IKEA warns of supply chain disruptions likely to last through 2022

STOCKHOLM, Oct 14 (Reuters) – IKEA, the world’s largest furniture brand, is renting more ships, buying containers and rerouting goods between warehouses as it works hard to mitigate a “perfect storm” of global supply chain disruptions that persist for years could be next year, executives said.

The company, which reported record annual sales on Thursday as banned consumers spent more on their homes than ever, is also reducing the number of versions of some products as it grapples with raw material shortages to ensure its most popular items are available.

“It is a change of direction and redirection. And on the retail side, we’ve learned agility like never before because you have to work with what you have every day. You have to find ways to address customer needs with constraints that we’ve never seen before, “said Jesper Brodin, CEO of Ingka Group, which owns most of the IKEA stores.

Jon Abrahamsson, CEO of brand owner Inter IKEA, told Reuters that he expects the supply chain crisis to last through 2022, with the biggest challenge right now being getting goods out of China, where about a quarter of IKEA’s products are made.

IKEA stores in North America are hardest hit by product shortages, followed by Europe. In order not to disappoint customers, it temporarily removes unavailable products from its websites and salesrooms and suggests similar items instead.

Brodin said nobody at IKEA foresaw the current global supply chain crisis and that one needs to be prepared for unexpected supply fluctuations going forward.

“It’s a perfect storm. (But) I think we’re no longer surprised. This is the new normal for us. And when things stabilize, we’ll have learned so much about agility and sales control,” he said.

A large part of the IKEA range is obtained relatively close to the sales markets. Around 70% of the products sold in Europe, where IKEA accounts for the majority of sales, are produced on the continent.

According to Inter IKEA, sales of products and services in all IKEA stores and online were 41.9 billion euros ($ 48.7 billion) for the fiscal year ended August, up 6% year over year and 1% compared to the 2019 financial year before the pandemic. Commerce grew 73% and accounted for 26% of total retail sales.

Ingka said separately that retail sales rose 6% to € 37.4 billion. That is 2% higher than the pre-pandemic level, said Brodin.

“There is a growing interest in home life around the world,” said Brodin. “In none of our areas is there a drop in demand as is currently evident.”

In the current fiscal year, Brodin said he assumed that demand would remain high. “It’s also about how we manage to be agile across the entire value chain … I’m really optimistic that we have a good, strong year ahead of us.”

He added that this year a new IKEA store, currently under construction, will open in a central Stockholm shopping center.

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Reporting by Anna Ringstrom; Editing by Jason Neely, Kirsten Donovan

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