Ikea shifts focus to city centre stores
Reorganisation to adapt to changing shopping habits hurts profits
Ikea Group is setting its sights firmly on the city centre as the appeal of its out-of-town warehouses wanes and the world’s largest furniture retailer fights to adapt to an increasingly urban and digital shopping environment.
Jesper Brodin, Ikea’s new chief executive, told the Financial Times that the retailer would try different store formats as it sought to conquer the centre of cities such as Copenhagen in Denmark, where a new outlet is due to open in 2020.
“We are eager to claim the city centre,” Mr Brodin said. “We are testing new formats. We have penetrated parts of the city centre but we are mostly outside so the opportunities are there.”
Ikea is thoroughly rethinking its business model as a result of urbanisation and digitalisation. It told the FT this year that it would start selling its goods on third-party websites — perhaps to include Amazon or Alibaba — next year.
The Netherlands-based retailer has also been experimenting with different types of stores from its traditional large warehouses based on the edge of cities. It has opened city-centre collection points as well as smaller stores in regional conurbations.
Mr Brodin said that experimentation would accelerate as he gears up to present his full plans for the company early next year. “We are basically creating structures in a way that we can test many aspects in many places. They are test laboratories to figure out the new world of Ikea,” he added.
His comments came as Ikea revealed a sharp drop in profits, which it blamed largely on a big reorganisation of the flat-pack empire that saw it sell the manufacturing and supply chain businesses to a sister company, Inter Ikea, which owns the brand and concept.
But it also hinted that it had increased its spending on new stores and ecommerce considerably, also contributing to the fall in profits.
Operating income in the year to the end of August was €3bn compared with €4.5bn a year earlier. While revenues increased only modestly from €35.7bn to €36.3bn, the cost of sales rose more rapidly from €20.3bn to €23.7bn. That pushed the gross margin — a key gauge of a retailer’s profitability — down almost 9 percentage points to 34.6 per cent.
Ikea declined to give comparable figures for the previous year stripping out the effects of the sale of manufacturing and supply chain units. Mr Brodin said the company had hit its new profit targets after adjusting for the new size of Ikea.
The challenge for Ikea was underscored by figures that showed the annual number of visits to its website had stagnated at 2.1bn, the same as in the previous year. By contrast, the number of visits to its 355 stores rose 4 per cent to 817m.