As the long-awaited Ikea store in Oxford Circus is set to open later this year, our Retail Week analyst team examines five ways the Swedish retailer will drive long-term success in the UK.
1. Smaller stores, larger reach
Ikea has been optimising its network in the UK across several formats in a bid to grow its reach. It closed its large-format London Tottenham store in September 2022.
In February 2022 it launched its smaller format Ikea city store in Hammersmith, London. In its first year, the store welcomed more than 2 million visitors and sold over 750,000 meatballs.
Ikea used customer feedback to improve the store, adding an extra 1,000 products including more furniture and introduced an order-and-collect service.
The most recurring feedback in Hammersmith’s first year was that customers missed the much-loved 75p hot dogs – so expect it to double down on its food offer when it opens its Oxford Street store later this year.
Ikea’s latest plan-and-order point opened in Stockport in March 2023, the second of three confirmed UK locations. This smaller format is dedicated to kitchen and bedroom planning, with customers able to access home-furnishing advice to help design their projects.
With accessibility a key part of its UK strategy, Ikea launched its new ‘collect near you’ points in collaboration with Tesco in September 2022. Located within select Tesco car parks, the points allow customers to collect their Ikea order for free if it comes to more than £200 or for a £10 fee.
These varying formats illustrate Ikea’s commitment to championing convenience as well as the needs of the local area, playing to an increasingly omnichannel customer.
2. Online growth and future development
Given Ikea’s strong in-store proposition, the bulk of its sales still come from this channel. Yet online is a growing area, with its UK online sales reaching around 36% share in 2021/22, doubling on pre-pandemic levels. One million click-and-collect orders were placed in the UK in its latest financial year.
In September 2022, Ikea launched its ‘remote customer meeting point’. Aiming to help customers remotely, users can plan kitchens and access online interior design services as well as help “when something goes wrong”.
Ikea UK commercial manager Michaela Quinlan said: “Being there for our customers is not just about the products we offer, it is also about how accessible and convenient we are to them.”
Further afield, in a bid to reach more online shoppers in China, Ikea launched on Tmall in 2020, subsequently offering its products on a branded storefront.
It already had a standalone ecommerce presence in China but hoped to gain a better understanding of its customer base in the region. It now boasts around 4.5 million followers/subscribers on the platform.
3. Maximising supply-chain efficiency
Around £1bn of investment is earmarked for adapting Ikea’s model over the next three years to cater for hybrid shoppers in the UK – and the work includes making larger stores double up as online distribution centres.
In 2021/22, 37% of all online orders in the UK were fulfilled directly from a store, either through Ikea’s home delivery or click-and-collect services.
Its new fulfilment centre in Dartford, Kent, is due to open in May this year, expanding its fulfilment capacity in London by 20%. Ikea has also confirmed its ambitions to execute 24-hour deliveries within London.
The retailer is also advancing its technological capability by adopting drones in its supply chain. The first drones launched in Ikea Switzerland in 2021, with 100 now operational across 16 different locations in Europe.
The drones work during non-operational hours to improve stock accuracy and secure the availability of products for its online and in-store arms. This solution supports “a more ergonomic workplace” for Ikea workers as they no longer need to manually confirm each pallet.
4. Cost of living shifting spend
Not immune to inflationary pressures, Ikea has seen its UK prices rise by up to 80%, citing “surging raw material and transport costs” for the spike.
In February 2023, its latest Life at Home report laid bare the challenges its customers are facing. The report highlighted that more than a third of customers (35%) are expected to cancel or postpone home-improvement plans as the cost-of-living crisis impacts spend.
Yet Ikea is poised to steal a march on homeware retailers such as Dunelm and John Lewis with its buy-back scheme. Now operational in all markets, customers can sell back used Ikea furniture in exchange for in-store credit, which they can use to purchase new items.
Ensuring it focuses not just on how its customers tackle the cost-of-living crisis but taking care of its employees, in November 2022 Ikea announced it was investing £12m in a pay rise and wellbeing support package for its UK employees. This included an average 6% pay rise for salaried workers as well as boosting its staff discount from 15% to 30% off.
5. Road to climate positivity
Ikea is committed to becoming climate positive by 2030. As such, it continues to innovate to reach its ambitious sustainability targets.
In 2022 its store in the Netherlands completed a pilot using solar-powered cargo bikes for customer deliveries in the local vicinity. Its franchisor (Inter IKEA Systems BV) will now scale up the initiative to give all Ikea retailers globally use of the bikes as a sustainable alternative to the home-delivery fleet.
Ikea opened its first second-hand shop in Eskilstuna, Sweden, in November 2020, with the purpose of “moving Ikea towards a circular business”.
Over the past two years it said the store managed “to reach a profitable circular business model – that works small scale”. In March 2023, Ikea announced it was extending the store until August 2025, while simultaneously transferring the learnings from the pilot into all 21 Swedish Ikea stores.
Closer to home, its Hammersmith store’s circular hub, where customers find everything from ex-display products and discontinued furniture through to preloved items, has expanded and is expected to grow further this year.
Online, its circular hub enables customers to browse a list of second-chance items, reserve for 48 hours and pick up at their selected store if they are members of its Family loyalty programme.
As businesses embed circular principles into their supply chains and consumer sentiment towards sustainability deepens, Ikea is set to reap the rewards while protecting the planet.
Prospect estimates Ikea’s UK sales to grow to £2.4bn in the next three years as it moves past its competitors both technologically and environmentally.
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