Ikea sales driven by Chinese demand for flat-pack furniture

Full-year sales at Ikea, the world's biggest furniture retailer, gained pace as consumer spending and global demand for its sleek designs and flat-pack furniture continued to pick up, notably in China.

The Swedish company, seen as a reliable indicator of consumer spending because it has more than 300 stores in 26 countries including Ireland, said on Tuesday some of the strongest growth was in China, where it opened three new stores this year to tap into the spending power of the country’s rising middle class.

Ikea’s customers are welcome to lounge on sofas and beds for hours and thoroughly test its products unlike most other Chinese furniture stores.

Europe, where the privately held company derives almost 70 per cent of its sales, is still burdened by a challenging economic situation and deflationary pressures, but its chief executive said improving employment will lift consumer spending.

"A year ago, it was very difficult for most retailers in southern Europe, as for Ikea, but we now generally see that things are stabilising," said chief executive Peter Agnefjall.

The Swedish furniture giant’s biggest markets are Germany, the United States and France.

Ikea is sticking to its strategy to expand in Russia despite the crisis with Ukraine.

“I think it’s fair to say our approach is very long term,” Mr Agnefjall said.

Ikea’s sales rose 5.9 per cent to €28.7 billion in the 12-month period ended August 31st adjusted for currency impact - an acceleration from the 3.6 per cent growth it reported for the previous year.

Sales in comparable stores during the year grew 3.6 per cent.

Ikea has a target to double sales to around €50 billion by 2020 through combined growth in sales at existing stores and by launching in new markets, a goal which Mr Agnefjall said remained intact.

Founded in a shed in 1943 by Ingvar Kamprad to sell pens, wallets, watches and jewellery, and whose stores now sell everything from candles to fitted kitchens, Ikea said demand for products sold online rose, while the number of visitors to its distinctive blue and yellow warehouse stores increased 5 per cent to €760 million during the year.

Ikea was initially slow to embrace online retail but is now investing more as rivals compete for a chunk of its business.

German firm Home24 has set its sights on challenging Ikea's dominance. It is expanding to Belgium - its sixth market - and plans to launch in other countries next year.

Ikea, which has an online presence in 13 of its markets, had 1.5 billion visits to its website during the year, up about 20 per cent from the last year.

Mr Agnefjall said Ikea was expanding the product range that can be bought over the Internet, although he declined to say how many new markets it would launch sites in.

The company is also facing competition in home furnishings from fashion chains such as Zara, Next and Hennes & Mauritz.

In response to a shift in shopping habits to smaller local stores and the Internet, Ikea opened its first city centre store earlier this year in Germany.

More customers were arriving at its stores by foot, bike or public transport, Mr Agnefjall said, adding that it was too early to say whether Ikea would open any more city stores.

“I think it’s important for us to grow and be where many people are,” he said. “We do see growing urbanisation and we have to see how that will impact our business.”

Reuters