The hub and spoke model they're trying to create must deliver enough additional sales and profits that it's offsetting the expense of additional footage. That's the only reason such a concept would work.storewanderer wrote: ↑April 26th, 2023, 9:45 pm Ikea will reach far more customers by moving into some medium markets. Many people in Reno would shop Ikea if it were here (in some form). Many people do actually drive to West Sacramento to go shop there but obviously that is a hassle as you need to ensure you have the right vehicle, etc. I've known people who rented a truck to make the trip.
The question is will it be profitable. The model for Ikea now in the US with these massive giant super high volume store/warehouse type operations strikes me as ultra low cost with a lot of expenses cut out of the system. This absolutely is passed on to the customer in the form of lower prices.
Once they are running smaller stores, moving smaller lots of merchandise around more, to different locations, I think expenses will go up and so will prices.
At that point in these medium markets if they can't be as low priced, and also can't have as much selection (due to a smaller store) then suddenly their competitive advantages diminish. So maybe they won't be such a threat to Target.
Someone else mentioned Toronto and that they have separated the showroom from the warehouse. San Diego also has a separate pickup facility off site for selected items and it's been there for decades. So they already have good experience operating secondary units, as well as disconnecting the showroom from the warehouse.
The key is engaging the customer at every possible point. I am not sure if some of them will work. There is a pickup point/mini consultation center they opened in Long Beach next to a Sam's Club, and I don't see anyone using it. The store is halfway between their Carson and Costa Mesa stores. I suspect it will close.
But when you consider the incredible volume Ikea does out of their full line units, the regional draw possibly exceeding that of legendary Bass Pro Shops, and the fact we all know that furniture is a highly profitable category - they have plenty of money to test and understand which options will work and which won't. This expansion is 17 units, of which 8 will be full size stores that probably cost over $100M a piece to build. That means a whopping 9 smaller boxes they can play with in a total project that probably will cost a few million total since they're likely to be rental in line space.
When you look at it from that perspective it wouldn't take much for these little units to add a healthy amount of sales and profit. In addition they might be able to be utilized to bring down the costs of delivery and assembly with these facilities. Both are an obstacle for many Ikea customers who don't own a truck or van to haul giant flat boxes, or aren't physically able to assemble, or might not be able to "speak Ikea". When I say "Speak Ikea" that means understand that their bookcase isn't in one box, rather you need to enter the parts you wish to buy into the computer in the bookshelf department. It will spit out a list of eleven different boxes and two bags kept in 13 different warehouse locations. It will come with virtually zero instructions about how to integrate the parts into the finished product. If someone who couldn't figure that out could go to a smaller local building and have someone order it all up to be kitted together for curbside pickup they will definitely gain sales.
Despite the fact that these megastores are doing hundreds of millions in sales each there are many customers who cannot figure out how to shop there, and that means there is still a massive sales opportunity for Ikea.