IKEA Australia’s sales stay flat-packed as losses continue
The Australian subsidiary of flat-pack furniture giant IKEA has continued its loss-making operations for another year, despite posting more than $1.3 billion in sales.
In documents filed to the corporate regulator on Monday night, IKEA Pty Ltd, which is 100 per cent owned by IKEA’s Netherlands-based holding company Ingka, revealed its net losses for the 12 months ended August 31 totalled $12.1 million.
This marks a slight improvement on 2018, when the company recorded $12.7 million of losses, but is significantly down from the $26.8 million net profit it posted in 2016. Its 2019 loss came after a $6.6 million income-tax benefit.
Much like its pre-constructed furniture, sales at the popular large-format retailer were flat for the year, down marginally to $1.38 billion and ending the strong run of double-digit sales growth the company had seen since the start of the decade.
IKEA operates 10 stores across the country, with a location in each state and territory bar the Northern Territory and Tasmania. It holds about 16 per cent of Australia’s $8 billion furniture market.
The company’s slowing growth is reflective of a tumultuous year for the retail and housing markets.
Consumer spending has reached 20-year lows, and house prices have only recently begun a recovery after a significant slowdown over the past 18 months.
IKEA’s latest results are largely in line with other major furniture sellers in Australia, with Harvey Norman’s local sales for the 2019 financial year falling 0.9 per cent and profit growth slowing at furniture retailer Nick Scali.
However, IKEA’s profit figures would likely be much higher if not for the millions the company is required to pay in fees to its parent entity, along with further millions labelled only as “other expenses”. The company’s gross profit for 2019 totalled $525 million.
Franchising fees in 2019 amounted to $43.4 million, and its “other’ expenses” accounted for $132.4 million, or around one-quarter of its total expenses, which include standard payments such as wages, advertising, and rent.
In past years, the company has been accused of using franchise fees as a way of reducing the tax it pays in Australia.
IKEA’s interest fees also increased slightly to $22.2 million for the year, reflecting an increased amount of debt owed by the company, which is running at a working capital deficiency of $288 million, up from $209 million in 2018.
Total debts owed to the IKEA’s parent company came in at $595.4 million, up from $578 million in the year-earlier period.
Economists are predicting a healthy increase for the housing market in 2020, including potential double-digit growth in Sydney and Melbourne. The retail landscape is also set to improve, with Australian Retailers Association executive director Russell Zimmerman predicting a bounce.
“With expected improvement in Australia’s GDP growth next year – combined with stimuli including tax cuts, interest-rate cuts and minimum wage rises, which are yet to really be felt – we expect a better year for retailers in 2020,” he said.
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Source: Thanks smh.com