Ikea is shifting to smaller city stores as business prices halt big-box expansion
Ikea is accelerating its shift to smaller city-centre stores in Britain, as rising property taxes and changing shopping habits dim the appeal of traditional out-of-town megastores.
Peter Jelkeby, outgoing chief executive of Ikea UK and Ireland, said the Swedish retailer would focus future expansion on compact town formats after strong trading at its new Oxford Street location and central Brighton store.
The strategy represents a clear departure from Ikea’s historic “big box” model, which dominated retail parks for decades and defined the British brand’s expansion from the late 1980s onwards.
Although the group has no immediate plans to close any existing megastores, Jelkeby confirmed that Ikea does not intend to open any new megastores in the UK.
“We see a lot of opportunities to open small shops like Oxford Street and Hammersmith,” he said. “That’s where the customers are, and that’s where the growth is.”
Jelkeby acknowledged that the rising cost of doing business has contributed to the strategic rethink. Large retail units often attract very high rates, leaving operators exposed to disproportionately large tax liabilities.
The upcoming changes will intensify that pressure further, with a new charge on commercial properties valued at more than £500,000. Although it is intended to support small businesses, these changes will increase the burden on supermarkets, supermarkets and retailers such as clothing stores.
“Of course we want to have lower levels of business,” said Jelkeby, adding that changes need to “come sooner rather than later so that the retail environment is good”.
Next to its city center, Ikea is also exploring medium-sized stores in retail parks that sit between its small urban stores and traditional megastores. The new sites in Harlow, Norwich and Chester reflect what Jelkeby described as a more flexible way of selling bricks and mortar.
Ikea believes it now has “sufficient big box” sites across the UK and Ireland, but will continue to invest in those sites by improving fulfillment, click and collect and in-store facilities rather than expanding their footprint.
The retailer is closing its Tottenham store in north London in 2022 after concluding that smaller, more central locations offer long-term potential in the capital.
The Oxford Street store, which opened in May, delivered strong sales across furniture, accessories and food, with demand for its restaurant exceeding forecasts.
“We are learning fast,” said Jelkeby. “We had to increase the payment capacity and increase the food activities to deal with the drop in foot traffic.”
The UK business is owned by the Ingka Group, the world’s largest franchisee of Ikea. Jelkeby will now head up Ikea’s German division, where he plans to test a similar switch, using the UK as a testing ground.
“Germany is our bigger and more traditional market than the UK,” he said. “Britain has allowed us to try new ways to meet customers where they are.”
