Trying something new – a city center convenience store – has not worked out well for IKEA in China. The Shanghai store will be closed before the year is out.
Photo by Kuang Da
By LI Ye
Swedish retailer IKEA said on Thursday that its first City store in China will close by the end of the year.
"In the face of a profound and rapidly changing market, the retail industry needs to constantly review and adjust its operations in order to respond to customer demands with higher efficiency," IKEA China told Jiemian News. "To ensure that IKEA can adapt itself flexibly and resiliently in a fast-changing retail environment, we plan to cease operations of the Shanghai Jing'an City Store by the end of this year."
The store at the junction of Yan’an Road and Huashan Road in Shanghai is in the heart of the most densely populated and expensive area of the city. IKEA opened the city store in 2021 after growth slowed to around 5 percent in 2018.
At a mere 3,000 square meters, the store is tiny in comparison to the mammoth spaces occupied far from the center of town. The three-story property has about 3,500 of the roughly 9,500 products offered by the company. A third of the store's items are small pieces of furniture that can be taken away.
Goods offered are not especially expensive, but rents in the district certainly are. Shanghai 1788 Square, just across the street, is approximately 670 yuan per square meter per month. At that rate, the monthly rent of the IKEA store would be around 2 million yuan.
IKEA closed two malls in China last year, one in Guiyang, capital of Guizhou, where it survived only three years. The other in Shanghai didn’t last even two. Before that, IKEA had been operating in China for 24 years without closing a single mall. IKEA expanded its Beicai venue in Shanghai recently and has plans to open another in Shanghai next year.
IKEA is not the only one suffering. The supermarket as a business model in China has been devastated by e-commerce. Carrefour and Walmart are struggling. Supermakets started doing badly as early as 2015. IKEA entered the Chinese market in the 1990s, the same time as Carrefour and Walmart.
IKEA is not blind to e-commerce but only about a quarter of sales worldwide are online.
