagical labs in 202. IKEA’s total sales were $41.9 billion for the 2020 financial year. 32% of the sales came from e-commerce sales. Apart from converting 50 stores to fulfill online orders through click and deliver and click and collect, IKEA established a digital hub in the US to enhance digital capabilities.
The company offered $3 million for co-workers who required financial support at the pandemic’s peak in IKEA grants. It also donated over $1.6 million in supplies and product donations to organizations and hospitals. In 2022, IKEA’s total sales increased despite supply and rising cost challenges.
Total sales for FY2022 were $47.2 billion, including services, food, and e-commerce sales. The company also raised starting wages to $16 per hour and offered more benefits to support workers’ well-being and livelihoods. IKEA would later expand the Buyback & Resell service to be used in 37 stores all year-round. Customers could leverage this program to resell slightly used IKEA furniture.
IKEA Financial Performance: Revenues, Expenses, and Profits
In the 2021 financial year, IKEA’s global revenue was approximately $44.6 billion. One of IKEA’s core competitive advantages instrumental in its revenue generation is its expansive knowledge of customers. IKEA is conversant with the purchasing components that stimulate a customer’s purchasing decision. It strives to implement the best practices to instigate that decision.
IKEA offers a wide range of products at affordable prices and is keen to introduce new, stylish, and attractive products. All products are easy to assemble and transport, and with the vast product range, there is something to guarantee everyone a positive shopping experience. Integrating these factors with customers’ needs increases customer satisfaction rates while boosting sales.
A survey conducted in 2021 revealed that IKEA was among the UK’s most popular home and department stores. In the same year, IKEA was one of the most valuable dealers in the world, valued at more than $21 billion. The company operates more than 450 stores globally and has a collection of e-commerce markets. The business received over 770 million customers in 2021. Reports suggest the company will invest $3.1 billion to convert stores into delivery hubs to adapt to e-commerce.
In 2021, IKEA invested more than $1.2 billion in the London market. The funds played a massive role in creating a new distribution center and micro-stores. The company plans to modify around 40% of its stores to facilitate online orders. In the same year, IKEA’s online sales rose by 73%. According to representatives from the company, efficient online orders can promote e-commerce growth, with deliveries in major cities done within 24 hours. IKEA recently
IKEA’s annual revenue in 2020 was $42 billion, a drop from $43.8 billion the previous year. While the company has experienced consistent growth in the last two decades, sales and revenue were slightly affected in 2020 following the coronavirus pandemic. In the 2022 financial year, IKEA’s retail sales hit $47.3 billion, an increase from $44.4 billion in the 2021 financial year.
IKEA’s store sales in 2022 increased by 13% more than the previous year, when many stores closed down due to COVID-19. More than 800 million customers visited IKEA stores in the 2022 financial year, an increase from 775 million customers in the 2021 financial year. Store sales rose in Europe, where lockdowns were intense in the 2021 financial year. Online sales dropped by 10% in the 2022 financial year compared to the previous year. However, they stabilized during spring.
IKEA e-commerce platforms hosted more than 4 billion visitors in 2022, a drop from 5 billion the previous year. The IKEA business model thrives on and earns a huge chunk of its money from franchising. The company has numerous stores across the globe, each paying a franchise fee annually. Besides leveraging sustainability to attract more customers, IKEA’s success is attributed to reduced operating costs, providing affordable yet original furniture, and upselling.
IKEA’s core operating costs include utilities, co-worker costs, and rent. The company recently invested approximately $100 million in print, digital, and national TV advertising. IKEA invests in premium ad units while advertising in more than 250 varying media properties.
The firm hired more co-workers during the 2022 financial year to manage the inefficiencies and complexities of its supply chain, especially those suffering from the effects of the Ukraine war. Further, resource development occurred to enhance capability for the digital and strategic changes required to boost the IKEA value chain and its online sales experience.
In June 2022, Inter IKEA Group reduced operations and business in Belarus and Russia after four months of in-operation, meaning the termination of the franchise contract with the local franchisee. IKEA has scaled down its workforce in Russia and started auctioning its factories to new interested parties.
Exportation and importation of IKEA products from and to Belarus and Russia have stopped, and the company’s Minsk and Moscow offices will be permanently closed. This decision has resulted in one-time costs related to cost provision and writing down assets.
In the 2022 financial year, the IKEA Group tax charge was $234 million, equivalent to 23.7% of pre-tax income, a 16% increase from the 2021 financial year. There was a massive tax rate increase due to reduced profit in IKEA Supply Ag in Switzerland, following the low gross margin and high cost of products. IKEA’s overall tax contribution was $2.1 million, comprising custom duties, corporate income tax, payroll taxes, and VAT.
IKEA’s profits dropped by 3% in 2019 following high logistics, transportation, and material costs. In the same year, IKEA generated $43.7 billion in global revenue. IKEA’s global gross profit in 2020 was $12.4 billion, a drop from $13.1 billion recorded the previous year. The company’s global gross profit for the 2021 financial year was approximately $13.6 billion, an increase from around $12.4 billion recorded the previous year.
While IKEA doesn’t profit from the food it sells in its stores, it attracts more customers who come in to buy meals and walk out with impulse-bought furniture. IKEA leverages advertising and irresistible deals to draw more customers to its stores. The company has scaled down their employees to cut the wage bill and use the money to make more furniture, increasing their sales and profits.
Potential for Profitability
While IKEA has been thriving in the retail market, the same cannot be said about its e-commerce sector. Aggressive competitors have hindered the company’s efforts to change and innovate. IKEA must innovate and devise disruptive solutions to facilitate faster and more efficient delivery than its competitors. The company also needs to improve its refund and return process.
IKEA is yet to leverage the potential of IT and e-commerce, and has continued to perform dismally in North America for the last few years. There is a need for the company to invest in market study to understand its different customers and know how to use different strategies in other regions. Customers don’t have to present physical receipts to seek approval for their returns. IKEA must ensure its IT systems are up-to-date to enhance the shopping experience.
The customer-first strategy has been instrumental in the success of some of the biggest companies in the e-commerce and home and furniture industries. IKEA can leverage the same approach to boost customer satisfaction, encourage word-of-mouth marketing, and increase sales. Credibility is critical in growing sales, and IKEA must guard it to increase its profitability.
The company has made tremendous strides in developing and ensuring sales point channels are accessible to customers. However, they must ensure their e-commerce platform is user-friendly and easy to navigate to beat their competitors. IKEA must partner with local retailers and vendors and acquire and merge with innovative e-commerce startups where necessary.
IKEA is a household name, and its products can quickly sell themselves. The company boasts one of the most effective marketing strategies, leaving little to improve on. However, the marketing industry is rapidly changing, with new strategies coming up frequently. IKEA must keep a tab on the evolving marketing industry and adopt the best strategies based on the needs and expectations of its target customers. One of the core factors IKEA should work on is product accessibility.
Creating new IKEA stores in every region can be costly, impractical, and impossible. IKEA stores must adhere to the stipulated showroom, market, hall, and self-service warehouse design. As a result, building customer-friendly pickup warehouses may not be ideal. IKEA’s store design plays a core role in its marketing strategy, meaning building and maintaining a single store can be costly.
To counter this challenge and still make a profit, IKEA must improve its online shopping experience. For instance, residents of Tasmania, an island state in Australia, purchase IKEA products online while the two brick-and-mortar stores in Melbourne ship them.
While this may not be the ultimate access method, it is effective. This concept will evolve, especially if the company is committed to accepting third-party contractors or external service providers. Meanwhile, IKEA believes more in the power of its principles than it does in higher sales. The company understands the importance of a good reputation in the long term and its impact on profitability.
Generally, IKEA has been a successful and profitable company for the better part of its existence. Like many companies, IKEA experienced a drop in revenue and profit at the peak of the coronavirus pandemic. Still, the company leveraged the pandemic to create more e-commerce platforms and improve its online shopping experience.
IKEA’s revenue and profits are now stabilizing post-covid-19. However, the company can still do more to improve its profitability. Making its products more accessible and creating user-friendly e-commerce platforms can go a long way in attracting more customers and increasing revenue.