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Ikea UK sees shoppers return in-store – but still buy online; sales rise and profits fall as it absorbs costs in a cost-of-living crisis

Ikea's Hammersmith store was its first small-format store in the UK. Image courtesy of Ikea

Ikea UK says it has seen shoppers returning to its stores in the wake of Covid-19 restrictions in its latest financial year – while still shopping online at twice the level they did in pre-pandemic 2019. Some 36% of its sales now take place over the internet – up from 19% in 2019, but down from 45% in 2021. Store visits (46.3m in 2022) are 34% higher than the previous year, but 15% lower than in 2019. Sales rose by 12.6% on last year, but operating profits fell by 18.9% as the retailer absorbed supply chain costs during a cost-of-living crisis and limited price rises.

The UK arm of the homewares giant today reports sales of £2.2bn in the year to August 31 2022. That’s 13% higher than the previous year. Sales grew online and in-store across all categories, particularly kitchen and dining equipment, textiles and storage.

Operating profits came in at £49.6m as profit margins fell to 2.3% of turnover at a time of rising costs. That’s 19% down from £61.2m the previous year, when margins were at 3.1% of turnover. Prices were “adjusted across large parts of the range in financial year 2022 to reflect this increased cost-base” – but the retailer says that in a cost-of-living crisis it has kept the prices of its most popular and lowest-priced items low, while also introducing offers through its Ikea Family loyalty programme. It has invested in new ways and in its fulfilment network as part of its ongoing transformation strategy, while from January it will adopt the national living wage.

Peter Jelkeby, country retail manager and chief sustainability officer at Ikea UK, says: “A post-pandemic backdrop of increased living costs, supply chain challenges and macro-economic instability inevitably shaped our business in 2022.

“In the face of these changes, our long-term vision to create a better everyday life for the many people was our guiding compass for short and long-term decision making, and our results reveal the positive impact of this approach with healthy financial results representing our financial stability and resilience amidst great change.

“In 2023, we will continue on our journey to create better homes for customers, better lives for co-workers and communities, a better company for now and generations to come, and a better planet for all.”

Transformation strategy

During the year Ikea’s £1bn transformation plan saw it open its first small high street store, in Hammersmith, West London. That will be followed by a flagship store on Oxford Street in central London, schedule to open in autumn 2023. Plan & Order points will be opened in Preston and Stockport, adding to one that opened in Liverpool in October, with the aim of providing more sustainable ways to buy from the retailer.

It also invested nearly £50m in its fulfilment network, including £33m in a 420k m3 fulfilment centre in Dartford, while expanding London warehouse capacity by 20% in a project that will open in May 2023. It has also launched a click and collect service with Tesco, with seven collection points now up and running, with a further three to be added in the South East. 

At the same time it plans to close its Tottenham store, affecting 450 people – who will be given priority for the 600 vacancies that the business will create in London before the store closes.

Ikea has joined the Living Wage Foundation, taking minimum hourly rates to £11.95 in London and £10.90 in the rest of the UK, from January 2023.

Jelkeby says: “We saw consumers returning to our stores while online sales remained strong with high demand for a convenient shopping experience. To meet these needs, we opened our first small store on the high street, created new ways to meet customers remotely and in-store, and launched new ways to deliver orders. With a variety of stores, service offers and digital solutions that complement each other, our aim is to be there for our customers, however they want to meet us.”

Sustainability

Ikea UK says that it has reduced the climate footprint of its operations by 14% over the last year, taking steps including energy efficiency measures in stores and distribution centres and trialling both new technology and behaviour changes to cut energy use. Investment in solar panels and electric vehicles as well as heating and cooling solutions will add to these in future. 

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