IKEA goes to town with new focus on city stores

STOCKHOLM (Reuters) - IKEA Group’s new CEO will focus on developing new stores and showrooms in city centers as the surge in e-commerce and home delivery dims the appeal of its giant out-of-town warehouse stores.

FILE PHOTO: A family is seen in front of an Ikea shop in a mall in Rome, Italy, May 19, 2017. REUTERS/Max Rossi/File Photo

The world’s biggest furniture retailer has relied for decades on shoppers driving many miles to load often heavy and bulky items into their cars.

The rise of online shopping means consumers are getting used to having purchases delivered to the home, so Sweden’s IKEA is investing in e-commerce and services and trying new concepts such as pick-up-and-order points and city-center showrooms.

Jesper Brodin, an IKEA veteran who became CEO in September, said he planned to make some changes to IKEA’s overall strategy early next year but the top priority was to test more store formats in towns.

“In what way can we better serve customers that live in city-centers?” he said in an interview. “That is one area we are going to step into with a lot of entrepreneurship.”

IKEA Group this year opened a kitchen showroom Stockholm and a bedroom store in Madrid, and plans include full-range showrooms in London’s Greenwich borough and Copenhagen in 2019 and 2020.

“We will now test not only kitchens and bedroom but living room, total range, part of the range. That’s what we are going to do in the coming years: to develop the menu for the world of IKEA in city centers,” said Brodin.

The company will also focus on home delivery options as well as developing the online store, he said.

IKEA Group made its first-ever acquisition this year, buying on-demand odd-jobs platform TaskRabbit. Brodin said more may follow as one way to stay on top of innovation and develop the core business.

IKEA Group reported on Tuesday a drop in annual operating profit due to the sale of several businesses as well as investments in areas such as the internet and logistics.

Profit was 3.0 billion euros ($3.6 billion) in the year to the end of August. The year before, when IKEA Group sold its product development, production and supply chain subsidiaries to brand owner Inter IKEA, it was 4.5 billion euros.

“The decrease in operating result was mainly driven by the loss of profit from the companies that were sold in the transaction, as well as the increased costs in IKEA Retail to support multi-channel growth and expansion,” IKEA Group said.

“During the full year, the IKEA Group invested 3.1 billion euros in stores, distribution and customer fulfilment network, shopping centers, renewable energy and forestry,” it said, without giving a comparable figure for the year before.

Its retail sales grew 4 percent, with online sales up 28 percent to account for a fifth of the total.

In Germany, its biggest market, sales grew 2 percent.

IKEA stores worldwide are owned by 11 franchisees, of which IKEA Group is the biggest with 355 stores at the end of August. Franchisees pay 3 percent of their annual sales to Inter IKEA.

Addiitonal reporting by Maria Sheahan in Frankfurt; Editing by Tom Pfeiffer and Mark Potter