Ikea to Accelerate China Store Openings to Shift Away From European Gloom
Ikea Group, the world’s largest furniture retailer, will triple the pace of store openings in China to capture faster growth in the second-largest economy, Chief Executive Officer Mikael Ohlsson said.
“The demand is there,” said the Swedish executive, sitting in a living-room display at the company’s Amsterdam store. Customers in the world’s most populous nation have “the dream, the wish, the need to furnish and the fit with Ikea is very good.” Sales in China are growing faster than at the company as a whole, Ohlsson said.
The expansion in China will allow the company to reduce its reliance on Europe, where it gets about 80 percent of sales and which is suffering from a slump in consumer confidence. Ikea will cut prices by 1.5 percent this year as its increased scale allows it to produce items at less cost, the CEO said.
“We will have a higher expansion pace going forward than what we have had in the last couple of years,” said Ohlsson, who has been at the helm of the company since 2009. The company will continue to accelerate hiring after adding about 4,000 jobs last year.
Ikea will open about three stores a year in China in the coming years, Ohlsson said, building on the nine it has there at the moment. Opening an outlet costs 60 million euros ($81 million) to 100 million euros on average, he added.
The maker of Poang chairs and Billy bookshelves increased sales at its shops about 6.9 percent in the year ended Aug. 31, bringing the total to about 25 billion euros as the company slashed prices, added stores and new services, the CEO said, divulging the figures for the first time.
“The competitiveness of Ikea should improve every year and this year, the gap is even bigger between inflation and Ikea’s price picture,” he said. “What we have decided is to continue to become more affordable and to be also more accessible.”
The purveyor of frozen meatballs has also made the decision to enter India when retailing regulations in the nation change, allowing full ownership for foreign, single-brand companies, Ohlsson said. It will take Ikea between 4 and 5 years to open up from the moment the law is changed, he added.
Expansion in Latin America, where the company has no stores, isn’t the focus at the moment, the CEO said, as the retailer focuses on building in its existing regions. Ohlsson said the retailer sees no benefit to going public and has no plans to make any acquisitions.
The company, which plans to open stores in Croatia and Serbia, is gaining market share, Ohlsson said. While people are moving less often, they are updating their houses with low-cost items such as pillows, Ohlsson said, grabbing a selection of throw pillows to rearrange on a white couch to demonstrate the point.
Comparable sales in Spain have been unchanged, even though the home-furnishing market there has contracted about 40 percent, he said.
“What we always see is that the more value-conscious customers become, the more attractive Ikea is,” he said. “That is our idea, that the people with normal incomes in normal situations should get the most for their money.”
Ikea, which first comes up with a price point for a product and then figures out how to make it, is testing a program to work directly with contractors to market its kitchens, Ohlsson said. One in two kitchens in Norway are made by Ikea, while in some markets the number is one in 20, he said.
The retailer, known for a soup-to-nuts do-it-yourself approach, is also adding services for customers. For example, a shopper can select items they want in the store and have them delivered to their home without having to gather them from the outlet’s warehouses themselves.
“A lot of people want the absolute least expensive and that’s the whole idea -- as a customer, you pay for the extra service and if you do everything yourself, you get the cheapest,” Ohlsson said.
Ikea, which has online shopping in some markets, is also developing its website to have a broader geographic reach and offer more services.
The company, which updates its collection of about 10,000 products with more than 2,000 new items a year, will continue investing in products and enlarging stores in the coming year as it shrugs aside the macroeconomic environment, the CEO said.
“It will continue to be a shaky world economy, with big differences between different regions and markets,” Ohlsson said. “Not least, in Europe, it will be quite shaky.”
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