IKEA expands with new Melbourne and Sydney stores

Swedish DIY furniture chain IKEA will expand with two new stores in Sydney and Melbourne, with one retail expert calling the move a definite reaction to a worldwide shift in consumer spending to frugality and value-based offers.

The company, which tends to shy away from having multiple stores in the same location, will join with retail giant Harvey Norman to open two new homemaker centres in the Melbourne suburb of Springvale, and south-west of Sydney in Tempe.

The company said both stores have been approved by the respective state governments and councils, with the Sydney store to become the largest IKEA store in Australia at 37,000 square metres. The new Springvale store will be 25% larger than the current Richmond store, with the combined floor space in conjunction with Harvey Norman to take up 72,000 square metres.

Retail Doctor chief executive Brian Walker says IKEA is well-suited to expand given the shift towards frugality and value-based offers.

“There is a worldwide trend towards value, which already underpins a lot of what IKEA stands for. This the clear factor for growth. The other is that they represent a great retail experience, and are able to draw in people from broader catchment areas.”

Walker points to recent retail spending figures, which have remained light as consumers are still wary about both domestic and global economic conditions.

He also points to changing demographics, with more Gen Y shoppers now preparing to move out of home and furnish their own properties. And with a shift to inner-city apartments, IKEA’s specialisation in storage management and “modern” design is a big plus.

“IKEA is appealing and contemporary to many of these buyers, who are moving into their first apartments and homes. The shift to smaller living spaces, like in Europe, is a trend as well.”

In the end, Walker says, it comes down to value. IKEA represents a cheaper alternative to many other furniture stores, and shoppers will gladly choose to build products themselves for a lower price.

“The locations they pick are chosen very carefully, and the structure of the stores is great as well. Any retailer wants you to stay in their store longer, and IKEA does that. They get you to think about home layouts you never would have thought about.”

IKEA structures its stores to take shoppers through the entire floor space, demonstrating different living room and bedroom furniture layouts on the way. Customers can then pick up whatever they like at the attached warehouse.

“They keep you in the store longer by doing so. They are a destination brand, and expanding gives them opportunity to promote that to frugal shoppers.”

IKEA said in a statement the new Tempe store, which will be 40% larger than the current Homebush store, will be opened in 2011 and add between 400-500 new jobs. The Springvale store should open in early 2012.

Australian IKEA manager David Hood said the company is also looking to expand further, with eight stores to be opened between Melbourne, Sydney and Brisbane. The projects have actually been planned for years, but only recently has the company been able to develop comprehensive expansion plans.

“Our project team now has more time for planning the store construction and design to maximise new technology and environmental features; as well as extra time for recruitment, training and preparations for a successful opening,” Hood says.

Harvey Norman also said the new developments could help other retail projects that have been delayed due to planning issues.

Victorian construction firm Probuild will lead the construction of the new centre in Springvale, with combined works expected to be worth about $300 million.