Neil Mason
Director of Retail Research - EMEA, Neil Mason manages Mintel's UK and European Retail Reports.

IKEA celebrates its 25th anniversary in the UK this month after entering the UK with its first store opening in Warrington back in 1987. During this time IKEA has become the UK market leader in furniture and homeware retailing dominating the market for competitively priced, contemporary designed furniture. As a business it successfully concentrates on selling mass-produced flat-pack furniture whilst maintaining an edge in design associated with its Scandanavian roots.

Strong brand credentials

Mintel’s brand research shows that IKEA is a brand which has strong value connotations and its fashionable ranges mean it has a strong reputation for innovation. Their humorous and quirky marketing has also led consumers to perceive it to be a vibrant, fun and trend setting brand. In addition IKEA’s clearly set out environmental policies have given the brand socially and environmental associations. It’s certainly a brand which sets itself head and shoulders above the rest in terms of differentiation and trust among consumers.

IKEA is an impressive juggernaut of a retailer and despite its global reach, the company manages to create designs that have immediate appeal with a wide range of consumers, but particularly with those furnishing their first homes. Its prices are hard to match, because of its immense economies of scale.

Lifestyle appeal

This retailer stands out because of its obsession with lifestyle and consumers can buy almost everything they need for a home from an IKEA store. It was late into the online market, but there is little doubt that consumers wanted the option to buy online from IKEA. Online assortment and services have grown, extending the reach of this impressive retailer nationwide, an improvement for those who do not live within easy reach of its 18 stores.

IKEA stores are destination retail outlets and enjoy a category killer status and continue to draw customers from distances that are the envy of other retailers. Moreover, this status has been achieved in every market in which the company has chosen to operate.

Global player

IKEA is a global retail brand, with 338 stores covering more than 40 countries in 2012. Its European operations represent the largest proportion of group sales equating to more than three quarters of the overall business. However, in the years ahead Asia is likely to be the region of fastest expansion, notably China and Japan, but with growth also planned through franchising in other markets such as Malaysia and Thailand as well as the Middle East. The US has also seen particularly rapid development of late.

UK – challenging outlook

However in the UK, the outlook for the furniture retail sector remains challenging as a result of the slowdown in the housing market and the fact that consumers disposable incomes have come under pressure due to the government’s austerity measures, low wage growth and current levels of inflation. Also with the economy falling back into recession and low consumer confidence, it is likely that consumers will remain cautious in terms of their spending – in particular within the home furnishings sector. As a result, sales growth is likely to come under pressure as well as profit margins due to further reductions in prices, but it will pick up share as smaller operators struggle to cope in the current climate and consequently fall by the wayside.

In terms of further growth of the store network, IKEA’s long-term target of just over 30 UK stores still appears somewhat optimistic, with only one new store currently under development and planning regulations continuing to impede further expansion. As a result, growth in market share over the next few years will mainly need to be achieved through the existing store network and website.

You can find out more on furniture retailing in the UK here, or contact us for more information about how Mintel can help your business.