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Ikea scraps $38 million Korea logistics hub

Published: 19 Dec. 2024, 18:42

CHO YONG-JUN
[email protected]

Ikea's Goyang branch in Gyeonggi [NEWS1]

Ikea scrapped a major facility investment in Korea following years of sluggish growth in the country.

The canceled project, which was slated to be built on a 102,000-square-meter (1,010,000-square-foot) site, was expected to be Ikea's largest logistics hub in Asia. The Swedish furniture giant's Korean subsidiary will sell the land in Pyeongtaek, Gyeonggi, for 55.46 billion won ($38.2 million), according to an electronic disclosure released Tuesday.

“The rapid change of consumer lifestyle and the retail environment, centered on e-commerce, made it unavoidable to reconsider the investment plan in a more conservative manner,” Ikea Korea said in a statement released Wednesday, explaining the decision behind the investment cancellation.

Ikea Korea's struggle, as the brand celebrates its 10th anniversary in the country, has been apparent in recent years as more and more online furniture retailers, such as O!House and Coupang, have expanded to the furniture category.

The retailer, after reporting record revenue of 687.2 billion won and operating profit of 29.4 billion won for the September 2020 to August 2021 period, has seen both numbers steadily decline.

Ikea Korea's earnings from September 2023 to August 2024 improved noticeably, with revenue increasing 4.2 percent from the previous year and operating profit soaring 616 percent, but both numbers still fell short of the company's late 2020 and early 2021 figures.

The Korean arm has, in turn, been scaling back its expansion plans in the country. It scrapped plans to open branches in Gyeryong, South Chungcheong and Daegu in 2022 and 2023 respectively. Ikea Korea's Gangdong branch in eastern Seoul — which has already been delayed once — will be the retailer's first new offline store in four years.

The Swedish furniture giant is also facing fierce competition from local brands, who, unlike Ikea, often include installation and delivery fees in pricing. Coupang's Rocket Delivery which delivers and installs beds and closets in mere days, also made Ikea's offer less preferable to Korean customers.

Ikea's most viable path in Korea will lie in more competitive pricing and online delivery. The company has already cut the prices of 1,200 items this year in the country, which helped it turn a profit over its most recent reported period. It plans to invest further in the company's fulfillment system for online orders.

“We plan to provide a convenient shopping experience offline and online,” Ikea Korea said Wednesday. “We have introduced automated fulfillment systems within our offline stores to utilize them also as logistics hub.”

The company confirmed that it would proceed with a 300 million Euro ($300 million) three-year investment that it announced in March.

BY CHO YONG-JUN [[email protected]]