When Reuters broke the news that Ikea is scouting locations in the U.S. to build inner-city malls, it was a surprise. Who knew the company known for its 50-odd suburban, large-scale stores in the U.S. also builds malls?
Operating under the corporate name of Ingka Centres, though each location is separately branded, like the Kings Mall in the Hammersmith section of London, it has 45 locations across 15 countries, with heavy concentration in Sweden, China, Russia, and across Europe.
Ikea’s mall concept got started in Sundsvall, Sweden in 1973 as a “supplement” to its flagship store there. Of varying size, each mall is tailored to its local community, with Ikea as an anchor and some 1,600 brands and more than 7,000 individual stores colocated to take advantage of the heavy foot traffic the Ikea stores bring.
Described as a “major play” in the U.S. market, Reuters reports Ingka Centres is eyeing locations in New York, Los Angeles, San Francisco, and Chicago.
Malls are indeed a major play for Ikea, as it plans to grow from 45 to 75 malls by 2025, to supplement its 367 Ikea stores worldwide.
In a statement shared with me, Jan Kristennson, Ingka Centres expansion and development manager, said the company plans to invest €7.3 billion in the build out.
“Ingka Centres is looking to take our meeting place concept to more than 40 major cities across Europe, Russia, North America, Asia and Oceania. Opening in new markets will be a big part of the company’s plans, as well as continuing to grow in China, where we are developing mixed-use projects, ” Kristensson said.
“We will be targeting cities with high populations in these regions. We primarily focus on the acquisition of existing real estate assets and redevelop them into meeting places anchored by an IKEA store and tuned towards the local needs and aspirations in the offer,” he continued.
Ingka Centres envisions a different kind of mall
Trouble in the mall sector is widely reported and it threatens to only get worse as the coronavirus shutdowns lift. Even when malls and stores reopen, malls are on the top of consumers “places to avoid” list, according to Coresight Research.
However, the eventual opening of any U.S. Ingka Centres is probably a ways off, so by then an effective treatment or vaccine will give people more confidence to gather in malls. And when they do, Ingka Centres has a new vision of what the mall of the future will look like.
Ingka Centres is redefining its malls as meeting places: “Places that are essential in people’s everyday lives. Places where people connect, socialise, get inspired, experience new things, shop, eat and naturally feel attracted to spend time.”
So, it’s adapted the mall format by changing the focus from “simply leasing out square meters” to one recognizing that “customers’ journeys and expectations are evolving and our retail environment is continuously changing, driven by technology, urbanisation, economy, and sustainability,” the company shares.
Deloitte’s vice chairman of U.S. retail and distribution, Rod Sides agrees that the changing customer journey is what opened opportunities for the traditional suburban mall and is now requiring the shift toward a new mall model as Ingka Centres envisions.
“The whole point of the mall back in the 60s and 70s was convenience, as people moved to the suburbs. Malls were convenient, safe, warm, and dry. It worked extremely well for a long time, but then the consumer changed. Strip malls, outdoor centers, and online became more convenient, faster, easier.”
Now with the global trend of urbanization, which is happening even faster in the U.S where the current 83% of the population living in urban areas is expected to rise to 89% by 2045, Ingka Centers are reimaging an experiential inner-city mall concept to take advantage of that trend.
“It’s a strategy that makes sense for the future,” Sides confirms. “Ikea has plenty of room to run.”
Plus, he also sees advantages for well-capitalized retailers, like Ikea, adding real estate to their portfolio, as it provides another revenue stream.
“I like the idea of having an underlying asset as an inventory for retailers. In retail, cash-flow is king and this hybrid model allows a retailer, like Ikea, not to have to rely solely on sales volume,” he says.
Curating locally-relevant tenants will be key
With New York City top on Ingka Centres’ pick list, Adam Henick, co-founder at NYC-based Current Real Estate Advisors, sees Ingka Centres at the forefront of retail trends that were nascent pre-COVID but will only accelerate after.
“There is no better time than now to pursue that business,” he believes, as he expects urban real estate will become more attractive following the pandemic disruption.
“It’s created an exciting opportunity for strong retailers that aren’t overextended to do things they haven’t historically done,” he continues.
With experience advising tenants in NYC’s Hudson Yards, NoHo as well as throughout Manhattan, Henick sees curating Ingka Centres’ collection of tenants critical to its future success.
“We are strong believers in curating neighborhoods and spaces. One of the biggest things they can do is bring together like-minded brands that can all succeed together,” he says.
To attract those like-minded tenants, Henick believes Ingka Centres will have an advantage over other more traditional mall or free-standing locations because of Ikea’s position as a destination attraction.
And with so many digitally-native brands looking to make landfall in physical retail, Ingka Centres will be exciting places for these new tenants, thanks to the excitement Ikea will generate among local customers.
“Brands want to do everything they can to encourage people to come visit the store. If they can benefit by knowing there’s a great brand next door that people want to visit, it has a strong ability to draw organic visitors to their stores as well,” Henick shares.
Blending the online and instore experience
Professor Christan Stadler, who teaches strategic management at Warwick Business School, gives a holistic perspective on Ikea’s global business model and how it continues to adapt to the changing ways customers shop.
“I have been studying Ikea for years and using it as a case study in my classes,” he explains. “Ikea has a business model that it has been running successfully for decades. Ikea has super large scale, so they can produce very cheaply, but they also have good design and they create an experience when you go to an Ikea to shop.”
He sees the expansion of Ingka Centres, like the company’s urban small-footprint Ikea Planning Studios, as part of its recognition that Ikea needs to blend more effectively the convenience of online shopping with the experiences it creates in-store.
“More people are shopping for furniture online and Ikea faces strong competition there. If footfall starts to drop in Ikea stores, the company must present themselves online to find the right blend between the online world and the experience of shopping in an Ikea store,” Stadler continues.
In adding property management into its mix, he sees Ikea looking for new opportunities by applying the things the company already does extremely well – creating in-store shopping experiences – to a new retail model that is increasingly being driven by customers’ gravitating online.
“It’s hard to buy furniture on a tablet. You still need to go to the store to see what you only can imagine online,” he says. “Ikea knows how to create footfall because people need to go there still. So for other retailers considering renting a space, there’s a strong attraction to that physical commodity.”
Imagining Ingka Centres for the U.S.
Right now, the Ingka Centres model for the U.S. market is still very much on the drawing board, but I see tremendous possibilities for the concept in the U.S. market.
With its design expertise, Ikea’s Ingka Centres could present a refreshing and entirely new physical layout and design for its malls, more modular in format so that its spaces can adapt quickly to the needs of new tenants.
Ikea’s proven ability as a destination attraction and its ownership of the property eliminates in-line tenants worry that the mall will lose its anchor, an emerging threat in even the A-class malls where Neiman Marcus in the throes of bankruptcy and Nordstrom are closing stores.
Even if urban real estate prices moderate after COVID, it doesn’t seem likely that the traditional 300,000+ sq. ft. Ikea store model combining showroom and warehouse under one gigantic roof will be practical. This gives the company opportunities to explore harmonization of the online and brick-and-mortar shopping experience, supported by Ikea doing the heavy-lifting to get purchases delivered home.
As for curating its new U.S. Ingka Centres, it offers emerging brands, that wouldn’t think of being in a traditional mall, a place to call home.
Not only that, but with the existing relationships it has already fostered among its global tenants, we can expect the U.S. Ingka Centres to introduce established international brands to an eager U.S. consumer.
Yes, as Henick says, it is going to be an exciting time to see how Ikea reimagines a new kind of mall for U.S. shoppers grown fatigued by the usual-suspect retailers and cookie-cutter nature found in most every mall and shopping center in America.