Ikea Plans U.K. Expansion as Sales Increase Most in Six Years

Ikea, the Swedish retailer that introduced flat-pack furniture to the masses, plans to double its store numbers in the U.K. after reporting the strongest pace of sales growth in the country for six years.

The company, which opened its first British outlet in the northwest England town of Warrington in 1987, also needs to build capacity at its existing 18 stores in the country to keep up with a growing product offer, Carole Reddish, acting manager for the U.K. and Ireland, said in an interview in London.

Ikea’s U.K. same-store sales rose 6.3 percent in the year ended Aug. 31, the retailer said today, against a background of a declining home-furnishings market. Reduced home-delivery prices and an appetite for budget furniture stoked demand, boosting revenue to 1.23 billion pounds ($2 billion) and the company’s market share by 0.4 percentage points to 6.8 percent.

“I’m cautiously optimistic about the way we’ve started this year and we are building on the achievement we’ve had in financial year 2012,” Reddish said. “I don’t see any signs it’s going in the other direction. We could certainly double the portfolio, but the timescale is difficult to be concrete on.”

The U.K. comprises about 6 percent of the store base of Ikea, which has 287 outlets in 26 countries. Group sales have risen every year since 2001, and climbed 6.9 percent to 25.2 billion euros ($31.4 billion) in the 12 months through August 2011. The company, founded by Ingvar Kamprad in Smaland, Sweden in 1943, has yet to disclose figures for the latest fiscal year.

Home Delivery

Ikea, whose U.K. stores sell 27-pound Billy bookcases and 14-pound wall lamps, cut the starting price of home delivery to 15 pounds from 35 pounds this year to help shoppers who travel by public transport to its out-of-town outlets.

Economic pressures in the U.K. have also meant that the retailer is appealing to a “broader base” of customers such as families with older children who are returning to live at home after university instead of renting, according to Reddish.

“Young people aren’t getting onto the property ladder, more are staying at home with the family for longer, so the family is visiting the store to buy goods to adapt the way they live at home,” she said. “We see a lot of students visiting with their parents when they are setting out for university, but we see a lot of them coming back now.”

Bedroom products have been one of the fastest-growing sales categories after the retailer invested 15 million pounds reducing the price of its Pax range, Reddish said.

Shrinking Market

The growth in Ikea’s U.K. sales is “pretty good” given the difficult consumer climate, said Neil Saunders, managing director of Conlumino market research in London. The overall market “has once again been in shrink,” while the outlook for Ikea “is pretty optimist, quite rosy.”

Britain’s home-furnishings market shrank 2.2 percent last year, according to Verdict Research. Kingfisher Plc, owner of the B&Q home-improvement chain, had a 5.5 percent drop in U.K. and Irish same-store sales in the six months ended July 28.

Ikea, known for its low prices and design credentials, has a “real opportunity to open stores,” Saunders said.

The retailer spent 7.5 million pounds this year adding selling space to its store in Birmingham, central England, and 5.3 million pounds on a warehouse to support the outlet in the Scottish capital Edinburgh.

As a job creator, Ikea is “attractive” to local authorities as it seeks to add more outlets, Reddish said. The next store is planned for Calcot, near Reading, though the executive declined to comment on more specific plans.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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