Ikea will open a record number of stores this year as the flat-pack furniture retailer bets that it still needs a large physical presence even as more shopping goes online.
The world’s biggest furniture retailer is set to open more than 50 stores in its current financial year, with a majority in city centres or in a smaller format than its traditional vast out-of-town warehouses, the new chief executive of brand owner Inter Ikea told the Financial Times.
“This is how we have accelerated in our ambition to become more accessible. It’s never going to be that we go back to only opening big stores. It will be a mix of formats, including smaller stores closer to where people live or work or move,” said Jon Abrahamsson Ring, who became chief executive last month and was previously assistant to Ikea’s legendary founder, Ingvar Kamprad.
The ambitious plan for new stores comes despite Ikea posting a fall in annual revenues as the coronavirus pandemic — which closed about three-quarters of its stores at the peak — hit the retailer. Sales in its financial year that ended in August 2020 dropped 4 per cent to €39.6bn, Inter Ikea said on Tuesday.
But online sales surged close to 50 per cent. At Ingka Group, the biggest Ikea retailer, they now represent 18 per cent of total sales, up from 11 per cent last year.
“All the investments we have done in the past years paid off extraordinarily. We were able in some places within days to switch to online,” Jesper Brodin, Ingka’s chief executive, told the FT in a separate interview, adding that the increase in online sales had recouped about half the loss of revenues from physical stores.
Inter Ikea and Ingka are the two most important companies in the sprawling web of the furniture empire, essentially playing the roles of franchiser and main franchisee.
Ikea is in the midst of the biggest transformation in its 77-year history, ending its singular focus on large out-of-town stores where customers have to pick the furniture themselves and later assemble it. The group is experimenting with smaller stores, kitchen planning studios, and city-centre shops and offering services such as delivery, assembly and even furniture rental.
Mr Brodin said that Ikea’s recovery from the worst of the coronavirus disruption had been stronger than expected, with sales since June at “all-time highs”. Executives initially thought this was merely pent-up demand, but now believe it reflects a new interest from consumers for domestic furnishings thanks to a pandemic where large numbers of people have worked from home.
The group is in the middle of returning all financial help it received from nine governments worldwide as Mr Brodin said it was “a moral question”, that the retailer did so as soon as it realised its early forecasts of making a loss were too gloomy.
Mr Ring stressed that, while ecommerce sales were increasing rapidly, most customers still wanted to visit a store at some stage in their purchase process to “touch a sofa or kitchen”. Ikea has about 440 stores worldwide and opened about 30 of various sizes in the past financial year.
He also highlighted the strong sales in its lowest-cost segment, which accounted for about 60 per cent of growth in recent months compared with 40 per cent normally as shoppers increasingly sought bargains.