Ingka Holding BV, parent of the world’s largest home-furnishings retailer IKEA, has begun development on a $1.2 billion mixed-use development in Shanghai that the home furniture supplier says is its single biggest investment globally.
The Shanghai IKEA LIVAT centre, which is slated to be Ingka’s fifth commercial real estate project in China, integrates an IKEA store into one of the company’s LIVAT shopping centres, and tops off the project with enough office space to house 3,000 of the Swedish company’s staff.
The project marks a “new era” for the company’s mall business, Ingka said in a statement. It is part of the Swedish furniture giant’s global investment in real estate and transformation of a business model.
New Thinking for a New Centre
“Since 2017, Ingka Centres has been dedicating itself to investing in and running mixed-use projects,” said Ding Hui, managing director of IKEA Centers China. “By providing more innovative experiences, we hope to bring people in Shanghai and even those from the whole Yangtze River Delta region with a brand-new one-stop experience in meeting, shopping and office work.”
The new Shanghai IKEA LIVAT centre, adjacent to the Beiheng Road within the Hongqiao Linkong Business Park in western Shanghai’s Changning district, connects directly with Songhong Road station on the city’s metro line 2. When completed in 2022, the entire project will span some 430,000 square meters of floor space, with the shopping centre anchored by an IKEA store.
In addition to the company’s own blue and gold big box outlet, the LIVAT centre will provide shop space for more than 300 domestic and international fashion brands, as well as food and beverage outlets accompanied by cultural and entertainment options, according to the company statement.
IKEA Explores the Real Estate World
Ingka Group already has three LIVAT Centres in Beijing, Wuxi, and Wuhan, all devoted entirely to retail. A still being developed Changsha project, however, includes a office element like the Shanghai property, as IKEA expands into developing its own real estate projects. The projects are all being developed by IKEA’s Ingka Centres, which was known as IKEA Centres until the company reimagined its own name in October this year.
In the Danish capital of Copenhagen, the furniture brand has experimented with developing a complex that combines an IKEA story with a hotel, as well as residential and office space, with the company’s China leadership hinting at future diversification in the country which accounted for six percent of IKEA’s sales globally in 2017, tying with Germany to rank fourth among the Swedish firm’s markets worldwide.
“In the future, IKEA will better meet customers’ needs with more open-minded thinking, and we’ll explore more in business models as well as real estate developing models,” Anna Pawlak-Kuliga, CEO of IKEA Retail China, said in a statement.
For the Shanghai IKEA LIVAT centre, the company is blending in grade A office space sufficient to accommodate 3,000 of its employees, becoming one of the company’s biggest worldwide bases. The Grade A office building will adopt the “flexible working space” concept while showcasing a typical Scandinavian interior style.
Wave of Projects Launched Amid Market Lull
The nordic furniture behemoth’s mega-investment comes at a time when concern is growing that Chinese consumers are pulling back in the face of a slowing economy and the ongoing US-China trade war.
Growth of IKEA, the retail arm of Ingka Group’s three business units, is losing its momentum in China. According to public data, IKEA’s sales in China are expected to exceed RMB 14.7 billion ($2.1 billion) for the financial year 2018. Although the figure represents a 9.3 percent year-on-year increase, it falls behind the growth rate registered by the retailer for the 2016 and 2017 financial years when it grew 19.4 percent and 14 percent, respectively.
The retail brand also announced on 22 November its plan to cut up 7,500 jobs globally over the next two years, representing about five percent of the company’s global workforce and the biggest restructuring in its history.
The job cuts are part of a broader strategy by IKEA to reinvent its business and shift focus. The company said at the time that it plans to improve its digital business and boost online sales and test new store concepts to get a sense of what customers really want from a brick-and-mortar retailer.
Jesper Brodin, the new CEO of IKEA Group, told Reuters in an interview earlier this year that IKEA is currently reviewing its strategy for opening warehouse stores, and that some planned openings may be cancelled, while some may be converted to city-center formats. IKEA last year opened its first such store, a kitchen showroom, in Stockholm.
The floorspace required for an IKEA city-center store gets pricier, however. The solution is real estate investments that serve multiple purposes, with the combination of office, retail, hotel, apartments and an IKEA store. This scheme does not eliminate higher costs entirely, but the trade-off is that the urban retail stores will be more accessible both for customers and for deliveries, said Brodin.