Ikea embraces compact urban stores as big box retail falls from favour

Swedish furniture retailer Ikea is reshaping its British presence through a decisive pivot towards smaller city centre locations, signalling an end to its traditional out-of-town warehouse expansion strategy. Peter Jelkeby, chief executive of Ikea’s UK and Ireland operations, has confirmed that the company will not pursue further “big box” store openings, marking a significant departure from the retail model that defined the group’s growth for decades.

The shift reflects strong commercial performance from recent compact openings in Oxford Street and central Brighton. These locations have demonstrated sufficient customer demand and profitability to justify prioritising urban expansion over large suburban sites. The Oxford Street store, which launched in May, has exceeded expectations across multiple categories, with particular strength in furniture, accessories and food service offerings. Jelkeby acknowledged that the restaurant operation, centred on Swedish meatballs and fish and chips, generated demand that required immediate operational expansion.

Business rates represent a material factor in this strategic reorientation. Jelkeby stated plainly that Ikea seeks to reduce its exposure to commercial property taxation, a longstanding concern for large retailers. The upcoming reform introducing a surcharge on properties valued above £500,000 will substantially increase costs for major warehouse operations whilst benefiting smaller independent businesses. Jelkeby indicated that accelerated reform would improve the operating environment for retail enterprises across the sector.

The company is simultaneously exploring retail park locations with scaled-down formats occupying a middle ground between flagship urban shops and traditional megastores. Three such sites have opened in Harlow, Norwich and Chester, reflecting what Jelkeby characterised as a more adaptable approach to physical retail operations. This three-tier strategy, encompassing compact urban stores, mid-sized retail park locations and selective large warehouses, appears designed to optimise profitability whilst reducing regulatory exposure.

Ikea’s existing estate comprises over twenty stores across the United Kingdom and Ireland. The closure of its Tottenham megastore in 2022, after seventeen years of operation, foreshadowed this strategic transition. The company determined that London’s store portfolio was sufficiently comprehensive at the large format level and identified greater commercial opportunity in smaller, centrally positioned locations. Jelkeby emphasised that the group maintains no intention to close existing “big box” stores but will direct capital investment towards improving service standards and fulfilment capabilities at these sites.

The chief executive will transition to lead Ikea’s German division, where he intends to implement comparable strategic evolution. Germany represents Ikea’s largest market globally; however, Jelkeby noted that the market remains more traditional than the United Kingdom. The British operation has effectively functioned as a testing ground for innovative retail formats and customer engagement approaches that may prove applicable to larger European markets.