Ikea’s change of focus hurts group profits as it braces for redundancies

Ikea group profits dropped by a quarter in its latest financial year, driven down by billions of pounds invested into adapting to people's changing shopping habits.

The furniture giant’s parent company, Ingka Group, reported the €780m (£688.7m) year-on-year drop in its full-year results this morning, blaming spending on transforming its business model to an approach focused heavily on e-commerce.

The company reiterated that the changes would see 7,500 people made redundant globally, with 11,500 new  jobs being added to its global workforce. It is unclear how many of those made redundant will be placed in the new jobs created.

The figures

Ingka’s operating profit was €2.25bn for the year ending 31 August, down 26 per cent year-on-year from €3.03bn in 2017, while it also saw turnover increased slightly to €37.1bn, a 2.1 per cent gain.

Liabilities stood at €2.58bn, down from €2.77bn least year, while cash flow was down 8.4 per cent at €21.2bn.

Why it’s interesting

The retailer, best known for its large, out-of-town furniture and homeware stores, ploughed €2.8bn into a transformation scheme which will see it open smaller city centre locations, such as this site in Tottenham Court Road.

Ikea will also improve delivery services for online shoppers, it said, who boosted the company’s online sales by 45 per cent for the period. Ikea welcomed 475m visitors to its physical stores, up by three per cent on 2017.

The transformation plan is due to continue – and weigh down its results – for three more years, the company said, with 7,500 redundancies planned in “global offices and functions in 30 markets”.

Last week the company said 350 of the job cuts would be in the UK.

What Ingka said

Juvencio Maeztu, chief financial officer, said:

“While [investment] has had an impact on our results, it is a conscious decision for us to start a three-year period to transform our business and be better equipped for the next 75 years.

“We are now assessing all parts of our organisation in order to simplify how we lead, work and organise and, at the same time, acquire new capabilities.

“As a consequence of this, in the coming two years 11,500 new jobs will be created, but at the same time approximately 7,500 jobs may be made redundant mainly focusing in global functions and offices in 30 markets.”