IKEA closes an iconic giant store for the first time in 40 years and cuts 1,600 jobs

IKEA is shutting one of its landmark out-of-town megastores for the first time in 40 years - and in the same move, the Swedish group is cutting 1,600 jobs. The blue-and-yellow giant is facing a serious downturn that is forcing a sharp rethink of its strategy. Why is this happening?

It is a major shock. IKEA will close a store for the first time since 1983. The site in question is in Borlänge, a few kilometres north-west of Stockholm in Sweden. Opened in 2013, the unit covers 31,000 square metres and employs close to 230 people. Their prospects are now unclear: some may be moved to a new, smaller outlet in the area, but management has not yet committed to any exact figures.

At the same time, the group has confirmed that 1,600 roles will be removed over the coming months, including 945 in Sweden. The backdrop is stark: profits have fallen by more than 30%, a jarring signal for a brand long associated with resilience and steady growth.

For decades, IKEA appeared largely immune to turbulence, thanks to a formula that looked unbeatable: practical, affordable furniture sold in huge volumes through giant stores designed to keep customers inside for as long as possible. Yet that very model is now being called into question.

The rise of e-commerce

This slowdown is the result of two forces coming together - factors that are affecting the entire home-furnishings market. During lockdowns, French shoppers, like many Europeans, revamped their homes in large numbers, sending furniture sales soaring. The payback has been immediate, as purchases have naturally eased since then. The ongoing strain in the property market only adds to the pressure, because it automatically reduces demand for new furniture.

Unsurprisingly, the surge in online shopping is another key driver. In France - IKEA’s third-largest market worldwide - nearly 29% of turnover is generated online, compared with 10% before the pandemic. In other words, almost one sale in three happens without the customer setting foot in a store. In that context, keeping vast premises open becomes less and less profitable.

New strategy

In response to these headwinds, IKEA is preparing a far-reaching shift in its operating model. The aim is to replace its enormous stores with much more compact formats, ranging from 2,000 to 4,000 square metres, located in city centres or in shopping galleries at large retail parks. Unfortunately, that would mean saying goodbye to the famous meatballs.

The Swedish heavyweight is also doubling down on logistics by expanding automated warehouses, where robots manage inventory ahead of home delivery. It is an explicit turn towards a model closer to Amazon’s.

Our analysis

Is this bet truly a winning one? Small, urban shop formats have already been tried by other furniture retailers, such as Habitat and Maisons du Monde, without really winning customers over. IKEA clearly has one advantage its rivals lack: a globally recognised brand and a loyal customer base.

Even so, turning a giant of this scale into a genuinely agile retailer remains a risky undertaking. For now, the strategy still has to prove itself.