IKEA to hike prices by 9% due to supply chain woes, Singapore stores see 3% increase

[The_King]

STOCKHOLM: IKEA will hike its prices by an average of 9 per cent next year due to ongoing supply and transportation disruptions, the company that operates most of the Swedish furniture giant's stores said on Thursday (Dec 30).

The announcement comes as pandemic-fuelled shortages and shipping challenges ramp up inflation and pinch economies globally, with consumers increasingly feeling the bite.

"Like many other industries, IKEA continues to face significant transport and raw material constraints driving up costs, with no anticipated break in the foreseeable future," said Ingka Group, the holding company that owns 90 per cent of IKEA's stores.

These higher costs - which are mostly being felt in North America and Europe - will now have to be passed on to customers, it added in its statement.

"The average of the increase in Ingka Group is around 9 per cent globally, with variations across Ingka Group countries and the range, reflecting localised inflationary pressures, including commodity and supply chain issues," Ingka Group said.

According to the company, IKEA franchisor Inter IKEA Group absorbed costs amounting to €250 million (US$283 million) across 2021 due to these logistical tensions, which were exacerbated by the rebound in demand after the first phase of the pandemic.

Last month, Inter IKEA Group reported a 17 per cent drop in annual profits, attributing the dent to a steep increase in transport and raw material prices.

Container transport prices are at record levels following the outbreak of the COVID-19 pandemic, which has disrupted maritime logistics.

At the same time, the franchisor behind the world's largest furniture seller reported higher sales for the year at €25.6 billion, up 8 per cent.

But a global spike in energy prices, supply chain snags and surging demand has prompted runaway inflation.

In the euro zone, inflation reached 4.9 per cent over one year in November, a record high since the introduction of the single currency in 1999.

In the United States, prices rose by 6.8 per cent last month compared to November 2020, its highest level in 39 years.

 

 

IMPACT IN SINGAPORE

The IKEA stores in Singapore are owned and operated by a different franchisee, Ikano Retail, which also runs stores in Malaysia, Thailand, the Philippines and Mexico.

In response to a CNA query, IKEA Singapore selling manager Tariq Oumarkatar said that the price hikes will vary from country to country, with Singapore's average price increase about a third of the global average among Ingka Group stores.

"The world continues to face unprecedented challenges in the face of COVID and, like many other industries today, IKEA is facing steep increases in costs across its value chain - from raw materials and production to transportation and labour," he said.

"Since the start of the pandemic, the IKEA company that supplies products to retailers like us (IKEA Supply AG) has managed to absorb the rising costs while keeping wholesale prices on the range stable for franchisees. But the time has come for IKEA retailers around the world to share the burden.

"It is really important to note that price increases differ country by country, depending where an item is manufactured, what materials it uses, and how it gets there."

IKEA Singapore will, however, absorb "as much of the wholesale price increase as possible" to soften the impact on its customers and keep its prices competitive and affordable.

"We analysed product-by-product what steps we must take and implemented only the increases needed to protect the health of our business in the long run," Mr Oumarkatar said.

"Looking at the 8,000-plus home furnishings in our range, the average of all our price increases in Singapore is 3 per cent."

The price increases are "not forever", Mr Oumarkatar added, saying that they "are a reflection of today’s economic reality".

"As the situation improves, IKEA Singapore will pass on savings to our customers wherever we can."

Source: AFP/CNA/aj/kg