Ikea has tried to take another strategy to inflation by absorbing prices as a substitute of passing them on to clients and slicing costs twice this yr by a collective €2 billion.
Whereas that most likely gained many new loyal Ikea consumers as on-line and in-store traction for the Swedish retailer elevated, it was certain to harm the corporate financially.
Ingka Group, Ikea’s guardian firm that runs most of its shops, noticed internet earnings plunge by 47% to €800 million. That’s one of many sharpest declines for the retailer in a decade. Its income declined by 5% too, Ingka reported on Wednesday.
Sadly for Ikea, due to Donald Trump’s reelection, these price pressures may not fade away if sufficient time passes or when economies recuperate.
Talking forward of opening Ikea’s pop-up retailer in London’s Oxford Road, Ingka Group’s CEO Jesper Brodin mentioned he was anxious about how Trump’s proposed commerce tariffs would possibly influence Ikea’s worldwide operations.
“Tariffs make it more difficult for us to maintain the low prices and be affordable for many people, which in the end is our goal,” Brodin informed CNN on Wednesday.
“We have never experienced a period of benefit when we had high tariffs,” he added, referring to Ikea and the worldwide financial system.
Trump has promised to put an extra 10% tariff on China and better fees on different elements of the world. His plan for Europe is unclear, though the incoming U.S. president has vowed to make Europe pay a “big price” final month.
Ikea sources about 70% of its merchandise from Europe, whereas the remainder is made in Asia. Due to this fact, any tariff levy will harm companies that function internationally, fears of which have elevated in current weeks following Trump’s election victory.
Ikea has undertaken a deep price-cutting drive when most firms have been mountaineering costs in response to mounting bills. The Swedish mega-retailer prioritized this because it proudly put clients forward of monetary good points.
“For us, it has never been more important to side with the many people,” mentioned Juvencio Maeztu, Deputy CEO and CFO Ingka Group, in a press release.
However tariffs might power Ikea to rethink the way it’s been retaining a lid on costs. Whereas Ikea didn’t disclose whether or not it might transfer manufacturing or probably hike costs in response to tariffs, Brodin did say there was an actual chance of the transfer “ending up on the bills of customers.”
“We will always work to maintain the low prices that are the cornerstone of the IKEA vision. In our general experience across the 31 markets we operate, tariffs make these ambitions more difficult,” an Ingka Group spokesperson informed Fortune.
