Ikea’s store strategy appears at first glance to be a bit like London buses – nothing for ages and then a load come all at once. Having not developed a single store in seven years, the world’s largest furniture retailer opened one in Reading last year, is building another in Sheffield and plans further outlets in Greenwich and Exeter.
Last weekend Ikea held its first public consultation on plans for a store in Lancing, near Brighton, which if it gets the go ahead will be part of a wider development that includes 600 homes. The UK is also the global pilot for Ikea’s five smaller-format “order and collection points” where customers can have a more “interactive experience” and seek expert advice on more complex Ikea purchases, such as buying a kitchen or bathroom.
It is a veritable flurry of activity for the Swedish retailer, which has been in the UK for nearly 30 years and has 19 stores, with its Sheffield store, opening in late summer this year, taking the total to 20.
The lack of new store development has hardly been because Ikea has been resting on its laurels. Quite the opposite, Ikea is arguably one of the world’s most successful retailers, whose format, range and operational model seems to suit any country it targets. The reason its development progress in the UK has been more sedate in the past decade is because of the tight internal discipline the privately-owned group maintains when it comes to expansion – a discipline that many a rival retailer would do well to follow.
Gillian Drakeford, the UK head of Ikea, told me earlier this week when I met her in Sheffield for the new store’s ground-breaking ceremony, that the retailer had known for some time that its biggest barrier to growth in Britain was that many of its existing stores were “too far away” for some shoppers. However, she said that after a period of rapid growth in the UK, which began to slow about seven or eight years ago, Ikea decided it had to focus more on investing in its staff, its existing estate and improving the customer experience.
Basically it wanted fewer queues in better stores with well-trained staff and, of course, more meatballs. Ikea was also late to the online party and had to catch up quickly.
“We had to ask ourselves [a few years ago] ‘do we have the right to expand?’” Drakeford explained, adding that answering that question had come down to the single issue of the “performance of comparable units”.
“You have to be able to demonstrate that you are growing in comparable stores, that you are driving both top-line and bottom-line growth, and driving the customer and the people indicators,” she said. “If we can’t do that then we don’t have the resources to grow.”
The subtext of this statement is that while the global Ikea parent company is not parsimonious, it has made clear that any privately-funded expansion by any Ikea division must only take place if the business can support it.
That is why after a few years of hard graft Ikea now has 10,400 staff in the UK – its fourth largest market globally – as opposed to only 8,000 a few years ago. There are more sales assistants on its shop floors to help shoppers find what they want and to improve the customer experience. Ikea relaunched its website last September and more than 13% of its sales now come from online transactions.
These changes have had a clear impact on the business. Last year Ikea UK recorded its fifth year of growth, with sales jumping by nearly 9% to £1.7bn in the year to 31 August. Its market share also grew by 0.5% to more than 8%.
This growth explains why Ikea is back in growth mode again and opening new stores. It is investing £80m in its edge of Sheffield store, where it fought long and hard to get planning permission against fierce objections from retailers in the town centre, notably John Lewis. Drakeford said Ikea also planned to spend another £20m upgrading its Nottingham store and would continue to evaluate its order and collection points before taking a decision on further expansion.
Ikea has set a target of doubling the size of its British business by 2020 and beyond and it is clear that it is well on its way.
Deirdre Hipwell is retail and M&A editor at The Times
