Ikea is accelerating its shift to smaller city center stores in Britain as rising property taxes and changing shopping habits reduce the appeal of traditional out-of-town megastores.
Peter Jelkeby, the outgoing managing director of Ikea UK and Ireland, said the Swedish retailer would focus on compact city formats in its future expansion after recording strong sales at its new flagship on Oxford Street and central Brighton.
The strategy represents a clear departure from Ikea’s historic “big box” warehouse model, which dominated retail parks for decades and defined the brand’s British expansion from the late 1980s.
While the group has no immediate plans to close existing large stores, Jelkeby confirmed that Ikea has no intention of opening new megastores in the UK.
“We see more potential in opening more smaller stores like Oxford Street and Hammersmith,” he said. “That’s where the customers are and that’s where the growth is.”
Jelkeby acknowledged that the rising cost of business rates had played a role in the strategic rethink. Larger retail stores tend to attract much higher tax rates, exposing operators to disproportionately high tax burdens.
Upcoming reforms will add to this pressure, with a new surcharge for commercial properties with a rateable value over £500,000. While the changes are intended to support smaller businesses, they will increase the burden on supermarkets, department stores and warehouse-style retailers.
“We obviously want lower business rates,” Jelkeby said, adding that reform “needs to come sooner rather than later so that the climate can be positive for retail.”
In addition to its push into the city center, Ikea is also experimenting with mid-sized stores in retail parks that sit between its smallest urban branches and traditional megastores. The new sites in Harlow, Norwich and Chester reflect what Jelkeby described as a more flexible approach to brick-and-mortar retail.
Ikea believes it now has “enough big-box” locations across the UK and Ireland, but will continue to invest in these locations by improving order fulfillment, click-and-collect and in-store services rather than expanding their footprint.
The retailer closed its Tottenham megastore in north London in 2022 after concluding that central, smaller locations in the capital offered greater long-term potential.
The Oxford Street store, which opened in May, posted strong sales of furniture, accessories and food, and demand for its restaurant exceeded forecasts.
“We learn quickly,” said Jelkeby. “We had to increase checkout capacity and expand food operations to accommodate customer traffic.”
The British company is owned by Ingka Group, Ikea’s largest global franchisee. Jelkeby will now take charge of Ikea’s German division, where he plans to pursue a similar transformation using the UK as a testing ground.
“Germany is our biggest market and more traditional than the UK,” he said. “The UK has allowed us to try new ways to meet customers where they are.”
