The first thing you notice when you enter the new Ikea concept store is what’s missing. There isn’t a meandering yellow path that requires you to pass a thousand candleholders in order to reach the exit. The smell of meatballs from somewhere deep within the building is absent from the cafeteria. There were only a few employees working behind screens in a smaller space, and the shelves were mostly filled with things that needed to be picked up. It’s odd coming from a chain that trained customers to wander for sixty years. That’s the point, though.
This spring and summer, Ikea will open eight of these new-format stores throughout the United States, seven of which will use the “plan & order points with pick-up” model. It’s more consultation than treasure hunt. After discussing a closet system or kitchen renovation with a store employee, customers depart. Later on, the actual furniture arrives. It’s a more discreet and likely less expensive method of conducting business. In fiscal 2024, the chain generated $1.9 billion in e-commerce sales, indicating a decline in the demand for in-person browsing.
Although it would never refer to it as such, Walmart is doing something comparable. Neighborhood Market stores, about one-third the size of its Supercenters, are being opened by the biggest U.S. retailer by sales last year. In contrast to the Supercenter average of 178,000 square feet, two made their debut in May 2024, one in Georgia and one in Florida, each measuring about 57,000 square feet. There are more aisles. More space is available for employees to complete online orders while navigating past customers choosing tomatoes. In the quarter that ended in February, Walmart’s U.S. e-commerce sales increased by 20% year over year. In a way, the store is turning into a warehouse with a checkout line.
Observing this development gives the impression that retailers have at last acknowledged what customers have been telling them for some time. According to Empower research, Americans spend roughly $333 per month at large chains compared to $106 at neighborhood small businesses, and a large portion of that big-chain spending now occurs over the phone. Over two out of five Americans claim that outsourcing household chores enhances their work-life balance. Apparently, pushing a cart through a labyrinth of inventory is part of that.
When you consider who is seizing the abandoned real estate, the picture becomes even more intriguing. With a retail vacancy rate of only 4.1%, practically nothing is unoccupied for very long in the United States. Dollar Tree and Five Below took home 148 leases between them when Party City auctioned off 250 of its locations in February. Burlington purchased 64 former Bed Bath & Beyond locations as well as former Big Lots outposts for $28 million. The middle is being inherited by the off-price players, who are deliberately reducing it. Burlington has reduced the average store size to about 25,000 square feet, a 70% reduction. Yes, it’s more expensive per square foot, but it’s also more profitable and situated nearer to the kinds of shopping malls that people actually visit.
It’s difficult to ignore the pattern. On the one hand, Ulta continues to grow its 500 shop-in-shops within Target, where consumers who connect the two loyalty programs spend twice as much as the typical Ulta member. Conversely, the discounters are taking over any available space. Both sides are putting pressure on the middle, which is the expansive, generalist, all-things-to-all-people store.
Nobody is sure yet whether this is a long correction or a permanent reordering. Retail has a tendency to rebound. However, the buildings themselves are changing, which is a decision that is difficult to reverse.
