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Ikea Sticks To Growth Strategy Despite Housing Market Woes

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The Associated Press

Published: June 20, 2008

NEW YORK - Mobs of fans greeted the opening this week of build-it-yourself furniture chain Ikea's first store in New York City - but the fervor is masking shoppers' underlying frugality.

Even the most loyal followers of the Swedish leader in low-priced but sleek home decor are thinking twice about buying ready-to-assemble bookshelves or woodblock tables amid a housing slump that has lasted almost three years and the soaring costs of food and gas.

"I am definitely not shopping big items. And I am focused on sales," said Jewell A. Staley, a real estate investor who loaded her cart Wednesday at the new Brooklyn store with $10 lamps and a $29.99 bistro table. "I am spending $100 on gas every two days."

The man behind the company's global expansion, CEO and President Anders Dahlvig, said the housing downturn has led to a global sales slowdown at Ikea as shoppers do less impulse buying and focus on price. He doesn't see any economic recovery for another two years.

"A lot of things are going in the wrong direction," Dahlvig said, rattling off challenges like soaring inflation, the downturn in the job market and tighter credit. Global sales growth slowed to 11 percent in the fiscal year ended Aug. 31, compared with previous increases of about 15 percent. The hardest-hit countries are the United States, Germany and Britain, but Dahlvig said he's seeing business in Spain and other European countries starting to slow down as well.

Market Share In U.S. Is Growing

Still, Dahlvig thinks there are big opportunities for the privately held Ikea Group, which operates about 250 stores in 31 countries with plans to open an Ikea store in Tampa next year near Ybor City on State Road 60. He said Ikea has gained market share in the United States from home furnishings rivals like Levitz Furniture, which liquidated, and Linens 'n' Things, which filed for bankruptcy protection in early May.

Instead of scaling back on overall expansion, the company is shifting its emphasis toward developing markets like China, Russia and Eastern Europe, while staying tough on prices and cutting expenses.

"Slowdowns in the economy are not forever," Dahlvig said. "It's better to stick with a strategy than panic."

The U.S. housing downturn has hit home furnishings retailers the hardest, as a decline in home sales stifle consumer demand to fill their new houses with curtains and new tables. The home furniture and furnishings category accounted for 27 percent of the total 4,600 store closings in 2007, according to the International Council of Shopping Centers.

'Experience' Will Help, Experts Say

"Ikea is not immune to the housing downturn, but they are in a sweeter spot than other retailers," said Shilpa Rosenberry, a senior consultant at WSL Strategic Retail. "Shoppers will spend on home given the right opportunity."

Janet Hoffman, managing partner of the North American retail practice of Accenture, noted that the Ikea experience - along with its stylish low-price merchandise - sets it apart from other merchants. "You just don't dash in and out of the store," she said.

Ikea offers less-expensive furniture, in designs from modern to traditional, because most of what it sells requires assembly and is flat-packed, saving the company money in transportation and storage costs. Sofas range from about $399 in cloth to $1,400 in leather. Accessories include $20 mirrors, $7.99 woks and $3.99 throws in bright colors.

Although Ikea faces increasing competition from discounters like Wal-Mart Stores Inc., which has freshened up its home furnishings sections, retailers can't match Ikea's breadth of offerings. A typical Ikea store features about 10,000 items. The Brooklyn store offers 49 room vignettes and three model homes tailored to apartment living.

In the United States, Ikea's second-biggest market behind Germany, sales increased a respectable 10 percent in its past fiscal year, but below the 21 percent pace of the previous year, according to Pernille Spiers-Lopez, president of its North America division. The U.S. market accounts for about 10 percent of total sales, which reached 21 billion euros, or about $32 billion, in its past fiscal year.

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