By Helen Reid
LONDON (Reuters) - The world's biggest retailer of IKEA furniture on Wednesday reported a big drop in annual net profit after cutting prices in an attempt to coax more cost-conscious shoppers into its big blue stores.
Ingka Group, the largest IKEA franchisee, reported net profit of 800 million euros ($841.28 million) for the financial year ending Aug. 31, down from 1.5 billion euros the year before. Its operating profit margin was 3% on an operating profit of 1.3 billion euros, down from 2 billion euros in 2023.
The retailer, which runs stores in 31 countries and accounts for 90% of global IKEA sales, said it prioritised affordability over profit, investing 2.1 billion euros in lowering prices on items from bookcases to bedding.
Revenues for Ingka Group were down 5.5% from last year, at 41.8 billion euros, including IKEA retail sales of 39.6 billion euros, but the company said lower prices helped to drive store footfall up 3.3%, with visits to its website up 28%.
"Sales are developing well since we started this fiscal year, and this is confirmation that... even if we sell at a lower price average, we sell more quantities and we get access to many more people," Juvencio Maeztu, deputy CEO and CFO of Ingka Group, told Reuters in an interview.
The quantities of items like $229 mattresses and $149.99 wardrobes sold by IKEA has increased thanks to price reductions, Maeztu added. Previous price hikes had dented the volume of products sold.
"We have reduced significantly, and now we plan to keep [prices] at this level," Maeztu said.
Germany was the biggest market for IKEA, accounting for 15.5% of sales, followed by the United States, France, the UK, and Italy.
Earlier this month, Inter IKEA, the owner of the world's biggest furniture brand, reported higher profits for 2024 thanks to lower interest payments, despite a sharp fall in revenues after it cut prices across its product ranges.
Inter IKEA makes the group's products and owns the brand, and franchises it out to Ingka Group and others.
Privately-held Ingka Group, which reinvests 85% of profit into the business and pays 15% to its owner, the Ingka Foundation, said its financial independence enables it to invest for the longer term.
Ingka, which also runs shopping centres around the world, sold its last asset in Russia earlier this month, having sold its shopping centres in the country in September last year.
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