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A Changing Business Model: IKEA Investment News
IKEA has long been known for its 500,000-square-foot warehouse showrooms located in suburban areas, typically near major population centers, where customers can purchase furniture, housewares, home décor, and maybe enjoy some Swedish meatballs while shopping. But the retail industry has changed dramatically in recent years, and IKEA is changing along with it. Leading some to question IKEA and its new construction investments.
IKEA is reinventing itself based on market research into customer lifestyles, how they prefer to shop, and the logistical problems they encounter when shopping for furniture and home goods. The transformation of the company’s retail approach is intended not only to grow the business, but to do so in a sustainable and environmentally friendly way. (Accordingly, IKEA’s famous Swedish meatballs now are available in a meatless version!)
New Store Formats
IKEA’s online sales increased by more than 73% in 2021, and IKEA’s response in Europe has been to open smaller stores, about a quarter of the size of the company’s earlier stores. These smaller stores are in urban locations where city dwellers can buy smaller items to take home with them and order large furniture items for delivery. New distribution centers are also being built to support the higher demand for home delivery. Other retailers, such as Target and Best Buy, have been opening smaller-format brick-and-mortar establishments in large cities as the industry experiments with new shopping concepts.
IKEA’s new approach combines the best features of physical and online shopping. IKEA’s current plan is to modify up to 40% of its existing stores to permit online ordering.
As of December 1, 2022, there are 53 IKEA stores in the continental United States, with the greatest number of them in California. Florida, Texas, New York, and Pennsylvania round out the list of the top five states with the most IKEA stores.
IKEA Planning Studios
At 5,000 to 10,000 square feet, IKEA planning studios are the smallest of IKEA’s retail formats. Customers can make appointments to work with design specialists in an IKEA planning studio to plan solutions for specific rooms—bathrooms, bedrooms, kitchens, home offices, etc. Orders for home furnishings can be placed during their visit, and the items will be delivered to the customer’s home or another point of delivery. (Sorry, no Swedish meatballs.)
In August 2022, IKEA U.S. opened a new planning studio in Long Beach, California, and another one in the Westfield Santa Anita Shopping Mall. In the fall of 2022, two more planning studios will open in the Los Angeles area. These are the first IKEA planning studios on the West Coast.
A Multi-Tier Strategy
According to a January 2021 Forbes article, IKEA is “rapidly moving from its one-size-fits-all strategy to a multi-tiered network of stores that include in-store urban locations and even neighborhood shops specializing in design services or as places to pick up orders placed online [and] will have all three formats in five key cities by 2024.”
Urban Construction and Surety Bonds
Building in an urban environment, such as IKEA is doing in multiple cities, typically involves purchasing and repurposing an existing structure rather than building on vacant land. Urban construction can pose some challenges, such as:
- Maintaining safety standards and protecting public safety (e.g., through secure site fencing, covered pedestrian walkways, safety netting for debris containment as well as fall protection for workers)
- Difficult site logistics are due to little or no room beyond the building’s immediate footprint for crew parking, material delivery and staging, maintaining traffic flow, etc.
- Legal and local jurisdictional requirements such as airspace easements, rules governing street closures and pedestrian access to sidewalks, city building codes,
- Protection of neighboring properties from noise, dust, vibration, or encroachment, and perhaps having to support the foundation of neighboring structures.
- Coordinating with local authorities regarding connections to utilities (power, sewer, water, phone service. Internet, etc.)
- Protection of other tenants in a building undergoing extensive remodeling, such as preserving their access to common-use elevators, removing debris, and avoiding disruption of their utility services.
Urban construction projects involve a wide range of risks, and municipalities and project owners may require contractors to provide financial protection for them in the form of construction surety bonds.
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