Ikea has tried to take an alternative approach to inflation by absorbing costs instead of passing them on to customers and cutting prices twice this year by a collective €2 billion.
While that probably won many new loyal Ikea shoppers as online and in-store traction for the Swedish retailer increased, it was bound to hurt the company financially.
Ingka Group, Ikea’s parent company that runs most of its stores, saw net profits plunge by 47% to €800 million. That’s one of the sharpest declines for the retailer in a decade. Its revenue declined by 5% too, Ingka reported on Wednesday.
Unfortunately for Ikea, thanks to Donald Trump's reelection, those cost pressures might not fade away if enough time passes or when economies recover.
Speaking ahead of opening Ikea’s pop-up store in London’s Oxford Street, Ingka Group’s CEO Jesper Brodin said he was worried about how Trump’s proposed trade tariffs might impact Ikea’s international operations.
“Tariffs make it more difficult for us to maintain the low prices and be affordable for many people, which in the end is our goal,” Brodin told CNN on Wednesday.
“We have never experienced a period of benefit when we had high tariffs,” he added, referring to Ikea and the global economy.
Trump has promised to place an additional 10% tariff on China and higher charges on other parts of the world. His plan for Europe is unclear, although the incoming U.S. president has vowed to make Europe pay a “big price” last month.
Ikea sources about 70% of its products from Europe, while the rest is made in Asia. Therefore, any tariff levy will hurt businesses that operate internationally, fears of which have increased in recent weeks following Trump’s election victory.
Ikea has undertaken a deep price-cutting drive when most companies were hiking prices in response to mounting expenses. The Swedish mega-retailer prioritized this as it proudly put customers ahead of financial gains.
“For us, it has never been more important to side with the many people,” said Juvencio Maeztu, Deputy CEO and CFO Ingka Group, in a statement.
But tariffs could force Ikea to reconsider how it’s been keeping a lid on prices. While Ikea didn’t divulge whether it would move production or potentially hike prices in response to tariffs, Brodin did say there was a real possibility of the move “ending up on the bills of customers.”
“We will always work to maintain the low prices that are the cornerstone of the IKEA vision. In our general experience across the 31 markets we operate, tariffs make these ambitions more difficult,” an Ingka Group spokesperson told Fortune.
