Could IKEA’s store closure in Coventry mark the start of a shift from big box to high street?

Hello, and welcome to This Week in Retail.

Big news this week from IKEA as the retailer announces it is shutting its Coventry store. Hang on, you may say – a retailer shutting a store (especially just one) is definitely not news these days, more a daily occurrence. This significance is that IKEA’s sales and growth has been largely immune from any big box challenges facing the rest of the sector – it has continued to invest in large shops well in to the last decade, when the likes of B&Q (2015), Tesco (2011) and everyone else have stopped years ago. Why have IKEA been so dominant, and why change now?

For a long time, it has been able to capitalise on a change in home ownership rates – as these have declined in the UK and many other markets, the scope of ‘home improvement’ for many people has largely been restricted to home furnishings and furniture, which is where IKEA are the undisputed champion. There is limited comparable competition with the same breadth of range and affordability across the home. Equally, whilst the narrative of young renters would suggest that big boxes would lose out to online channels, IKEA’s shops, with its creches and meatballs, have stayed relatively popular as destinations.

However, there is a recognition now that these out of town locations, in an era of declining car ownership, are becoming less attractive – especially when the home delivery service on offer is limited and pricey. Hence IKEA will move into smaller, more urban locations. This again signals a big shift for IKEA as it will put a much greater emphasis on its digital channels and services complementing a physical shopping trip. Hopefully it will still keep the cafes going.

Perhaps an indication of what its smaller and more urban stores may look like can be seen with Primark’s new store opening in Manchester, that ticks the experiential boxes of beauty services and cafes, as well as personalisation services and affordable fast fashion. These services are growing within the Primark estate, which considering the shop floor density and economics of fast fashion does suggest that, done well, experiential retail can be a great footfall driver and breathe life into shopping in person.

Have a great weekend!

Nick

Author

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Nick Hoenig

Managing Consultant, Operations Transformation

Retail, with a focus on Store Transformation and Store Evolution, Proposition Development, and Landing Change in Retail