IKEA pilots town centre store as shopping habits shift

HAMBURG Wed Jun 25, 2014 4:15pm BST

An employee of Swedish retailer IKEA is pictured in Taufkirchen near Munich January 22, 2013.  REUTERS/Michael Dalder

An employee of Swedish retailer IKEA is pictured in Taufkirchen near Munich January 22, 2013.

Credit: Reuters/Michael Dalder

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HAMBURG (Reuters) - Sweden's IKEA [IKEA.UL], the world's biggest furniture chain known for its sprawling out-of-town showrooms, is opening its first city centre store as it responds to a shift in shopping habits to smaller local stores and the Internet.

While IKEA has already opened a few stores closer to city centres than usual in countries like Britain and Japan, its new building in the northern German port city of Hamburg is the first time it will be in a central pedestrian shopping zone.

"It is an absolute pilot project for us. We want to get closer to people and know people are consciously choosing not to have a car," Johannes Ferber, IKEA expansion chief for Germany, told a news conference on Wednesday in the new store's cafe.

"We want to learn from this project and see what we can improve that we can then apply in other locations."

Shopping at out-of-town stores has been hurt worldwide by high fuel prices and a trend, first seen in the grocery industry, towards consumers making smaller, more frequent purchases closer to home due to tight household budgets.

IKEA is facing increasing competition in home furnishings as high-street fashion chains like Zara (ITX.MC), Next (NXT.L) and Hennes & Mauritz (HMb.ST) expand into homewares.

An IKEA spokeswoman said opening in the city centre was one way to help make it easier for customers to reach its stores, on top of efforts to improve transportation to its current stores and sell more products online.

The company, which has 356 stores in 44 countries, saw sales rise 3.1 percent to 29.2 billion euros ($39.7 billion)in the 2012/13 fiscal year, 4 billion from its biggest market in Germany where it has 48 stores, including the new one that opens next Monday.

It aims to grow revenues to 50 billion euros by 2020.

NO PLAN TO RAISE PRICES

IKEA's out-of-town stores have allowed it to keep property and logistics costs low but it has faced challenges in recent years getting planning permission for new stores in Germany and Britain.

The spokeswoman said the average length of time from planning to opening an IKEA store was four to five years.

The company has invested more than 80 million euros in its new shop on the site of a run-down department store that went out of business a decade ago. That compares with the 50 million it would expect to spend on its usual out-of-town concept.

But Ferber said that did not mean IKEA would have to raise its prices to protect its profit margins, with coffee glasses on sale in the entrance for 0.49 euros and a striking black-and-white sofa on sale for 199 euros.

"With good logistics, we can constantly reduce our prices," Ferber told Reuters. "If we manage to get customers to visit us more often this way then it is worth it."

The move to urban centres has not always been easy for big-box retailers. A U.S. retail analyst noted, for example, that home improvement chain Lowe’s (LOW.N) experimented with the idea but didn't get the sales it sought to meet its extra costs. It ended up slashing its store opening plans to improve profitability.

Yet IKEA's Scandinavian design and affordable prices appeal to the young, urban dwellers of smaller city apartments. At 18,000 square metres, the Hamburg store is about 20 percent smaller than a normal IKEA, but it has managed to cram the full range of Swedish beds, sofas, lights and home accessories into the space with a change in layout.

While the new store still has a series of rooms decked out with IKEA furnishings shoppers can also pay for small items like candles and serviettes on the ground floor without having to navigate the full maze of showrooms.

IKEA expects half the customers of its new store to come by public transport, by bike or on foot. It is testing a range of delivery options for those without a car, such as the free use of sturdy pushcarts, car sharing on site, special delivery taxis and delivery by bicycle courier.

Ferber said IKEA was considering setting up pick-up points for collection of goods ordered online as well as a central warehouse for home delivery.

IKEA has been slow to embrace e-commerce given its focus on a shopping experience that drives purchases of high-margin accessories, but it eventually expects 10 percent of German sales to come from the Internet, up from just 2 percent now.

($1 = 0.7355 Euros)

(Additional reporting by Mia Shanley in Stockholm and Martinne Geller in London; Editing by Elaine Hardcastle)

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