What: Ikea shifts strategy in China, introducing smaller store formats to adapt to an economic slowdown and changing consumer behaviours.

Why it is important: The adaptation of Ikea's iconic large-format stores to smaller, more urban-friendly outlets in China signals a significant trend in retail, where even established global brands must innovate to meet the demands of price-sensitive consumers and compete with local rivals.

Ikea, known for its sprawling big-box stores, is experimenting with more accessible retail formats across China. This strategic shift comes in response to an economic slowdown and surging local competition. The company has begun testing smaller formats in Xi'an and Shenzhen, with the latter featuring a 300 square meter "Plan and Order Point" store, roughly one-tenth the size of traditional Ikea outlets.

These compact stores offer personalized advice for complex orders and convenient delivery options. The move reflects Ikea's efforts to meet changing customer needs in a market where wallets may be smaller, but the demand for home furnishings remains strong.

This adaptation comes as China faces economic challenges, with nationwide sales from building material and home furnishing stores falling 5.8% in the first seven months of the year. Ikea's growth in China has slowed recently, partly due to fierce competition from local rivals who offer customization services and have established strong online presence.

To counter these challenges, Ikea plans to boost its digital presence, recognising the dominance of e-commerce in Chinese shopping habits. The company currently maintains an official store on Tmall and sells through WeChat and its own app.

IADS Notes: Ikea's strategy to introduce smaller format stores in China reflects a broader trend in global retail and an adaptation to local market conditions. As highlighted in "How IKEA downsized to go downtown," the company has been developing smaller city-center stores since 2019, offering a more focused product range and utilising digital technology to enhance the shopping experience. This strategy is being implemented in a challenging economic context, as evidenced by China's unexpected retail sales growth slump in June 2024, where sales increased by only 2%. However, despite the overall slowdown, online retail sales in China saw a significant boost, up 9.8% in the first half of the year, indicating a shift in consumer behaviour towards digital channels. Ikea's move towards smaller, more accessible stores in China appears to be in  line with these changing consumer preferences and economic realities.

Ikea will test smaller stores in China to woo cautious shoppers