Slow road to South Korea will help Ikea’s prospects

The privately held retailer also revealed profit figures for the first time, disclosing that last year - which it described as “tough” - net profit increased 11.3% to €2.5bn (£2.2bn) on the back of sales growth of 1.4% to e21.8bn (£19.4bn). The only notable fly in the ointment in financial terms was that the sales increase was entirely the result of store openings, as like-for-likes fell 1.1%.

Ikea’s 11.6% net profit margin, and revelation that this margin has fluctuated between 10% and 13% during the past 10 years, will no doubt cause some consternation among competitors and third-party suppliers. However, the figures are broadly in line with what might be expected if you draw a parallel with fellow integrated manufacturer-retailer Inditex, which has seen margin fluctuate in a similar range over the past few years.

Most likely to turn chief executives in the industry’s public-listed sector green with envy is the revelation that Ikea has paid no dividend to its shareholding foundation over the past three years, and the retailer has been able to re-invest e2.1bn (£1.8bn) of the 2009 profit into new stores and facilities. “Good profitability is needed to carry out our extensive growth programme on existing as well as new markets, to give more people access to the Ikea range,” said group president and chief executive Mikael Ohlsson.

He also confirmed plans to enter the Croatian and Serbian markets in the next few years and reiterated comments made on a recent trip to Delhi that Ikea is preparing for market entry into South Korea. The Korean move will certainly raise a few eyebrows among the likes of Walmart, Carrefour and Kingfisher, which have all bailed out of this notoriously difficult market in recent years.

The fact that the retailer is “actively investigating” the opportunity but is talking about store openings only in five to seven years is an encouraging sign that it is preparing for the long haul and will bide its time in the search for suitable land and invest in researching local consumer habits and tastes.

With this long-term approach, it is hard to see Ikea failing in South Korea. Unlike earlier retail victims of this challenging market, Ikea, with its globally recognised brand, will enjoy a degree of pent-up demand among the country’s relatively wealthy and well-travelled consumers.

Matthew Stych, research director, Planet Retail. For more information contact us on:

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