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. Last Updated: 07/27/2016

IKEA Goes East for Expansion

KUALA LUMPUR, Malaysia -- IKEA, the world's largest home-furnishing retailer, plans to open stores in China, Malaysia and Australia, counting on economic growth in the area to help boost sales by 10 percent next year, Chairman Hans-Goeran Stennert said.

"During the late 1970s and the whole of the 1980s and 1990s we were expanding rather heavily in existing countries in Europe," Stennert said in an interview in Kuala Lumpur. Now, "the Asian part will really grow."

After selling items such as $25 Kivik television stands to college students and Blames baby chairs to new parents in the United States and Europe, the closely held Swedish company is hoping to woo consumers in Asia. The region, together with the Middle East and Australia, now accounts for 4 percent of IKEA's revenue.

Economies in Europe, where Ikea makes 77 percent of its 12 billion euros ($13.3 billion) in annual sales, stagnated in the first half as Germany, Italy and the Netherlands went into recession. IKEA plans to open 16 to 20 new stores in Asia, Europe and the United States next year, the most in its 60-year history.

IKEA -- which last week opened its biggest Asian store in Malaysia -- plans to open five to eight new outlets per year in Asia, including Australia, over the next five years. It also plans to open five stores per year in North America, and about 10 per year in Europe, including Russia, Stennert said. Some of the Asian outlets will be operated by franchisees outside the Ikea group.

"Unless markets turn pretty disastrous, then it's probably the right thing for them to do to carry on opening more stores," said Iain McDonald, an analyst at Numis Securities Ltd. in London. "That's generally what a lot of retailers do, to try and get their profits moving in difficult markets."

Other retailers such as Starbucks Corp., the largest U.S. coffee chain, and Inditex SA of Spain also rely on that approach to fuel growth. Inditex, which owns the Zara clothing chain, aims to open as many as 350 new stores per year. Starbucks added 283 coffee shops in the third quarter.

Home Depot Inc., the world's largest home-improvement chain, added 39 stores in the second quarter. Lowe's Cos., the No. 2 in the industry, opened 24 outlets in the period and plans to add a total of 130 this year.

IKEA, controlled by the family of Swedish founder Ingvar Kamprad, has its headquarters in the Netherlands. Its sales last year were roughly the size of Sudan's economy.

The $8 trillion economies of the dozen nations sharing the euro did not grow in the three months to June, after expanding 0.1 percent in the first quarter, the Luxembourg-based European statistics office said last week.

In Malaysia, Southeast Asia's third-largest economy after Indonesia and Thailand, the government expects growth to reach 4.5 percent this year. China's economy grew 8.2 percent to 5 trillion yuan ($604 billion) in the first half and growth for the full year will top last year's 8 percent, the state-run People's Daily newspaper reported on its web site last month.

In May, IKEA said it plans to spend $600 million to open 10 stores in China by 2010, a sixfold increase in its China investments. It also has its eyes on Japan, "a very big market," Stennert said. IKEA plans to open its first store in Japan in late 2006 at the earliest. It has bought a piece of land in the Tokyo area and is negotiating on the purchase of another, Stennert said.

IKEA also plans to focus on countries such as Britain, France and Italy, where difficulty in finding land and getting building permits prevented the company from opening as many stores as it would have liked, Stennert said.

The company will probably chalk up sales growth of about 10 percent in the year ending Aug. 31, 2004, compared with a gain of 5 percent this year, Stennert said. That is about half the pace at which sales were growing a few years ago.

IKEA's new store in Malaysia drew 39,000 visitors on opening day last week. The company has invested 300 million ringgit ($79 million) on the 35,800-square-meter outlet and an adjoining shopping center that will open in December. The store alone is roughly the size of five soccer fields.