Ikea plans to open 17 new US locations in the next 3 years

[ClownLoach]

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.

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.

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.

[buckguy]

The hub and spoke can work in larger markets whether its pickup or smaller stores, secondary to their usual gigantic ones. Smaller stores in secondary markets would be a much bigger gamble.

They seem very conservative about adding stores even in huge markets that draw from multiple secondary markets. They waited a long time before opening the College Park store outside of DC (their 3rd in the DC-Baltimore area), which is not in a retail hub but on the Beltway and not far from connections to the Annapolis area and reasonably convenient for people who don't want to go to the far side of the Virginia suburbs. The first store was at an outlet mall S of DC which also could draw from Richmond and other points South. The next store in the area was NE of Baltimore, away from DC but convenient for smaller outlying markets on B'mores version of the Beltway and next to a successful mall. There was a history of DCers buying furniture in Baltimore and they gambled that people would go to the far side of Baltimore which they did for about 20 years until College Park opened.

They seem to purposely locate stores to draw beyond an immediate area---the Pittsburgh store is convenient for Ohio markets which are larger than anything on the other sides of Pittsburgh. The Atlanta store was a departure for them, being in the city, but it's near where all the major interstates converge.

I'm obviously more dubious about the planning-oriented stores. It didn't work for them in NYC where you can find a surprising number of full line furniture stores at different price points, even in Manhattan. Some stores, esp. at the upper end are creative in their use of real estate---doing without street level displays and relying on their brand name to draw people above street level to their showrooms.

[storewanderer]

Rather than penetrate existing markets I'd like to see them move to further geographies they are not present in.

They already draw customers from hundreds of miles around.

I think they have a lot less penetration than these Bass Pro etc. type stores. I think that segment is actually saturated. Bass Pro has ruined Cabela's. Scheels still puts out a great store and runs an exceptional operation, but somehow it feels lacking compared to the pre-Bass Pro Cabela's (the current Cabela's feels sad).

However it may be the places I go I tend to see more of these Bass Pro etc. type stores because of where I go.

[ClownLoach]

Rather than penetrate existing markets I'd like to see them move to further geographies they are not present in.

They already draw customers from hundreds of miles around.

I think they have a lot less penetration than these Bass Pro etc. type stores. I think that segment is actually saturated. Bass Pro has ruined Cabela's. Scheels still puts out a great store and runs an exceptional operation, but somehow it feels lacking compared to the pre-Bass Pro Cabela's (the current Cabela's feels sad).

However it may be the places I go I tend to see more of these Bass Pro etc. type stores because of where I go.

I didn't want to distract too much when I mentioned Bass Pro, I just couldn't think of many other retailers besides Ikea where customers will happily drive 250+ miles each way to shop.

I'm sure the 8 new full size stores will indeed be new territory; no real need to say add a store to fill in SoCal or a second in Seattle area.

[buckguy]

Rather than penetrate existing markets I'd like to see them move to further geographies they are not present in.

They already draw customers from hundreds of miles around.

I think they have a lot less penetration than these Bass Pro etc. type stores. I think that segment is actually saturated. Bass Pro has ruined Cabela's. Scheels still puts out a great store and runs an exceptional operation, but somehow it feels lacking compared to the pre-Bass Pro Cabela's (the current Cabela's feels sad).

However it may be the places I go I tend to see more of these Bass Pro etc. type stores because of where I go.

I didn't want to distract too much when I mentioned Bass Pro, I just couldn't think of many other retailers besides Ikea where customers will happily drive 250+ miles each way to shop.

I'm sure the 8 new full size stores will indeed be new territory; no real need to say add a store to fill in SoCal or a second in Seattle area.

Bass Pro probably is the only other chain that is such a regional draw. I wonder what they've been doing with Cabela---the ones I visited just seemed to have underdeveloped selections of outdoor stuff. Bass is like Ikea in that they appeal to all ages and price ranges, and offer a range of goods that only the most specialized local businesses could ever offer---and those probably also operate as destination/online operations, with only one line like fly fishing.

Whereas people are always setting up new households which makes Ikea an evergreen, people are not taking up outdoor sports as much as they used. Hunting licenses have been in a long decline even in places like Pennsylvania where the first day of hunting season is often a school holiday. Fisihing is pretty stagnant, with some regional variation. It's made a big come back in the Great Lakes because of cleaner water, but agricultural runoff from factory farming is undermining that in places like Western Lake Erie. Like Ikea and its decor and kitchenware, Bass has clothing and camping gear, so that they aren't reliant only on what people think is their core business.

One reason the big Ikeas draw is because people do like a big selection and they're willing to make shopping a big daytrip or weekend trip out of it, doing other shopping and activities, along with it. Especially early on, Ikea built near malls which already drew from a wide area. People have been willing to do big, distant shopping trips for breadth or depth they can't get at home---I know people who periodically go to NYC for this--but it's rare that one store can be enough of a draw the central motivation for such a trip.

[ClownLoach]

Ikea apparently is trying to find ways to make the pending San Francisco location viable. They're testing new technology and security measures at the Costa Mesa location. They might as well install bars, guard towers and an electric fence...

They are replacing all the checkout stands and self checkout stands with a new, more rugged looking self checkout that is bare stainless steel instead of painted. They've reconfigured them to be easier for the supervising cashier to see what the customer is doing. The only benefit to the customer here is that now all self checkouts are always open so lines are finally eliminated. Previously Ikea would have three open full service checkouts and one set of 4 open self checkouts while all other self checks were roped off and closed, then lines would extend back into their warehouse. The self checkout makes you read a warning message that you are being monitored by store security and your purchases are subject to audit by security, and reminds you "shoplifting is a crime and Ikea prosecutes." (Of course if they tried to prosecute under $950 the police are not going to show up, but....)

They have added electronic security gates to the checkout areas that will not open unless you scan your receipt. If you didn't make a purchase and therefore do not have a receipt then you have to walk all the way around all of the checkouts where there is a very skinny "office building style" security gate that opens and closes between customers. I don't think a cart fits through that gate, but I wonder if it is ADA compliant or if they have to just manually open a checkout gate with an employee badge for someone who is disabled? And that gate is the furthest possible distance from the exit door, probably to force anyone stealing through it to walk past every single employee, camera and checkout before they exit. There appeared to be a ton of new security cameras throughout the entire store.

They have also made operational changes to the warehouse and rearranged it to reduce shrink. Previously most of the store was accessible except for couches and other very large items. Now even a $179 curio case was in the "employee area" and not a self service item. They have added at least 50 kiosks all around the store, and it seems any furniture at $150 or over price point is fulfilled at customer pickup. You select the items of your choice on the kiosk and enter your phone number or email address. They give you a list of what aisle and bin to find the cheaper items in for self service, then text or email you a QR code to be scanned at the register to pay for the more expensive items. Once you've purchased the expensive items the register system sends a pick ticket to the warehouse and they will pull the items. You move your car to the loading dock and wait for your order number to appear on the screen, take your receipt inside and scan it on a kiosk, then a worker brings your items and helps to load them in your car.

Most of that pickup process isn't really new for Ikea, but previously it was being used for items costing $1000 or more. The threshold is dramatically lower now and as such it appears many aisles of the self service warehouse are now closed off to the public.

To handle the increase in labor needed to fulfill many more items from the warehouse versus self service on a flatbed it appears that everything becomes self checkout, the food market area with frozen Swedish meatballs and such is self checkout, and the small food court downstairs is also kiosk ordering. The downstairs food court by checkout has lost all of its seating and I believe the self service soda fountains were removed too. The main restaurant upstairs is still cafeteria style with full service checkout (for now at least, I can see this easily moving to kiosk ordering).

So at first visually it doesn't appear that Ikea has significantly "hardened" the store until you try to shop it and interact. I wonder what they will do about the biggest possible problems. What will they do with the ample open seating in the main restaurant? Will they make it full service seating to prevent homeless from taking over and camping all day? What about the same problem with the furniture showroom itself? They clearly can't make the "mini home vignettes" with enclosed walls throughout the showroom, these folks will basically move in for the day until the store closes. And they've made it much harder for someone new to the Ikea model to shop. The fact that a bookcase at Target comes in one box and one configuration, sometimes a second color, versus Ikea which may offer over a hundred choices of color, height, doors, shelves etc. Makes it harder to understand. The fact that the price tag on the front is say $150 but then the back is four different SKUs kept in multiple warehouse locations makes it really hard, and then you have to enter that information into a kiosk to be texted a shopping list with the location of each of the four boxes... I'm sure much of their shrink is when a customer goes to get the four boxes of their $150 bookcase, rings up the first box and not the remaining 3, and makes it out the door because they just don't understand why the one item they want is really four items when it's just one at Target, Walmart, and anywhere else you buy furniture at. On top of that when you get it home you've got to use a degree of common sense to try to figured out which box you open and build first... Maybe Ikea would be better off just opening one of those "design centers" where an employee helps you full service, no showroom, no restaurant, and the big store building is just a pickup loading dock...

[storewanderer]

I think the Ikea restaurants are operated by some other "division" of Ikea or something. Like they are not operated by the same company who operates the stores in the US. So maybe they will not be changing anything unless their space gets reallocated somehow.