Ikea Plans $2.2 Billion Investment To Back Its Biggest US Expansion

Swedish Furniture Retailer To Roll Out Eight Stores, Nine Smaller Studios, 900 Pickup Locations

Ikea, the global retailer of furniture and household goods based in Sweden, is dramatically beefing up its brick-and-mortar presence in the United States, investing about $2.2 billion over the next three years to open eight big-box stores, nine smaller studio locations and 900 pickup sites in the competitive furniture sector.

The international chain, known for selling affordable ready-to-assemble furniture in big-box stores, said the new initiative will mark its biggest investment in the United States in the four decades it's been operating in the country.

Ikea's expansion, which is intended to build out its fulfillment network for online and traditionally placed orders, will put it in a better position to compete with rivals including discount chains like Target and online furniture sellers such as Wayfair, according to one industry analyst.

"The $2.19 billion investment in the U.S. should make other retailers sit up and take notice," Neil Saunders, managing director of GlobalData, said in a note to clients. "As the largest furniture retailer in the world, Ikea has economies of scale and volumes that allow it to offer value that few others can match. The expansion is a potential threat to Wayfair, At Home and many other mass-market players. While it will take time for Ikea to execute its plans, it is clear that a previously sleepy giant has woken up and is intent on making its mark."

Furniture retailers and manufacturers have had a tough go of it since the peak of the pandemic. During the worst of the COVID outbreak, Americans stuck at home were buying goods to spruce up their nests and make them more comfortable and beautiful. But once life returned more normal, consumers shifted spending to activities and services rather than merchandise.

Lane Furniture, once the nation's biggest maker and distributor of upholstered furniture, filed for Chapter 11 bankruptcy protection earlier this year and is liquidating its business, selling all its real estate holdings. Serta Simmons Bedding, which manufactures mattresses and sells them in its own stores, filed for Chapter 11 in January. And last month family-owned furniture retailer NB Liebman said it was shutting down after more than 100 years in business.

New San Francisco Store

Ikea, with its U.S. headquarters in Conshohocken, Pennsylvania, didn't disclose where it will be opening the eight new stores. It also didn't say where it plans to put the sites for all of the nine so-called Plan and Order points, smaller locations where customers can work with on-site consultants to plan their purchases and have them shipped to their homes. One of those studios, which doesn't carry inventory, is slated to open this summer at the Pentagon Centre shopping center in Arlington, Virginia.

Ikea previously announced that it will debut a new store, which is in addition to the coming crop, in San Francisco this summer. The chain currently has 51 U.S. stores.

As part of its big new investment, Ikea will also open 900 new pickup locations. In the past year, the company said it has debuted 15 customer pickup locations and two Plan and Order points "to make IKEA more accessible for customers."

Ikea U.S. didn't immediately respond to an email seeking comment on Thursday.

"The U.S. is one of our most important markets, and we see endless opportunities to grow there and get closer to the many Americans with affordable products and services," Tolga Öncü, head of Ikea retail, Ingka Group, said in a statement. "More than ever before, we want to increase the density of our presence in the U.S., ramp up our fulfillment capacities and make our offer even more relevant to local customers' needs and dreams."

The investment, which Ikea described as "this first phase of growth," aims to bring the retailer "closer to U.S. customers both physically and digitally — making it easier and more convenient to shop." The new locations will create over 2,000 jobs, according to the company.

The retailer has been under-represented in the U.S. for some time now, letting competitors get an edge, according to Saunders.

"While the U.S. is one of Ikea’s biggest markets, the company’s reach has always been relatively poor compared to its core European markets where spend per head is much higher. ... The net result is that Ikea is currently under-potentialized in the U.S. and has lost ground to more nimble players like Wayfair which has hoovered up home-furnishings market share over the past 10 years," Saunders said.

Affordable Prices

Javier Quiñones, Ikea U.S. CEO, in a statement, said U.S. consumers "have a strong desire for more ways to shop and experience Ikea, and this growth plan will allow us to meet that need," adding the retailer is committed to "millions of customers who look to Ikea for home furnishing inspiration and solutions at an affordable price."

Saunders said he sees an opportunity for the retailer.

"After a period of experimentation and adaptation Ikea is now ready to chase sales in the U.S. market, which it sees as a potential engine of growth at a time when some of its more mature markets are under pressure," he said. "The drive has no doubt been helped by the increasing relevance of Ikea's strong value-for-money proposition, which chimes with consumers at a time when inflation is eating into household budgets."

In the past three years, Ikea said it has continued to modernize its existing stores to have a dual role, "to offer inspiration and home furnishing expertise while also increasing its handling capacity for parcel deliveries directly from the store."

Saunders credited Ikea with moving on from its "one-dimensional approach of the past," with more investment in online selling "and a flexible approach to physical store formats, including the opening planning studios and order and collection points."

According to Saunders, "These things complement the big-box stores, which are still an important part of the mix, and allow Ikea to reach more shoppers in a cost-effective and efficient way."

Earlier this year, Ikea U.S. said its fiscal 2022 sales were up slightly, to $5.9 billion in total sales, with an 18.8% increase in e-commerce sales. It had 69 million visitors to its stores and 494 million visits online.

With Ikea retail operations in 31 markets, Ingka Group is the largest Ikea retailer and represents about 90% of Ikea's retail sales.