IKEA — the world’s largest furniture retailer — is preparing to open its first shopping mall in China as part of a £952m shift in its Asian retail strategy. Two more shopping centres will follow next year.
The Swedish furniture chain has confirmed it is looking at potential sites away from the centre of first- or second-tier cities preferring to develop new districts in the suburbs. It will open its first shopping mall in Wuxi in Jiangsu province later this month and plans to open two more next year in Beijing and Wuhan.
IKEA and its affiliate, the Inter IKEA Group, will share the near-billion pound investment, splitting ownership in the first three stores 49 and 51 per cent respectively.
“We are speeding up our expansion after gaining a deep understanding of the Chinese market through the successful experience of our Beijing and Shanghai stores,” said Colin Renwick, IKEA China’s deputy retail manager. “Although China is still not our top market in terms of revenue, we are confident that it will be our largest market in 15 to 20 years.”
Although it only has 11 stores in mainland China, the performance of its Beijing outlet last year came close to topping all its 337 worldwide stores in terms of sales volume. IKEA also reported a 21 per cent rise in Chinese visitor numbers to more than 45m during the past year, the highest increase across all its global operations.
“We are impressed by the enthusiasm of Chinese customers through the 40 per cent surge in our IKEA Family membership to more than seven million,” added Renwick. “This indicates that we need to build more stores in China to fuel our future business.”
Last week IKEA reported revenue of more than £505m in China during its 2012 fiscal year, representing a 21 per cent year-on-year increase and far higher than its global business growth.
As the Chinese residential property market slips into stagnation, a number of companies have turned their attention to the commercial property market. “The current trend focuses on shopping malls because these non-property companies have identified China’s commercial property as a serious investment opportunity,” explained Ding Haozhou, president of Zhongfa Commercial Management Group.
“By integrating the traditional furniture and home accessories stores and shopping malls, IKEA will have a new business model, with its rental income in the malls seen as the key points in future sale increases,” said Ding.
IKEA — and its main domestic rival Red Star Macalline — is targeting suburban areas in provincial cities for its malls because these new districts have cheaper property prices, more space for design and development, and less pressure to see immediate profit returns.
Most analysts agree IKEA faces stiff competition, especially from Red Star Macalline, China’s leading home furnishing retailer. Founded in 1986, it targets the rapidly growing middle class in China through the operation of malls that offer furniture and home decoration material such as flooring, bathroom and kitchen fixtures. It currently operates 130 stores in 90 Chinese cities including Beijing, Shanghai, Tianjin, Nanjing, Changsha, Chongqing and Chengdu.
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