Ikea is embarking on a new path, with executives promising more stores in city centers, starting with its first in Copenhagen in 2020, and a redoubled focus on e-commerce. The furniture retailer's FY2017 (Sept 2016 - August 2017) retail sales grew 3.5% (3.8% adjusted for currency fluctuations) to €34.1 billion ($40.2 billion) or €38.3 billion ($45.4 billion) excluding consumption tax, the company said in its year-end reports.
Sales grew in 26 of 29 markets, with China one of the fastest, along with Portugal and Poland, according to the report. Ikea's five largest markets based on sales value were Germany, the U.S., France, the U.K. and China. The kitchen and cooking category grew the most with strong performance in mattresses and storage.
FY17 gross profit decreased by 8.6 points to 34.6% of total revenue, and operating expenses in the period decreased by 4.4 points to 26.3% of total revenue, according to the report. Operating profit was €3 billion ($3.56 billion), down from €4.5 billion ($5.34 billion) last year, mainly driven by the loss of profits from the product and supply chain companies that Ikea sold last year. Net income for the year was € 0.3 billion ($0.36 billion).
Ikea disrupted furniture sales decades ago, innovating the flat-pack so that customers could drive big pieces away in their own cars, and built that into the global powerhouse it is today. Last year the company's previous CEO, Peter Agnefjall, emphasized that the company would be revisiting the quality of its goods, under pressure from online sales of better quality furniture that are undermining Ikea's convenience premise. But now, led by Jesper Brodin, who arrived as President and CEO of Ikea Group in September this year, the company is talking much less about quality and more about how and where it should sell its goods.
Ikea is, somewhat belatedly, coming around to the need for a more nimble and more focused e-commerce operation. Executives in the company's year-end reports emphasized that they're aware that much of that activity will take place on mobile, which could be one reason for the creation of an augmented reality app earlier this year. With more customers ordering goods online, the company also said it is boosting its remote support center.
"Digitalization has created a powerful driver for our business," CFO Alistair Davidson said in the company's year-end report. "Customers expect affordable home furnishing products and services to be easily accessible from home. It's an expectation we cannot afford to fall short on satisfying, so we're continuously adapting our investment models to meet these emerging trends."
Even without much of a focus, the company has seen digital sales surge; Ikea this year experienced 2.3 billion website visits and 936 million visits to stores worldwide, according to its year-end report. Executives said they will study operations within its newly acquired Task Rabbit home delivery and setup service, and may consider other such investments going forward.
"Through this, I believe we'll learn a huge amount about what our customers want," Davidson also said. "We're in a test-and-learn phase as we consider what other investment routes we should explore. As we continue to meet our customers where they are, especially online, we have to think simultaneously about a lot of different aspects: our stores, logistics, digital capabilities, and services."
And the massive, far-flung Ikea stores, with their famous Swedish meatballs served cafeteria-style, won't cut it alone anymore, the company said. More stores in city centers, accessible by bike, car and public transportation, are being planned worldwide, with the flagship in Copenhagen opening in 2020. "Expansion is not meaningful without accessibility," said Jette Jorgensen, Ikea's expansion manager, in the report. "If we're going to reach more people we need to think outside the 'blue box,' about how and where we create Ikea shopping experiences."