Shoppers on a budget flocking to Ikea

Net profit at Ikea, known across the world for low-price, self-assembly, flat-packed furniture, rose 8 per cent to 3.2 billion euros in the 12 months to August 2012.

But the privately-held Swedish firm offered no new update on its long-rumoured plans for a second store in Yorkshire.

A spokeswoman said: “Ikea has been identifying sites around the country for potential stores including Sheffield.

“However, we have nothing to confirm at this point in time.”

The company has 400 employees at its store in Birstall, near Leeds, and a distribution site in Doncaster, which is run by external service provider BLG.

Ikea is widely believed to have identified a site close to Meadowhall, but is likely to face planning obstacles from Sheffield city council, which is against retail expansion of the area.

“Any applicant wishing to build new shopping developments in that area would have to make a very special case for us to go against our planning policies,” said John Mothersole, chief executive, in November.

The retailer Next is appealing against a council decision to refuse permission to develop its biggest home and garden store in Britain. The outcome of the appeal could have a significant bearing on Ikea’s plans.

Carole Reddish, the company’s acting country manager, said last month that the UK business could expand from 18 to 30 stores within the next few years.

As a business, Ikea is relatively resilient to economic downturns as these make cash-strapped shoppers turn to cheaper goods.

“Customers are getting more and more value conscious, which makes Ikea a better choice,” said the annual report.

Operating profit, however, shrank by 3 per cent to 3.5 billion euros as the group stuck to a strategy in recent years to cut prices to customers, while costs for raw materials and higher inventories increased.

Chief executive Mikael Ohlsson said that Ikea had decided to keep larger stocks than usual in the year to improve product availability in stores.

Revenue grew by 9.5 per cent to a record 27 billion euros, with stores open a year or more accounting for a 4.6 per cent increase in local currencies, as the group gained share in all markets.

Mr Ohlsson said like-for-like sales growth in crisis-hit Europe, where Ikea has the bulk of business, had stayed fairly constant over the past few years.

He predicted group comparable sales around 5 per cent in the next few years.

“We have been on that level the past three to four years. In this economic climate it seems that the customers’ value consciousness, in combination with our lowering prices, allows us to do about 5 per cent.”

Mr Ohlsson said Ikea will open five to six stores this financial year, all in existing markets, after 11 new openings in 2011-12.

Ikea last year unveiled plans to boost expansion to 25 new stores per year – hopefully reached in 2015, Mr Ohlsson said – and double sales by 2020.

He said Ikea, after cutting prices by 0.8 per cent in 2011-12 and 2.6 per cent the year before, would continue to do so at around those rates in coming years.

Germany is IKEA’s biggest market, followed by the United States. New markets on the horizon are Serbia, Croatia, South Korea and India, which last year approved 100 per cent foreign direct investment in single-brand retail.

“I hope that long-term we will be strong in Europe, North America, Russia, China and India,” said the CEO.

Working for the greater good

IT is not enough for companies to just pay taxes and create jobs, said the man who led Ikea for a decade.

Anders Dahlvig, who was group CEO from 1999-2009, told the Yorkshire Post there is no contradiction between making profits and doing good for society.

Businesses must find a way of contributing towards the greater good, he added.

“The social good is important as it helps the reputation of the business and it helps you motivate your co-workers,” Mr Dahlvig said in an interview last year.

“They feel they are working for a business they can be proud of and that actually contributes to things other than just making the owners rich.

“The increased motivation and loyalty you get through that will give you higher profits.”

Ikea’s vision is to create “a better everyday life for the many people”.