A Covid pulse check on Ikea’s 5-year plan

New stores imminent in San Francisco and South America; price hikes on the way

In October 2018, roughly 18 months before Covid first asserted itself in the United States, Ikea announced plans to open in a dozen new markets by 2023. Now, about two years after Covid crashed the party, how is the Swedish home furnishings giant doing?  

Not surprisingly, the pandemic has forced delays, principally because of challenges staffing full construction crews. But the expansion continues.

In mid-2018, Ikea announced that it aimed to triple the number of customers by 2025 by pushing aggressively into new markets, expanding online, adding both remote locations and moving into city centers, and by using smaller store formats. Covid cost the Swedish giant about 18 months’ worth of delays, but the five-year strategy is, in fact, unfolding. (As a benchmark, the company reported nearly 1 million customers through its many doors and online portals in 2020.)

As early as June, Ikea will see its South American flagship location open in Santiago, Chile, the result of a partnership with that country’s Falabella Group that was brokered in May 2018. 

How important to Ikea is South America? The $48 billion company described the opening in its recently filed annual report as “the biggest milestone” expected this calendar year.

The Falabella partnership is expected to put Ikea stores also in Lima, Peru and Calima, Colombia – nine in all – and an online presence in each in the three South American countries, according to the filing. A second store should open in Chile by the end of the year, and the first for Colombia is now expected to open sometime next year.

Founded in 1889, Falabella SA owns and operates department stores, including Chile’s largest, as well as supermarkets, home improvement centers, and banks, among other ventures. The $12.4 billion company also produces and sells clothing under the Falabella brand, according to Forbes.com, which put the company’s 2021 revenues at $11.5 billion. 

The joint venture will make Santiago-based Falabella one of Ikea’s larger franchisees during a phase of Ikea’s growth that increasingly relies on franchise partners around the world. Ingka Group is the largest franchisor, with 389 Ikea stores in 32 countries, 

According to its annual reports, Ikea recorded $47.9 million in sales globally last year, including $12.5 billion of that total via the Internet, or 26% of total sales. That’s nearly a 75% jump in e-commerce over 2020. 

This growth came despite what many online shoppers might describe as a disappointing shopping and buying experience. As impressive as Ikea is in its store operations and in manufacturing, the digital presence has a long way to go. 

The retail giant entered Mexico and Slovenia in fiscal 2021, and this fiscal year will see Ikea stores for the first time in Puerto Rico, the Philippines, Oman and, as described, Chile, with a pair of 270,000-square-foot stores in Santiago.

Ikea by the Bay

Closer to home, construction has started on an Ikea in downtown San Francisco, just around the corner from the Moscone Center at 945 Market St. Acquired for $200 million in 2020, the 265,000-square-foot location in the very heart of downtown was supposed to have been a shopping mall, but the building has sat empty since being completed in 2016. It’s not yet known who Ikea’s neighbors in the complex will be, or when the location will open, but after a spate of retail collapses along one of the city’s more prominent shopping and business sectors, the arrival of Ikea is being hailed as a potential turning point. 

Future home of Ikea San Francisco. Credit: Google

According to a report from Global Data Point this month, recent retail closures in the Market Street/Mid-Market area have included Abercrombie & Fitch, Converse, DSW, Fog City News, Gap, H&M, Marshalls and Uniqlo.

At 70,000 square feet, Ikea’s San Francisco store will be among its smaller footprints, but this is part of the larger strategy for the retail giant as it seeks to establish beachheads in denser downtown marketplaces. As many as 45 smaller mall locations, or “meeting places,” as the retailer calls them, are planned for Europe, including a location that opened this month in Hammersmith, London, and in key markets in North America, including Toronto, Chicago, Los Angeles and New York. 

The Hammersmith location in the Kings Mall Shopping Centre on Hammersmith’s high street is 50,000 square feet. Notably, the London store is an easy walk from an Underground stop. 

Luck of the Irish

A Grafton Street scene in Dublin

Another part of Ikea’s growth strategy announced back in 2018 was expansion into new services. Evidence of that strategic priority opened this month in Dublin, a new interior design center in the St. Stephen’s Green Shopping Centre. Situated at the top of Grafton Street just across from Dublin’s historic Gaiety Theatre and from St. Stephen’s Green and its statue of Oscar Wilde, the new location puts customers in touch with Ikea-trained interior design experts to plan new kitchens, living rooms, bedrooms or wardrobe storage.  

Ireland’s first such Ikea design center opened in County Kildare just west of Dublin in November, the first “remote” or non-urban location for Ikea in the world, according to Ireland’s RTE News. For history buffs, this location is just “beyond the Pale,” or outside the area of English law in and around Dublin in the 17th century. 

The company opened a design studio this month in Montreal’s North Shore area, in the Faubourg Boisbriand shopping center, joining a list of Canadian locations that includes Toronto, Mississauga, Scarborough, Oshawa, London and St. Catharines.

The design centers (or “planning studios”) also allow Ikea to better leverage investments in artificial intelligence and 3D design technology. Just last year, Ikea launched Ikea Place, an augmented reality 3D app that uses Apple’s new ARKit technology to populate and animate a growing catalog of items. And Ingka Group recently reported having 700 open digital and technology positions throughout its network.

Martyn Allan, Ikea’s market manager for Ireland, told RTE that the St. Stephen’s Green location “marks part of a long-term plan to transform our retail business, bringing Ikea closer to customers.” 

Prices rising after a rough 2021

How will Ikea fund all this expansion? Like many if not most home furnishings players, pandemic has driven the company to pass along price increases — big price increases.

Prices in Ingka Group stores will rise this year an average of 9%, according to filings from the company, which cited cost increases in raw materials in transportation. That’s a full percent and a half above even the relentless surge in U.S. inflation, which in January reached a four-decade high of 7.5%. 

The increases are expected “across all markets” after a difficult year. Ingka Group reported absorbing $282 million in supply chain-related costs last year. 

These price hikes will inevitably provide cover for other home furnishings players also to pass along cost increases, particularly given the Swedish giant’s bread-and-butter business at low- to mid-market price points. 

It’s in the name

Finally, one Ikea note not found in its annual financial reports: According to the Birmingham Mail newspaper, a Norwich, England teenager changed her name from Ikea to Jasmine to hopefully put an end to what had been years of bullying and ridicule. 

The teen’s parents named her Ikea after seeing an ad on television, a choice that won the family a free sofa from the retailer. Unfortunately, their daughter had to endure what she said were years of being miserable as people at school taunted her, according to the newspaper’s report. One of the more hurtful monikers hurled at her was “flat pack.” Not cool.

Strangely, Jasmine’s family still calls her Ikea at home, or, alternately, “Kea” for short, and technically, Jasmine retains the name, because she simply reversed her first and middle names. Legally, she now is Jasmine Ikea. 

I guess you could say she assembled her name herself.

Brian Carroll

Brian Carroll covered the international home furnishings industry for 15 years as a reporter, editor and photographer. He chairs the Department of Communication at Berry College in Northwest Georgia, where he has been a professor since 2003.

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