I had a look at information on IKEA at:

http://en.wikipedia.org/wiki/IKEA

I was surprised to see this:

Revenue € 23.5 billion (2010)
Net income € 2.7 billion (2010)

Such a small percentage of Revenue was profit. I think if I was running a company with a revenue of 23.5 billion Euros I’d want a much higher profit than 2.7 Billion Euros.

I had a look at information on IKEA at:

http://en.wikipedia.org/wiki/IKEA

I was surprised to see this:

  Revenue € 23.5 billion (2010)
  Net income € 2.7 billion (2010)

Such a small percentage of Revenue was profit. I think if I was running a company with a revenue of 23.5 billion Euros I’d want a much higher profit than 2.7 Billion Euros.

The firm is known for the attention it gives to cost control, operational details and continuous product development, allowing it to lower its prices by an of average 2 to 3% over the decade to 2010, while continuing its global expansion.[5]

The groups of companies that form IKEA are all controlled by INGKA Holding B.V., a Dutch corporation, which in turn is controlled by a tax-exempt, not-for-profit Dutch foundation.[6] The intellectual property of IKEA is controlled by a series of obscure corporations that can be traced to the Netherlands Antilles[7] and to the Interogo Foundation in Liechtenstein.[8]

Peter, IKEA has a lot of stuff going on that is very different from other kinds of capitalistic corporations as you can see above.  Remember too that while the earnings of 23.5 billion Euros sounds like a lot and 2.7 billion Euros sounds like only a small portion of the 23.5, IKEA has costs including merchandising, employee salaries, shipping, manufacturing, etc. etc. that have to be paid from the 23.5.  The net is what is left is basically cleared and the amount is still substantial.

hulitoons - 17 November 2011 11:02 PM

I had a look at information on IKEA at:

http://en.wikipedia.org/wiki/IKEA

I was surprised to see this:

  Revenue € 23.5 billion (2010)
  Net income € 2.7 billion (2010)

Such a small percentage of Revenue was profit. I think if I was running a company with a revenue of 23.5 billion Euros I’d want a much higher profit than 2.7 Billion Euros.

The firm is known for the attention it gives to cost control, operational details and continuous product development, allowing it to lower its prices by an of average 2 to 3% over the decade to 2010, while continuing its global expansion.[5]

The groups of companies that form IKEA are all controlled by INGKA Holding B.V., a Dutch corporation, which in turn is controlled by a tax-exempt, not-for-profit Dutch foundation.[6] The intellectual property of IKEA is controlled by a series of obscure corporations that can be traced to the Netherlands Antilles[7] and to the Interogo Foundation in Liechtenstein.[8]

Peter, IKEA has a lot of stuff going on that is very different from other kinds of capitalistic corporations as you can see above.  Remember too that while the earnings of 23.5 billion Euros sounds like a lot and 2.7 billion Euros sounds like only a small portion of the 23.5, IKEA has costs including merchandising, employee salaries, shipping, manufacturing, etc. etc. that have to be paid from the 23.5.  The net is what is left is basically cleared and the amount is still substantial.

Well I do like the low prices. But to me it just seems odd. I can’t help but think it wouldn’t take much of a drop in sales for them to be in trouble with the profit margin they have.

You’d be surprised. Part of the appeal of IKEA is that it keeps its prices (and therefore profits) low. Being a large company, they can afford to have a few bad months without hurting their overall viability, or even their quarterly earnings projections. Also, having a 10% profit margin is actually pretty darned good in the world of retail. Once you figure in the costs of business (property taxes, employee wages, utilities, insurance, shipping.. the list goes on), the markup between what an item costs to produce and what the customer pays is actually quite reasonable.

Robin Bobcat - 18 November 2011 02:46 AM

You’d be surprised. Part of the appeal of IKEA is that it keeps its prices (and therefore profits) low. Being a large company, they can afford to have a few bad months without hurting their overall viability, or even their quarterly earnings projections. Also, having a 10% profit margin is actually pretty darned good in the world of retail. Once you figure in the costs of business (property taxes, employee wages, utilities, insurance, shipping.. the list goes on), the markup between what an item costs to produce and what the customer pays is actually quite reasonable.

OK. I’ll just have to admit I don’t understand that particular industry.

Peter, they’re a group of very small organizations and just plain mom&pop; folk enterprises…. all of who are more Co-Op and not capitalistic.  You need to view them VERY differently because they are more ‘community’ based on cooperation rather than capitalistic-competitive greed.

Peter - 18 November 2011 12:46 PM

Robin Bobcat - 18 November 2011 02:46 AM

You’d be surprised. Part of the appeal of IKEA is that it keeps its prices (and therefore profits) low. Being a large company, they can afford to have a few bad months without hurting their overall viability, or even their quarterly earnings projections. Also, having a 10% profit margin is actually pretty darned good in the world of retail. Once you figure in the costs of business (property taxes, employee wages, utilities, insurance, shipping.. the list goes on), the markup between what an item costs to produce and what the customer pays is actually quite reasonable.

OK. I’ll just have to admit I don’t understand that particular industry.

Yeah, it’s a bit tricky. Even the mom&pop; places have a fine balancing act.

In general, the wholesale price (what the producers sell to the actual stores) is going to be maybe HALF of what the stores sell it to the consumers. Again, that may seem like a ripoff to folks, but bear in mind that a lot of that is eaten up by just having it out for sale to people. It’s why internet sales (and catalog sales before them) have been so popular - the producer can keep the stock in a warehouse, saving costs, sell for less than full retail, and STILL make more money than they would if it was in the stores.