Ikea’s $2.19 Billion US Expansion ‘Potential Threat’ To These Big Retailers
Ikea on Thursday said it will invest more than $2.19 billion to expand in the U.S. in what one analyst described as a “potential threat” to some big-name chains.
The Swedish home furnishings retailer owned and operated by Ingka Holding BV will open 17 new locations, eight new stores and nine smaller delivery-only “plan & order” studios where consumers can ask employees how to configure their bedrooms, kitchens and living rooms.
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Ikea also plans to enhance its fulfillment network. The total investment should create over 2,000 jobs.
“The U.S. is one of our most important markets, and we see endless opportunities to grow there and get closer to the many Americans with affordable products and services” Tolga Öncü, head of Ikea retail, Ingka Group, said in a statement. “More than ever before, we want to increase the density of our presence in the U.S., ramp up our fulfillment capacities and make our offer even more relevant to local customers’ needs and dreams.”
Ikea operates 51 large-format doors and last year opened two new Los Angeles-area new studios in Long Beach and Arcadia. Two more are set to open this year in San Francisco and Arlington, Va., outside Washington, D.C. “The Plan & order point concept has been created with the unique needs of local consumers in mind, from the proximity to public transportation and delivery and assembly options, to the opportunity for affordable design services,” Ikea U.S. market manager Raquel Ely said last month.
The Swedish retailer will also open 900 new pick-up locations on top of the 15 it opened last year.
“We know U.S. customers have a strong desire for more ways to shop and experience Ikea, and this growth plan will allow us to meet that need,”Javier Quiñones, CEO & chief sustainability officer, Ikea U.S., said. “We are committed to continuing to grow in this market with our thousands of co-workers and millions of customers who look to Ikea for home furnishing inspiration and solutions at an affordable price. Our priority is to become more accessible, while staying as affordable as possible for the many people, which is especially important given the increasing costs of living.”
The planned U.S. investment, Ikea’s biggest in four decades, could “increase competitive intensity among players like Wayfair, Overstock and others,” Jefferies retail analyst Jonathan Matuszewski wrote in a research note on Thursday. Walmart and Target might also overlap with Ikea’s assortment, he wrote.
The U.S. is Ikea’s second largest market behind Germany, Matuszewski pointed out, citing last year’s top categories including beds, mattresses and living room seating. “Assuming U.S. e-commerce penetration is consistent with Ikea’s global channel mix (at 22 percent), we estimate Ikea’s average U.S. box does near $90 million annually,” said Matuszewski, who estimates that much of the investment will prioritize southern markets, “where Ikea has been less capable of meeting customer demand.”
The investment shows that “Ikea is now ready to chase sales in the U.S. market, which it sees as a potential engine of growth at a time when some of its more mature markets are under pressure,” according to GlobalData managing director Neil Saunders, who said the retailer’s value offerings will resonate during a period of high inflation.
Saunders noted that Ikea’s evolution from just the big-box approach to include online and flexible store formats allows the chain to reach more shoppers efficiently.
“As the largest furniture retailer in the world, Ikea has economies of scale and volumes that allow it to offer value that few others can match,” Saunders said. “The expansion is a potential threat to Wayfair, At Home and other many mass-market players.”
As the biggest consumer market, the U.S. is often top of mind for companies seeking growth.
Ikea’s news comes as big-box rivals announce store closings. Walmart recently said it was shutting four Chicago-area stores while Bed Bath & Beyond is shedding 237 and Best Buy has closed 17, with dozens more to come over the next two years.
Off-pricers such as Ross Stores Inc. and TJX—opening 100 and 150 locations this year, respectively—could compete with Ikea for the same sites. So too could Irish value chain Primark, which is planning 17 new stores in the U.S. this year. And earlier this month, Fast Retailing said it is eyeing 1,690 additional Uniqlo locations, including the U.S., this year outside its home base in Japan. Zara parent Inditex sees “significant” long-term growth opportunities in the U.S. Through 2025 it plans at least 30 projects ranging from new stores, relocations and enlargements in cities “such as New York, Los Angeles, Miami, Chicago, Boston, Dallas, Austin and Las Vegas.”
