IKEA closes one of its iconic giant stores and cuts 1,600 jobs

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

A seismic shift. IKEA will close one of its stores for the first time since 1983. The affected site 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 move to a smaller new outlet 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 jobs over the coming months, including 945 in Sweden. The reason is a drop of more than 30% in its profits, a stark signal for a retailer long associated with resilience and continuous growth.

For decades, IKEA appeared largely immune to crises, thanks to a seemingly unbeatable formula: practical, affordable furniture sold in high volumes through huge stores designed to keep customers browsing for as long as possible. Yet it is precisely this approach that is now being called into question.

The rise of e-commerce

This slowdown stems from the combined impact of two trends affecting the entire furniture sector. During lockdown, French consumers, like many Europeans, extensively redesigned their homes, sending furniture sales soaring. The downside is now being felt, as purchases have predictably slowed since then. The property market crisis has only made matters worse, as it automatically reduces the need for new furniture.

Unsurprisingly, the growth of e-commerce is also a factor. In France, IKEA’s third-largest market worldwide, almost 29% of turnover is generated online, compared with 10% before the pandemic: nearly one sale in three takes place without the customer setting foot in a store. Under these circumstances, keeping vast premises open is becoming less and less profitable.

IKEA’s new strategy

In response to this turbulence, IKEA is preparing a far-reaching overhaul of its model. Its aim is to replace its enormous stores with much more compact formats, covering 2,000 to 4,000 square metres and located in city centres or shopping malls within large retail parks. Unfortunately, this will mean saying goodbye to the famous meatballs.

The Swedish giant is also investing in logistics by developing automated warehouses, where robots manage stock before orders are delivered to customers’ homes. It is an openly adopted shift towards a model closer to Amazon’s.

Our analysis

Is this gamble genuinely likely to pay off? Small urban shop formats have already been tried by other furniture retailers, including Habitat and Maisons du Monde, without being particularly convincing. IKEA undeniably has an advantage its competitors 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 has yet to prove itself.