IKEA Putting Distribution Hubs in Big-Box Stores
A $3B expansion will put e-commerce delivery hubs in suburban stores, and add small-footprint outlets in city centers.
IKEA’s largest franchise owner is planning to spend about $3.16 billion to redesign its big-box stores to serve as online distribution hubs and expand new smaller-footprint stores in city centers around the world.
Ingka Holding BV, the largest owner and operator of IKEA stores, said it will include distribution hubs in 30% to 40% of its big-box stores, converting a portion of the retail space into a parcel distribution center.
The in-store fulfillment centers will be located in suburban stores, serving as a last-mile distribution network for online orders, while new small-format stores without distribution centers will be built in downtown locations in major cities, Ingka Holding said.
The Swedish furniture giant is aiming to complete its expansion plans by the end of next year. The company said it is making the adjustments to aligning with post-pandemic shopping preferences, including increasing online purchases and faster deliveries.
“We feel we have a catch-up to do on the back-end of our operation and we are realizing that by including stores on our last mile and fulfillment network,” Tolga Oncu, Ingka Group’s retail manager, told Reuters,
According to a report in Reuters, IKEA tested the distribution hub model in its stores in Finland. The company introduced a smaller format store in London in 2018 and in Manhattan the following year.
The Reuters report said small-format IKEA stores are planned for Stockholm, Toronto and London, among other cities. According to a report in retailgazette, IKEA also will be building new “studio” stores in Canada, China, the US and India.
Ingka Holding said that by including a distribution center in some of its big-box IKEA stores it can allow its customers to get orders in half the time with a large reduction in delivery costs. The company said it is investing in last-mile delivery services by improving handling capacity in its stores.
Ingka Holding also indicated that the warehouse sections of its redesigned big-box stores will increasingly be automated.
IKEA saw record demand for its furnishings during the pandemic, with an estimated $44B in sales from its 466 global locations. But like many retailers, IKEA has been struggling with supply-chain disruptions and surging inflation. The retailer recently announced price increases averaging 9%.
According to the Guardian newspaper, IKEA responded to supply-chain shortages in December by raising the price of its flat-pack furniture by up to 50%.