Ikea warns stock shortages likely to last another year

Ikea has become the latest retailer to warn on supply chain problems, saying on Thursday that stock shortages were likely to last another year.

"We actually foresee that the availability and raw materials challenge will continue for the better part, if not the whole, of [the financial year to the end of August]. This is here for a longer period than we thought of at the beginning of the crisis," Jon Abrahamsson Ring, chief executive of Inter Ikea, owner of the Ikea brand, said.

Reporting its annual results, the world’s largest furniture retailer also said the pandemic had helped its business and sped up its transformation.

Sales in the year to the end of August increased 6 per cent on the previous year to a record €41.9 billion, boosted by an almost doubling in online sales.

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Jesper Brodin, chief executive of the biggest Ikea franchisee Ingka, said in a separate interview that Ikea had accelerated its shift away from selling from big out-of-town stores to more city-centre shops and ecommerce sales, which have risen from 7 per cent of the total in 2019 and 18 per cent last year to more than 30 per cent now.

“This situation has given us a boost like never before to speed up our transformation,” he said.

Ikea has used trains to transport goods from Asia to Europe and bought and hired its own containers as it still faces supply chain problems, along with nearly all retailers, because shipping prices have soared and ports have become congested worldwide.

Ring said Ikea was unlikely to make big changes to its global supply chain as a result of the crisis, which occurred as retailers have tried both to restock and to deal with a huge wave of demand after the initial Covid lockdowns in Europe and the US last year.

“I don’t see a substantial change or shift in how we do our supply chain or sourcing. We will continue to work very closely with a focused number of suppliers,” he said.

Transformation

Ikea, which reports full financial results later in the year, was in the middle of the biggest transformation in its 78-year history – aiming to end its reliance on customers collecting and building their own furniture – when the pandemic hit. It has recently bought companies that build furniture for customers as well as augmented reality start-ups to help customers with home planning.

Mr Brodin said Ingka, which accounts for about 90 per cent of Ikea sales, had invested €2.2 billion in recent years in new store formats including stores focusing only on kitchens or bedrooms, as well as smaller general shops in city centres, such as one to be opened soon in Stockholm.

“We are still working hard on cracking the code around the product range and logistics. But the traffic has been phenomenal and has boosted our market share in cities,” he added.

Ikea has placed a heavy emphasis on sustainability at the same time as trying to cut prices as it enters countries such as India, leading to concern from some critics about disposable consumption.

Brodin called it “this classic myth about low prices” and argued that Ikea was showing “the new economy is built on being resource smart and thus being climate smart”. It has invested in initiatives such as taking back used mattresses in the Netherlands and converting them into new products, as well as spending on renewable energy and promoting products such as plant-based meatballs and LED lamps. –Copyright The Financial Times Limited 2021