NASHVILLE, Tenn. (The Tennessean) -- From the meatballs in its cafes to its winding maze of furnishings on the main floor, IKEA built a connection with American consumers by offering a shopping experience, not just a store.
Now, after years of growth in the U.S., the furniture retailer founded in Sweden appears to finally be pulling back. Ikea scrapped plans to open new stores in Nashville, Tennessee; Cary, North Carolina; and Glendale, Arizona.
An IKEA currently under construction in Norfolk is continuing as planned and is still scheduled to open in spring of 2019.
It appears that IKEA is shifting resources to improving its online sales, rather than in new stores.
"They have found that in a number of established markets, they are really behind the curve in terms of online," said Neil Saunders, a retail analyst at GlobalData Retail in Scottsdale, Ariz." They want to really start investing and ramping that area up. That obviously means they have to be more careful on things like store expenditure."
Despite its fervent fan base, the company has seen declines in revenue growth and net income in recent years. Sales increased by more than 8% in 2015 and 2016, but fell short of 4% growth in the most recent two years, according to IBISWorld. Meanwhile, net income fell by more than 40% in the last fiscal year.
IKEA spokeswoman Latisha Bracy, in an emailed statement, acknowledged the "rapidly changing" retail environment the company faces. Ikea is exploring urban centers to be closer to consumers and is investing in e-commerce, she said.
"To be fit for long-term growth, we are creating a new business model to make sure we’re accessible and convenient for our customers today and in the future," she said.
IKEA, founded in 1943, expanded to the U.S. in 1985. IKEA had the largest market share of any furniture retailer in the U.S., and globally, it has 355 stores in 29 countries. As recently as last year, the company added 13 new stores, according to O'Connor's 2018 IBISWorld industry report.
Retailers across the U.S. have been grappling with a shift to online sales as consumers eschew the traditional shopping experience in stores and instead survey options from their laptops or phones.
"The general trend of digitalization and the increasing amount of shopping done online, has forced traditional brick-and-mortar locations to focus on their online presence," said IBISWorld analyst Claire O’Connor.
Online retailers, including Overstock.com, don't have have to pay for the overhead costs associated with large showrooms and can pass on savings to consumers, O'Connor said.
While IKEA's appeal stems from deals and discounts that make it more affordable, the store has also curried favor through its food offerings and free wireless internet provided at its stores, O'Connor notes.
Furniture has been more insulated from online competition than retail in general and IKEA shoppers have demonstrated an interest in observing room designs and reviewing dimensions in person, Saunders said. People travel to visit IKEA stores and the stores have remained crowded, as a result.
"People do like to see it," Saunders said. "They do like to see the displays. They like to get the inspiration and ideas."
Saunders pointed to other furniture stores expanding their store footprint, including At Home and TJX. He expects IKEA to continue to invest in stores because its business model, which relies on in-person furniture browsing, demands it.
"IKEA's profits have been under pressure and they want to rein back on unnecessary capital expenditures," he said. "This is a pausing rather than a retrenching from stores completely."
