It seems IKEA is not immune to the digital revolution. As many brick-and-mortar stores continue to see their demise, IKEA has called off its plans to open new stores in Glendale, Arizona; Nashville, Tennessee; and Cary, North Carolina.
IKEA spokeswoman Latisha Bracy pointed to the retail environment “rapidly changing” as the reason behind the change in plans. She wrote, “To be fit for long-term growth, we are creating a new business model to make sure we’re accessible and convenient for our customers today and in the future.”
Founded in 1943, the Swedish-based company is best known for their meatballs (which they have vegan versions of too now), their maze-like interior, and hard-to-put-together furniture. They expanded into the United States in 1985 and have continued a slow, but steady roll-out across the nation.
Currently, the company has the largest market share of any furniture retailer not only in the United States, but on a global level as well. Right now, IKEA has 355 stores operating in 29 countries. Last year, the furniture retailer added 13 new stores to their lineup. They were looking to add three more this year. However, as we have now confirmed, those plans have change.
While IKEA kept expanding their reach into new markets, they continued to see a decline in revenue growth and net income over the last few years. After seeing sales increases upwards of 8% in both 2015 and 2016, these past two years IKEA has dropped below 4% of growth. On top of that, IKEA’s net income has seen a 40% drop over the last fiscal year.
Seeing these alarming patterns, the company has turned to the web. According to Neil Saunders, who is a retail analyst at Scottsdale, Arizona’s GlobalData Retail, “They have found that in a number of established markets, they are really behind the curve in terms of online. They want to really start investing and ramping that area up. That obviously means they have to be more careful on things like store expenditure.”
What made IKEA hold out on the online revolution is the fact that their customers enjoy visiting the showrooms, eating the meatballs, and using the free wi-fi. Analyst at IBISWorld, Clare O’Connor, stated, “People do like to see it. They do like to see the displays. They like to get the inspiration and ideas.”
However, she pointed at the money saved in not paying for buildings to rent and employees’ salaries. Mrs. O’Connor likened it to the success of online realtor giant, Overstock.com. “Online retailers, including Overstock.com, don’t have to pay for the overhead costs associated with large showrooms and can pass on savings to consumers.”
Neil Saunders pointed out that although buying furniture online may end up being cheaper for customers, you can’t beat the showroom experience. For that reason, while IKEA may be halting the opening of these three stores, they won’t be slowing down their brick-and-mortar business model. The analyst projected, “IKEA’s profits have been under pressure and they want to rein back on unnecessary capital expenditures. This is a pausing rather than a retrenching from stores completely.”
