Ikea’s profits have fallen by more than a third as the world’s biggest furnishing retailer invests in improving its online business and tests smaller city-centre stores.

Ingka, the holding company that runs the vast majority of Ikea stores, said pre-tax profits for its main operations were down 36% to €2.1bn (£1.8bn) and sales rose 2% to €37bn in the year to 31 August. Retail sales rose 4.7% in constant currency as the company opened 12 stores, including its first in India, alongside a 45% jump in online trade.

During the year, the group invested €2.8bn, the majority of which funded 14 new distribution centres to cater for online business. It also bought windfarms in Finland and Portugal and forests in Latvia and the US, as part of its sustainability efforts, and acquired the odd-job gig economy app TaskRabbit.

The fall in profits came after Ikea said last week it was cutting 7,500 office jobs worldwide, including 350 in the UK, to focus on improving its online operation and city-centre format.

The Swedish group, which employs 160,000 people, said the jobs would go over the next couple of years, and would mainly affect administrative staff in central support functions across the 30 countries where it operates.

Juvencio Maeztu, the deputy chief executive and chief financial officer of Ingka, said: “During the year we have increased our efforts and investments to start to transform our business. While this has had an impact on our results, it is a conscious decision for us to start a three-year period to transform our business and be better equipped for the next 75 years. Our financial strength enables us to invest over the long term, and with purpose, in our own future.”

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Ikea stores worldwide are owned by 11 franchisees, of which Ingka is the biggest with 367 stores. Franchisees pay a proportion of annual sales to the brand owner, Inter Ikea.

Ikea plans to open a city-centre store in Paris next summer after launching similar outlets in London, Stockholm and Madrid this year. It will open more traditional stores in India, China, Romania and the US, and also build 20 distribution centres.

The UK is Ikea’s fourth-largest market, accounting for 6% of sales, behind France, the US and Germany, the last of which accounts for 15% of sales.