IKEA’s Lead Franchisee’s Profits Fall as It Prioritizes Affordability

IKEA’s biggest retailer has seen profits plunge after cutting costs to attract wary customers.

Ingka Group, which runs stores that account for 90% of the furniture giant’s worldwide sales, released earnings Wednesday (Nov. 27) showing net profit of $841.28 million for the financial year ending Aug. 31, down from $1.5 billion the previous year.

The privately held company said it made a choice to prioritize affordability and long-term business durability over profits.

“For us, it has never been more important to side with the many people,” Juvencio Maeztu, deputy CEO and CFO of Ingka Group, said in a news release.

“Our unique business structure and financial independence enable us to make choices and invest for decades to come, making us more resilient to global and economic events and allowing us to remain focused on our business and our customers for the long-term.”

In an interview with Reuters Wednesday, Maeztu said that the company’s sales had been “developing well” since the new fiscal year began. He sees this as evidence that even if Ingka sells at a lower price average, it will sell more quantities and “get access to many more people.”

He added that quantities of items such as IKEA’s $149.99 wardrobes have increased due to price reductions, while past price hikes had driven down the volume of products sold.

“We have reduced significantly, and now we plan to keep [prices] at this level,” Maeztu said.

The news comes at a time when consumers — while feeling more confident about the economy overall — are planning to spend less in most categories, as noted here earlier this week.

And recent research by PYMNTS Intelligence shows that 25% of consumers are less likely to shop at deal events during this year’s holiday shopping season, while 39% are more likely to wait this year to buy a product they immediately need than they were last year.

Meanwhile, IKEA itself recently reported higher profits for 2024 due to a decline in interest payments, even as revenues dropped following price cuts.

This year has seen the retailer embark on a transformation, trying to shift from a suburban retailer where customers have to pick up and assemble their furniture, to one that offers online sales, stores based in city centers, and services like assembly, as well as a peer-to-peer secondhand furniture market.

The company has also recently began offering an invoice-to-pay solution provided by payments company Slope, designed to flexible payment options for the its business customers.