Ikea posts 4th consecutive Australia loss, despite sales surge
Ikea booked a record $1.5bn COVID-fuelled sales bonanza in Australia this year, but it’s also failed to make a profit for the fourth year running.
Global Swedish furniture giant Ikea has slumped to its fourth consecutive loss in Australia despite the retailer saying the COVID-19 pandemic has had no “material impact” on the company’s financial position, and that its sales hit a record of $1.54 billion for 2020.
The rush to set up home offices as millions worked from home, as well as tens of billions of dollars in government stimulus and the early release of superannuation funds, boosted the fortunes of many retailers. But Ikea still made a loss.
Despite Ikea enjoying huge popularity in Australia, and around the world, its 10 Ikea stores in Australia haven’t made a profit since 2016, while key competitors such as Harvey Norman and other discount department stores have rung up growing profits.
Once again, unexplained and mysterious expenses of nearly $200m turned a healthy operating profit into a loss and left no pre-tax profit for the Australian Taxation Office to rake over.
While Ikea’s sales in Australia have more than doubled from $733m in 2014 to more than $1.54bn in 2020, it just can’t transform those rocketing sales into a bottom line profit.
Despite four years of losses, the Swedish global retailer is persisting with its operations here.
Latest financial results lodged with ASIC show that Ikea Australia recorded a loss of $8.66m for the 12 months to August 31, 2020, an improvement on the previous year loss of $12.11m in 2019.
The furniture and housewares company’s sales of $1.54bn were up 11.4 per cent against the previous year’s sales of $1.38bn.
It was a good time for furniture retailers in 2020 as consumers stuck in lockdown turned to refurbishing their homes, or set up home offices.
For Ikea, though, the 2020 financial accounts tell a different story. A strong rise in operating profit of 11.2 per cent to $584.798m became a loss before income tax of $12.5m, as charges mounted.
In particular, the accounts show franchise fees of $48.78m and “other expenses” of $142.723m. There are also financial expenses of $23.81m and an impairment expense of $15.46m.
In the last six years Ikea Australia has accumulated “other expenses” of more than $500m, sapping the company’s taxable income.
The latest Ikea Australia accounts declare that COVID-19 did not have a negative impact on the business.
“The impact of the Coronavirus (“COVID-19”) pandemic is ongoing. There has not been a significant material impact to the company‘s financial performance or position arising from the pandemic during the year and from the end of the reporting period to the date of this report,” the 2020 Ikea Australia report said. “This situation is ongoing and is dependent on measures imposed by the Australian government and other countries, such as adhering to social distancing, quarantine and restrictions.”
The “other expenses” listed in the 2020 accounts are believed not to cover the usual costs of doing business, such as wages, advertising, rent and occupancy costs, which are listed separately in the ASIC accounts.
It is believed much of the unexplained payments are sent offshore to more friendly tax jurisdictions. Previously, Ikea has stated it “pays all taxes incurred nationally and locally in accordance with Australian laws and regulations”.
Every year, Ikea’s local accounts have told the same story: booming sales and gross profit that ends with a wafer-thin tax bill and skinny after-tax profits.
According to Ikea’s local accounts, INGKA Holdings, a company registered in The Netherlands, is the ultimate parent company of Ikea’s Australian business.
Ikea founder, billionaire Ingvar Kamprad, gave away his business in the 1980s to the INGKA charity, which is dedicated to promoting and safeguarding the future of architecture and furniture. It has also given some money to help children in poor countries.
One document among the “Luxembourg leaks” of 2014 reportedly showed that Ikea’s profit growth in Australia between 2004 and 2014 trailed sales growth - or occasionally went in the opposite direction - as it reduced its taxable income by paying more than $2bn in franchise fees, licence fees and royalties to its European parent. These practices are not illegal.
In a statement sent to The Australian by Ikea Australia the furniture and housewares retailer acknowledged its strong sales momentum during the COVID-19 pandemic, but declined to discuss Ikea’s tax structure, its bloated expenses and why, despite the booming sales, it had failed to report a profit for the fourth consecutive year.
“In 2020 Ikea Australia experienced significant sales growth as Australians turned their attention towards creating a better life at home during the pandemic. The pandemic and different restrictions prompted customers to use e-commerce and free contactless Click & Collect services that triggered an exceptionally rapid volume increase through our on-line channel and distribution network,” the statement said.
“We have continued our transformation of the business, including our fulfillment model and services in order to provide a truly omni-channel and convenient retail experience for the Australian customers we meet each year.”
An Ikea Australia executive would not agree to an interview to explain Ikea’s tax structure.
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