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Supply chain costs and product availability hit Ikea results

Inter Ikea Group has highlighted the impact of the pandemic on its operating income in its full-year results this week, revealing that the biggest cause was the steep increase in transport and raw material prices seen in the second half of the financial year.

It said that the full impact of this can be seen in the increased costs of goods sold which reflects the cost of sourcing, handling and distribution of Ikea products. Inter Ikea Group manufactures about 11% of the Ikea product range and sources the remaining 89% from nearly 1,000 external suppliers. A dramatic increase in raw materials prices in the second half of FY21 following an unfavourable combination of scarcity and high demand resulted in higher purchasing costs, the company said.

Increased transport costs due to the limited availability of containers and carriers as a result of the pandemic also hit the business. In addition, Inter Ikea Group revealed that costs rose for recruiting additional staff to handle the complex transport and shipping environment as it tried to secure product availability.

“Keeping IKEA stores and warehouses in stock has been a challenge,” the company said. “Supply chain disruptions led to a substantial drop in the availability of products that we have yet to recover from. We expect this will continue far into FY22.”

Image credits:
  • Inter Ikea Group