• by Sarah Mahoney  @mahoney_sarah, April 20, 2023

Ikea is making its most significant expansion move ever in the U.S., spending more than $2.2 billion to open new stores, beef up fulfillment and expand delivery. The company, with its U.S. arm based in Conshohocken, Pennsylvania, says that will mean eight new stores in the next three years.

The announcement comes as the U.S. housing market continues to splutter, casting a damper on sales of furniture and home furnishings.

Last month, the U.S. Department of Commerce announced that monthly furniture sales slipped 2.4% to $11.8 billion, down from $12.1 billion in March last year. In February, sales fell 1.2%, and sales begin to weaken last year.

That softness, however, follows several years of record strength throughout the pandemic.

"The U.S. is one of our most important markets, and we see endless opportunities to grow there and get closer to the many Americans with affordable products and services," said Tolga Öncü, Head of IKEA Retail, Ingka Group, in its announcement. "More than ever before, we want to increase the density of our presence in the U.S., ramp up our fulfillment capacities and make our offer even more relevant to local customers' needs and dreams." 

In addition to new stores, the expansion also targets nine new "plan & order" points and 900 new pick-up locations. So far, it has announced new locations in San Francisco and Arlington, Virginia.

The expansion addresses what has long been a core problem for Ikea, based in Sweden, as it flexed its wings in the U.S. Ikea's traditional model is based on "huge stores designed to pull in customers from an extremely large catchment," writes Neil Saunders, managing director of GlobalData, in a note on Ikea's announcement.

"These work well in population-dense countries like the U.K., but are less effective in the U.S. where people are more scattered and drive times can be extensive."

That means Ikea has lost ground to more versatile players, including ecommerce companies like Wayfair and Amazon, as well as conventional retailers.

And while furniture sales have been weakening, Ikea's reputation for affordability will help, especially when U.S. consumers are so conscious of how inflation has eaten into household budgets, Saunders says.

"As the largest furniture retailer in the world, Ikea has economies of scale and volumes that allow it to offer value that few others can match," he says. "The expansion is a potential threat to Wayfair, At Home and many mass-market players."