IKEA eyes aggressive growth: New Philadelphia prototype hints of future

DSN Retailing Today, Jan 27, 2003 by Mike Duff

CONSHOHOCKON, PA. -- In the case of IKEA, the tortoise has become the hare. The international home furnishings retailer, known for maintaining a deliberate pace of change, has departed from its old habits, revealing plans to open 10 North American stores in the next year or so and 50 new units over the next decade as it doubles its store count worldwide.

The first of those new North American stores, located in Conshohockon, Pa., near Philadelphia, opened Jan. 16. About 175 stores worldwide carry the IKEA banner. According to the privately held company, IKEA did sales of about 10.4 billion euros in 2001, approximately $9.6 billion at the time, with 80% coming from Europe. Representing about 13% of sales, the United States is IKEA's second-largest revenue producing country after Germany.

Although recent North American economic performance might not suggest it, IKEA has determined that this is an opportune moment for a significant growth surge on the continent, Clive Cashman, a spokesman for the company said.

"We feel that, for us, this a huge opportunity. The population over here is the equivalent to the population in Europe. The economy may be looking fiat, but in any economy great design, good quality and low price work. And the thing about IKEA is, shoppers can get everything under one roof. Even if they aren't going to purchase a sofa, we have everything, so people can renew their homes even if they are operating under a small budget. With us being privately held, we can stick to our vision. We have our long-term goal and that is to have a strong presence in North America. We believe in the market, and when the economy does come back, we'll be in a great position," he said.

In both the world and North America, some old stores will be "optimized" or brought up to the latest merchandising and decor standards, while other existing units will be replaced within the same market region, as happened on Jan. 15 in the Philadelphia area. IKEA will focus on existing markets as it looks to add to its store count, as well. Still, new markets are part of the IKEA's growth plan. Worldwide, that means Russia and China among other nations, and the company recently opened a unit in the Moscow market. In the United States, Atlanta and Florida are fresh regions that IKEA considers alluring.

The new Philadelphia-area store is a story in itself, and the opening got wide media attention in a market where IKEA has created a cachet for its breed of Scandinavian style ready-to-assemble furniture and functional but stylish housewares.

In replacing a store in nearby Plymouth Meeting, Pa., the new IKEA location doubled the amount of store space--to about 325,000 square feet--that the company operates in the seven-million-people-strong Philadelphia metro market. A second location in the 'area, planned for 2004 in the city of Philadelphia proper, will further develop the market as it will be more readily accessible to southwestern New Jersey and northern Delaware and, thus, to heavily populated suburbs like Cherry Hill, N.J., and cities like Wilmington, Del.

IKEA has introduced new merchandising initiatives as it moved operations from Plymouth Meeting to Conshohockon. More emphasis is placed on vignette displays that suggest how various items sold at the store might be put together to create a look. The idea is taken to a new dimension at the Conshohockon store with full-room displays developed in lifestyle themes. The room displays can include furniture, accessories and related housewares products organized around defined life stages including, single, couple moving into a new apartment and small family

The Conshohockon store is only the second IKEA unit to organize merchandise departmental grids. First-time customers will be directed onto the familiar IKEA trail, a traffic pattern designed to lead them through the entire store. But, with just a little familiarity, Cashman said, shoppers will be able to easily reach individual departments such as kitchen or lighting. So the new store becomes easier to navigate for the shopper who is accessorizing a room rather than organizing one from the ground up. To make things even easier, IKEA has repositioned the cafe at its new Philly metro location. With a central position that looks out across the store, it is an ideal point from which to plan a shopping excursion.

One observer who braved the store opening said that the visual presentation was particularly impressive. The new location offers an open layout and shoppers have a storewide line of sight.

Of course, Conshohockon is only the first opening in IKEA's planned expansion for the coming year. The focus in the United States is on the company's existing markets: New York, Los Angeles, the San Francisco Bay area, Baltimore/Washington and Chicago. New IKEAs are planned for Paramus, N.J., College Park, Md., and East Palo Alto, Calif. A new Orange County unit will replace the Tustin store in California, while the City of Industry store gives way for a Coyma unit. In Canada, Boucherville in the Montreal market will get a new IKEA, as will Vaughan, near Toronto, while Edmonton will see a relocation. Additionally, Somerville, in the Boston metro market, will get a new IKEA in 2004. To support its growth, IKEA has developed two new distribution centers in Tejon Ranch, Calif., and Perryville, Md. In their first phase, they are 850,000 square foot facilities, but both are designed for expansion to 1.7 million square feet. IKEA will fill out the California DC first, Cashman said, and the Maryland DC as product vo lume warrants.