Late-blooming IKEA U.S. wears 20 well

DSN Retailing Today, Sept 6, 2004 by Mike Duff

PHILADELPHIA -- If much has been made of IKEA's stepped-up expansion goal of opening five new stores per year in the United States through the end of the decade, it's because IKEA itself has often emphasized the geographical aspect of its evolution. Yet in its 20th year of operating in the United States, there's more changing at IKEA than just the number of stores--not least of which is a shift in the company's fundamental proposition to consumers.

"A lot of work went into making a broader, more relevant statement to American customers," Pernille Spiers-Lopez, president of IKEA's U.S. and Canadian operations, told DSN Retailing Today. "We've done a lot, making stores bigger, making a better shopping experience and broadening our diverse presentation by adding more country looks and more warm color at all price levels."

That the focus would start with store count, however, doesn't surprise the ardent IKEA follower. For a division that has only opened an average of one store per year, this new growth surge represents a radical change of events marked by a sharp shift in priorities. The first priority, according to Spiers-Lopez, is to fill out IKEA's core U.S. markets, including New York, Philadelphia, Chicago and San Francisco. Next is to pioneer new markets, such as Minneapolis and Atlanta, where IKEA should be able to open multiple stores. Finally, IKEA wants to develop markets where it is likely to operate a single store, such as Sacramento, Calif.

Two recent store openings provide insights into the range of changes at IKEA in the United States and North America. Exploring them not only is an analysis of the changes taking place in the company's retail operations but one of creative number crunching as well.

STORE NO. 21, DOWNTOWN PHILADELPHIA

IKEA used the August occasion of its second store opening in metropolitan Philadelphia to remind folks that it picked the Philadelphia area for its first store in the United States. That unit bowed in 1985 in the suburb of Plymouth Meeting. The new store, the first suburban dweller IKEA has opened within a major city, is also its 21st U.S. unit, so a coming home story also is something of a coming-of-age story.

IKEA hasn't exactly revisited Philadelphia as a prodigal. The new store, a 310,000-square-foot behemoth, is a fully up-to-date unit that far outstrips the founding Plymouth Meeting store. But the Plymouth Meeting store isn't there any longer, anyway. IKEA replaced the approximately 160,000-square-foot Plymouth Meeting store with an up-to-date 325,000-square-foot-range unit in Conshohocken, Pa., in January. This IKEA expansion can be a complicated business.

In filling out existing markets, IKEA has an opportunity to make almost as big a splash with consumers who have shopped the store as it has with the uninitiated because most potential shoppers have gained at least a basic understanding of what the store is about. "It is time we benefit from being here awhile and being visible," Spiers-Lopez told DSN Retailing Today.

Critically, she continued, the newer generation of larger IKEA's can present the entire range of product.

"The full assortment that we carry now really shows all aspects of what the store is about, the whole shopping experience," she said.

That it does so is much more important today. IKEA has substantially expanded its product range and in more ways then one. Someone who shopped the old Plymouth Meeting store years ago and decided to visit the Philadelphia unit today would notice several major changes in assortment and merchandising.

First, there is a lot more stuff--even within core product categories, including furniture. IKEA has expanded its breakthrough case-goods products but also categories such as upholstered furniture and bedding. Indeed, just recently, it added a full mattress department that provides shoppers with an unusually diverse range of products.

Spiers-Lopez said that one challenge IKEA faced in entering the American market was tweaking the selection to emphasize those products that best suited U.S. consumers. The process was similar in Canada, which IKEA pioneered a decade before it entered the United States. Still, IKEA is a worldwide retailer and can leverage the growth of global awareness. The IKEA mattress department includes products such as futons and foam mattresses that might have been exotic when the Plymouth Meeting store first opened but now are more popular.

Having uncommon mattresses, though, has the advantage of promoting IKEA's burgeoning domestics business. After all, not every retailer carries a fitted sheet for a futon.

Domestics is one of the departments where IKEA has demonstrated how it is tailoring operations to prevalent tastes in the United States. Famous for modernist design, IKEA has been emphasizing more traditional looks in its U.S. stores. In domestics, for example, it went to France and licensed a traditional floral pattern, updated it a bit, and made it a major design element to suit more traditional home furnishings buyers. The company even uses the print on paper napkins.