Ikea is accelerating its shift towards smaller city-centre stores in Britain, as rising property taxes and changing shopping habits blunt the appeal of traditional out-of-town megastores.
Peter Jelkeby, the outgoing chief executive of Ikea UK and Ireland, said the Swedish retailer would focus future expansion on compact urban formats after strong trading at its new Oxford Street flagship and central Brighton store.
The strategy represents a clear move away 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 onwards.
While the group has no immediate plans to close existing large stores, Jelkeby confirmed that Ikea does not intend to open any new megastores in the UK.
“We see more potential in opening more smaller stores like Oxford Street and Hammersmith,” he said. “That’s where customers are, and that’s where growth is.”
Jelkeby acknowledged that the rising cost of business rates has played a role in the strategic rethink. Larger retail units typically attract far higher rateable values, leaving operators exposed to disproportionately large tax bills.
Upcoming reforms will intensify that pressure further, with a new surcharge on commercial properties with a rateable value above £500,000. While intended to support smaller businesses, the changes will increase the burden on supermarkets, department stores and warehouse-style retailers.
“We of course want to have lower business rates,” Jelkeby said, adding that reform needs to “come sooner rather than later so the climate for retail can be positive”.
Alongside its city-centre push, Ikea is also experimenting with mid-sized stores in retail parks that sit between its smallest urban outlets and traditional megastores. New sites in Harlow, Norwich and Chester reflect what Jelkeby described as a more flexible approach to bricks-and-mortar retail.
Ikea believes it now has “enough big box” locations across the UK and Ireland, but will continue investing in those sites by improving fulfilment, 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 offered greater long-term potential in the capital.
The Oxford Street store, which opened in May, has delivered strong sales across furniture, accessories and food, with demand for its restaurant exceeding forecasts.
“We are learning fast,” Jelkeby said. “We’ve had to increase checkout capacity and scale up food operations to cope with footfall.”
The UK business is owned by the Ingka Group, Ikea’s largest global franchisee. Jelkeby will now move to lead Ikea’s German division, where he plans to explore a similar shift, using the UK as a testing ground.
“Germany is our biggest market and more traditional than the UK,” he said. “Britain has allowed us to trial new ways of meeting customers where they are.”
