Furniture Fixation

IKEA in Bed with Germany

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  • Why it matters

    Why it matters

    IKEA’s rapid expansion is likely to change the furniture market in Germany, pushing out smaller retailers and fighting competition from an increasing number of online furniture sellers.

  • Facts

    Facts

    • IKEA has its biggest market share in Germany.
    • The company wants to double its revenue in Germany by opening up 20 further stores.
    • The company says Germany’s market share is supposed to increase from 13 to 25 percent with its revenue climbing from €4.12 billion to €8 billion.
  • Audio

    Audio

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Germans love IKEA and IKEA loves Germany.

That’s why the Swedish furniture dealer intends to expand its footprint in Europe’s biggest economy.

The home furnishing giant aims to open up at least one new furniture store per year in Germany, said Peter Betzel, managing director of the German operations. The plan, he added, calls for a total 20 stores.

The Swedish company has a history of rapid expansion. After Ingvar Kamprad, who founded the company in 1953, launched the first store in Almhult, Sweden, he quickly followed with more in Sweden and across Scandinavia.

The group opened its first outlet in Germany in 1974, before venturing across the Atlantic to the United States in 1985.

IKEA remains privately owned, with a corporate structure focused on retaining control of the business. The furniture retailer has a strong sense of corporate social responsibility and sustainability, which outside investors, it worries, might not share.

So far this year, the company invested  €80 million ($101 million) into a new store in Hamburg and €120 million into another in Lübeck. Stores in Bremerhaven and Kaiserslautern are next on IKEA’s expansion plan.

Even though home furnisher has deep pockets to finance its store expansion in Germany, finding attractive locations could be problem.  In Munich, Germany’s third largest city, citizens recently opposed a new store. “It isn’t as easy as it used to be to get over administrative hurdles,” Mr. Betzel said.

“IKEA is still small; we’re only at the start,” said Chief Executive Peter Agnefjäll. By 2020, the executive intends to increase profits from €29 billion to €50 billion.

Germany will play a pivatol role in meeting those targets. Angefjäll aims to increase the group’s market share from 13 to 25 percent and revenue from €4.12 billion to €8 billion.

The country is IKEA’s biggest market, with 16 000 employees and 48 stores, followed by the United States.

 

“Ikea is still small, we are only at the start.”

Peter Agnefjäll, Chief Executive, IKEA

In addition to expanding its presence across Germany, the company aims to grow beyond its core target group – consumers seeking relatively inexpensive home furnishings – to include those willing to pay more for better quality.

“There used to be the cliché of students buying IKEA furniture to set up their first apartments,” said Sascha Tapken with the German online retail journal Möbelkultur. “Now, its quality is much better and older people could be interested, too.”

Competition in Germany’s home furnishing market is fierce, due in no small part to numerous online retailers. Think Home24, known for its aggressive advertising – has targeted IKEA directly. Investors at Home24 include Germany’s ambitious Samwer brothers, the founders of the Internet incubator Rocket Internet.

IKEA’s rigid expansion is likely to push out some of the thousands of smaller German furniture businesses that have small stores in rural areas in Germany, according to Mr. Tapken.

“The number of such stores will thin out,” Mr. Tapken told Handelsblatt Global Edition.

Also, IKEA has begun to move into city centers. Recently, it opened a store in a former department store in the heart of Hamburg. Most of its outlets are located outside large cities, with large parking lots and near major roads.

And even though shoppers tend to spend less in the inner-city outlets than they do at the larger stores, IKEA’s move to expand deeper into Germany is certain to squeeze out some local rivals, according to Tapken.

 

Joachim Hofer is an editor at Handelsblatt in Düsseldorf. Sarah Mewes is an editor at Handelsblatt Global Edition in Berlin. To contact the authors: hofer@handelsblatt.com and mewes@handelsblatt

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