More on IKEA

October 5th, 2010

Photo: Terence Ong, Wikimedia Commons

The Age in Australia has borrowed quite heavily from my blog the other day on IKEA, so I hope they won’t mind if I borrow back from their rather good blog on the same theme.

As they say:

The advance guard of the crowd heading for Sunday’s rugby league grand final might have wondered what the traffic jam was about on Homebush Drive heading away from Olympic Park – the queue was to get into the car park for IKEA’s massive headquarters store.

This wasn’t an opening special, there was no spring sale, not even a sausage sizzle – just a wet Sunday morning at the retail flatpack phenomenon. Inside the maze that funnels customers through multiple departments on two levels before permitting them to escape through the checkouts, hundreds of mostly young homemakers clutched their yellow plastic IKEA totes holding Narhet glasses and Alvine Vacker quilt covers while comfort-testing the Ektorp sofas or pondering the battle of hope over experience in assembling Pax Malm wardrobes.

More amazing than the lines waiting patiently at the checkouts with large and heavy boxes is the knowledge that, despite all the indications of thriving commerce, the place apparently is barely profitable. The last accounts filed by IKEA Pty Ltd with the Australian Securities and Investments Commission show customers handed over $531.3 million at the tills in the 2009 year, but the Australian subsidiary made just $4.9 million net profit – a margin of less than 1 per cent.

That was nonetheless a huge improvement on the 2008 year when net profit was just $434,000 on the $479.2 million in cash sales – a margin somewhat less than 0.1 per cent.

Reflecting such low profitability, IKEA’s Australian arm doesn’t pay much tax – something it has in common with its parent, the world’s largest furniture retailer with $32.8 billion in annual sales.

In 2009 the overall IKEA margin was 12.6 %.

In Australia it’s 1% or less. I think if I was an Australian tax inspector I’d be opening my enquiry right now.

And this is exactly what country-by-country reporting is meant to do. It does not stop transfer mispricing. It does not even prove it is happening – there may be explanation for these figures (but I really can’t see shipping being a good enough one). What it does do is pose awkward questions about odd profit allocations: questions that need answers. And if those questions are asked often enough then behaviour would change. Which is exactly why I promote country-by-country reporting.

Written by Richard Murphy

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