Ikea Profits Plunge 40% As They Cuddle Up To Sonos

Six months ago, they were cuddling up to Sonos and other consumer electronics and audio Companies in an effort to lift sales, now Swedish flat pack furniture Company is struggling to grow, as profits plunge 40%.

The Company that has been expanding in Australia and has been eying off the appliance automation and audio markets as potential growth categories say that profits will stay at the same depressed levels for at least the next three years as they look to transform the Ikea business model.

Back in July Sonos who are also desperate for growth partnered with Ikea with the development of a new speaker.

Called the SYMFONISK range the product is set to be fully integrate with Sonos’ existing range of Wi-Fi speakers and Ikea’s “Home Smart” range of Trådfris smart devices, including lights, dimmers, and switches.

And because they’re designed for Ikea, at least one model will feature brackets that makes it possible to use as a shelf, or to attach beneath an Ikea kitchen cabinet, for example.

Last night the Ingka Group, the new corporate name for Ikea’s main retail arm, said net profit dropped to A$2.29bn in the financial year to the end of August, down from $3.00bn in the previous year.

The Swedish company’s performance was hit by the cost of investing in improving its logistic and digital operations as it moves away from out-of-town warehouses to more online and city-centre sales.

Ingka is also gearing up to cut a record number of jobs as it seeks to reverse decades of creeping bureaucracy while confronting one of the toughest retail environments in recent decades claims the Financial Times.

Asked about the falling profits, chief financial officer Juvencio Maeztu said: “It’s part of the plan. We decided a year ago that we did not want customers to pay for the transformation.

“It’s a conscious decision to lower the profit to finance the business transformation [and] we expect to keep the same level of profit for the next three years,” he added.

Currently Ikea is testing new stores in city centres such as kitchen showrooms in Stockholm and London with the Company also looking at additional Melbourne and Sydney locations.

These locations will sell house branded appliances and consumer electronics and audio goods.

“We are in a four-year process to transform the company,” said Mr Maeztu. “We have been operating for 75 years with the same business model. From 2018-22, we have a big programme to change the company, to be ready for the next 75 years.

We are investing like never before.” he said.

He added that Ingka expected its profits to rebound after 2022 and stressed that, despite a tough retail landscape, the retailer was still increasing its sales.

Revenues rose 2 per cent to A57bn last year.

Ikea finances all its investments out of its own cash flow.

Its cash position dropped by about $3bn last year but it still had A32bn on the balance sheet.

Currently the The European Commission is investigating the tax arrangements of Inter Ikea, a sister company to Ingka that controls the Ikea brand and concept. In particular it is probing two Dutch rulings that allowed it to trim its tax payments. Inter Ikea reported a 12 per cent fall in profits last year, mostly because of rising raw material costs.