IKEA closes one giant store for the first time in 40 years and cuts 1,600 jobs

IKEA is closing one of its landmark giant stores for the first time in 40 years, while cutting 1,600 jobs in the process. The Swedish retail giant is facing a serious crisis that calls for a drastic change in strategy. Why?

It is a seismic development. IKEA will shut one of its stores for the first time since 1983. The site concerned is in Borlänge, a few kilometres north-west of Stockholm, Sweden. Opened in 2013, it covers 31,000 square metres and employs almost 230 people. Their future is now uncertain: some may be moved to a smaller new store in the area, although management has not yet committed to precise numbers.

The blue-and-yellow giant has also announced that it will cut 1,600 roles in the coming months, including 945 in Sweden. The reason is a fall of more than 30% in its profits, a stark warning sign for a retailer long associated with resilience and uninterrupted growth.

For decades, IKEA appeared untouched by crises thanks to a seemingly unbeatable formula: practical, affordable furniture sold in large volumes through enormous stores designed to keep shoppers browsing for as long as possible. Yet it is precisely this approach that is now being challenged.

The rise of e-commerce

This slowdown stems from two combined trends, both of which are affecting the wider furniture sector. During lockdowns, people in France, like many Europeans, extensively redesigned their homes, driving furniture sales sharply higher. The downside is now being felt: purchases naturally slowed afterwards. The property-sector downturn has not helped either, as it automatically reduces demand for new furniture.

Unsurprisingly, the growth of e-commerce is another factor. In France, IKEA's third-largest global market, almost 29% of turnover now comes from online sales, compared with 10% before the pandemic: nearly one sale in three is completed without the customer entering a store. Under these circumstances, operating vast premises is becoming less and less profitable.

IKEA's new strategy

In response to this disruption, IKEA is preparing a far-reaching overhaul of its model. Its aim is to swap its huge stores for far more compact formats, measuring between 2,000 and 4,000 square metres and located in city centres or shopping arcades within large retail sites. Unfortunately, shoppers will have to say goodbye to the famous meatballs.

The Swedish behemoth is also investing in logistics, developing automated warehouses where robots manage stock before home delivery. It is an openly stated shift towards a model resembling Amazon's.

Our analysis

Is this gamble really likely to pay off? Smaller urban-shop formats have already been tried by other furniture retailers, including Habitat and Maisons du Monde, without truly winning customers over. IKEA unquestionably has an advantage its rivals lack: a globally recognised brand and a loyal customer base.

However, turning such a giant into an agile retailer remains a risky undertaking. For now, the strategy still has to prove itself.