Bye-bye big box: IKEA reveals Aussie expansion plans and move to small stores

IKEA is ramping up its business across Australia, revealing plans to double its presence here over the next few years. 

The Swedish furniture giant wants to more than double its sales in the next five years, growing from $733 million last year to a massive $1.8 billion by 2020.

The man overseeing the plans, IKEA Australia country manager David Hood, told Fairfax he wants to increase the number of IKEA stores from eight to 22 in the next few years.

About 12 small-format urban stores will be built along with three or four new “mega” stores, while the Swedish retailer will make its first foray into selling products online and two new distribution centres will aim to slash shipping times significantly.

Retail Doctor Group chief executive Brian Walker told SmartCompany IKEA seemed to be moving away from its core model of being a large warehouse-type environment for customers.

“It’s really a sign of the times,” he says.

“Instead of people coming to IKEA, now it’s IKEA coming to the people.”

Walker says the expansion appeared to be part of a structural transformation, with the business adapting to online and consumers with “more fragmented paths to purchase”.

“As consumers get more and more individualistic, much more enabled with technology, it is incumbent upon retailers like IKEA to change,” he says.

“It’s about closeness to customer and speed.

“It’s interesting, we see businesses build on a certain model, and then transforming that model; it’s classic adaption.”

Walker says IKEA’s strong following, especially among first-home buyers and younger people, meant expansion plans would translate to more competition for some of IKEA’s larger retail competitors like Harvey Norman.

Smaller furniture retailers and homeware businesses were also likely to feel the heat, he says.

“It’s going to be far more competitive, it will mean smaller businesses in that space will have to be even more aware of how to differentiate their offering. It will put pressure on smaller retailers without doubt.”

IBISWorld senior industry analyst Lauren Magner agrees, telling SmartCompany over the past five years furniture retailers have faced quite difficult and challenging conditions, with the influx of international retailers, like Zara and H&M, also trying to bring their homeware lines to Australia.

She says “big box” retailers were becoming less popular, with consumers having less time to spend shopping, while competition was increasingly targeting the casual shopper.

“I expect that’s why IKEA might be going for smaller stores,” she says.

She says it was likely to place extra pressure on smaller businesses, who would likely find it difficult to afford the same sorts of low prices.

“What they’re expected to do instead is go niche, providing designer furniture you can’t get anywhere else.”

SmartCompany contacted IKEA Australia for comment but did not receive a response prior to publication.