Next spring, IKEA is moving to the heart of Manhattan.
For anyone who knows the furniture retailer’s massive blue-box megastores, this might come as a surprise. But what you’ll find at the Midtown outpost is something new: a “Planning Studio” with a much smaller footprint, where New Yorkers can get one-on-one advice before ordering items for delivery.
The store concept, announced Monday, signals a new approach for the Swedish company, whose massive stores are often found in sprawling locations near the edge of metropolitan areas. The Manhattan storefront will be the first of five “city center” stores to open in the U.S.—with others coming to Los Angeles, San Francisco, Chicago, and Washington, D.C. In total, IKEA plans to open 30 such stores globally over the next two years. At the same time, it’s ramping up its online offerings and delivery services. Combined, the strategy is an attempt to remain competitive in a tumultuous era for retail, and to go up against the likes of Amazon and Wayfair to attract younger customers.
“It’s an example of how we’re reaching our customers in new ways, so it will be more accessible and more personalized,” Angele Robinson-Gaylord, president of U.S. property at IKEA, said of the upcoming stores.
To some degree, IKEA’s past success can be attributed to its focus on accessibility. The company dominated the furniture market by selling good design at prices that are attainable by lower-income and more money-conscious consumers. Its focus on flat-pack products also allowed it to offer lower costs of transportation for furniture, whether it’s a customer moving products in their own cars or paying to have them delivered. Still, the stores’ more remote physical locations can be difficult for many people to get to, especially if they don’t own a car.
That increasingly represents a hitch in the company’s accessibility sell. IKEA has compensated for this by opening more convenient order and pick-up points in remote areas, and by running complimentary shuttles (and even a water taxi) in neighborhoods like Brooklyn.
By setting up shop downtown, the retailer could be establishing a vital lifeline.
“IKEA, which has been content to sit on its laurels for a long time—and I think correctly so, because they saw themselves as the disruptor—had the retail landscape change over them in a pretty short period of time,” said Bob Hoyler, a home and tech analyst for the marketing research firm Euromonitor. “And one thing that’s hurt them is that they were clearly not really prepared for that.”
In November, the company announced it was slashing 7,500 mostly administrative jobs and ramping up its online and delivery efforts, citing a 50 percent jump in online sales this year. It had earlier nixed plans for three big-box stores in Nashville, Tennessee; Cary, North Carolina; and Glendale, Arizona. All in all, the investments have brought its full-year profits down 26 percent, according to Reuters.
But brick-and-mortar stores will continue to be important because—surprise!—younger shoppers still prefer physical locations. In a 2017 survey by the National Retail Federation, only 34 percent of Millennials and Gen Z-ers considered themselves primarily online shoppers. Another survey, from the trade publication Home Furnishing News, found that 63 percent of shoppers between 21 and 36 still want that in-store experience when shopping for furniture.
IKEA’s own market research for its Manhattan store revealed that New Yorkers still like to browse stores when furniture shopping, said Robinson-Gaylord. It’s just that they’d rather have the big and bulky items delivered. And IKEA knows that it’s all about location; if shoppers can’t get to a physical store, they will turn to shopping on their phones and computers.
“There’s a natural desire for customers to want to see and feel the product first,” said Hoyler. “But as consumers became more comfortable with buying furniture sight-unseen, the migration of e-commerce happened really rapidly in that industry.”
As my colleague Sarah Holder illustrated in her report on the cut-throat business of selling mattresses, the furniture industry has been ripe for disruption as companies cater to younger shoppers. “The most important demographic still in the U.S., as far as total furniture sales go, is Generation X,” Hoyler said. “Although, that’s fast changing as Millennials age.”
All the while, the number of traditional home furnishing stores has fallen since the Great Recession, from nearly 65,500 in 2007 to fewer than 50,000 in 2017, according to Euromonitor. During that time, the proportion of indoor furniture sales made online grew more than three-fold, from 4 percent to 12.5 percent. Amazon and Wayfair are undoubtedly the big players, but smaller ventures like Casper, Article, Campaign, and Burrow have also been crowding the market in recent years with their own furniture-in-a-box pitch.
So can IKEA still be a disruptor?
To the store’s credit, it has taken advantage of the urban dwelling trend in some notable ways. In 2014, it recruited 20 designers to design a collection called “On the move,” with adaptable furniture for small-space living and for renters who are constantly, well, on the move. Today, low-cost lines like Lack tables, Billy bookcases, and the Malm collection are staples of college dorms and first apartments. It also designed a (doomed) commuter bike and collaborated with British industrial designer Tom Dixon to design products for urban farming. One of the company’s smartest moves, Hoyler says, is acquiring TaskRabbit in 2017, allowing consumers to pay for on-demand furniture assembly service.
Hoyler doesn’t see IKEA’s future in e-commerce to be particularly challenging, given its name recognition and abundance in real estate. It’s currently building more fulfillment centers, Hoyler said, and can easily transform its big-box stores into warehouses if need be—the way Walmart did with many Sam’s Club centers earlier this year. But the big-box stores aren’t going anywhere just yet, Robinson-Gaylord said. Two new ones are currently in the works: one in Norfolk, Virginia, and another in San Antonio, Texas.
Indeed, as journalist and furniture retail expert Warren Shoulberg wrote in Forbes, patience has always been a founding principle of the company’s global expansion. In the U.S., IKEA spent years studying the successes and failures of its first store outside Philadelphia before opening a second location. Whereas for other retailers, Shoulberg wrote, it’s “open first, figure it out later.”
I asked Robinson-Gaylord if she felt IKEA was late in the game with the U.S. market; it had already begun testing city-center stores in Spain, Norway, Finland, and the U.K. She said her team had been in the research phase until recently. “We’ve done a series of home visits and focus groups, and had a lot of conversations with our customers” in New York City, she said. “And it took a little while to understand what they wanted and needed.”
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