Ikea responds to consumer preferences by shrinking store formats

IKEA shrinks store formats in response to tenant demand

The next time you walk into an Ikea store, consider ordering your items ahead of time – because the inventories might not be as robust as you remember.

According to the Wall Street Journal, the Swedish furniture giant is doubling down on its fulfillment capabilities by investing over $3 billion to revamp the company. This overhaul will include transitioning up to 40% of its existing big-box suburban locations into distribution centers for online orders. By redistributing the way their space is utilized, instead of increasing the footprint of existing stores, the company hopes to optimize their real estate portfolio and bolster their last-mile delivery capabilities.

At the same time, the company is also focused on opening new smaller-format stores to accommodate in-person shopping in urban centers like London, Stockholm and Toronto. The soon-to-open London store, located on Oxford Street, is tied to a nearby distribution center, which the company hopes will enable them to offer 24-hour home deliveries. The changes are a response to shifting consumer shopping preferences, with more customers choosing to order items online, rather than deal with in-store inventory issues and shipping delays.

Retailers eye smaller stores

Downsizing of store formats remains a prevalent trend in retail as e-commerce disruption forces retailers to reimagine the function of their physical storefronts. According to CoStar, the average retail lease size has dropped to slightly more than 3,000 square feet, down from nearly 4,100 sf in 2015.

Williamsburg retail leasing benefits from residential tenant bas

After recording nearly no new transactions in 2020, Brooklyn retail leasing is bouncing back with a slew of new leases from some well-known retailers. These retailers, which include Interior Define, Frank + Oak, Savage X Fenty, and Google, have mostly gravitated towards Williamsburg as the ideal location to access the growing residential population in the outer boroughs.

Williamsburg move-ins YTD 2022

This is an important trend to take note of, as the exodus from (and gradual return to) city centers was seen across all major US cities in the wake of the pandemic. Brooklyn retail doesn’t rely on office workers and tourists, as is the case for many prime retail corridors in Manhattan and has been thriving thanks to steady daytime population. And if residential demand is any indication, it looks like this population may be growing; according to The Real Deal, more than 14,000 residential units have been completed in the borough since 2020, with another almost 50,000 residential units in the pipeline.