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.
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.