Can Ikea save the mall?

An IKEA store in downtown San Francisco. The company is expanding its real-estate business. (Photo: Poppy Lynch for WSJ)
An IKEA store in downtown San Francisco. The company is expanding its real-estate business. (Photo: Poppy Lynch for WSJ)

Summary

The furniture giant has bought a string of locations and says it can breathe new life into the troubled format with co-working spaces and Nordic cuisine.

Many malls are struggling but IKEA is betting it can breathe new life into the troubled format.

Ingka Group, the operator of most of the world’s IKEA stores, has assembled its own mall empire in recent years, spanning from China to Europe to the U.S., and says it wants to buy more locations as it aims to diversify beyond retail.

The company’s blueprint is to anchor its malls with an IKEA store and seek to pull in more would-be shoppers with additions such as WeWork-style co-working spaces, Nordic-themed food halls and children’s play areas inspired by outer space.

“People are looking for places that offer much more, not only shopping," said Cindy Andersen, the managing director of Ingka Centers, the company’s real-estate arm. “If you bring in more reasons to visit, then people will still come."

Many malls have been in decline for years as consumers shift toward local, outdoor shopping venues and buy more online. Foot traffic to U.S. malls was down 4% on average in 2023 from the prior year, and about 12% lower than 2019 levels, according to Green Street, a real-estate data provider.

Some retailers, tracking their audience, have been reducing their exposure to enclosed malls, moving instead into strip malls or downtown locations.

Even so, the IKEA operator is doubling down on the mall. Though it offloaded its 14 malls in Russia last year following the country’s invasion of Ukraine, Ingka still has 38 malls in 15 countries.

Ingka opened its first mall, or meeting place as it calls them, in 1973 in Sundsvall, Sweden, together with an IKEA store. In recent years the company has expanded its real-estate business, opening a string of new malls, and says it is actively looking to buy and develop more locations, including in the U.S.

The company looks for malls with strong existing retail tenants but with development potential, Andersen said.

Its most recent addition, a mall in Brighton, England, bought in November for £145 million, equivalent to about $184 million, was a case in point. Brands already operating in the mall included the likes of Apple and Zara, while an empty ex-department store in the same property offered a good location for a new IKEA.

Real-estate analysts said the Brighton property had recently been valued at around £250 million—a sign that buyers like Ingka can find bargains if they are willing to shoulder the risk of acquiring an unfashionable asset.

The company plans to open malls in the Chinese cities of Shanghai and Xi’an this year, with a first opening in India slated for 2025.

In North America, Ingka operates malls in Toronto and San Francisco. It acquired the latter in 2020 and opened last year.

By positioning its malls as more than just shopping destinations, IKEA can transcend the gloom, said Cameron Baird, a senior vice president at Avison Young, a San Francisco-based real-estate consulting firm. While many malls are failing, “there’s a flight to quality," he said, as both retailers and consumers gravitate toward the most dynamic destinations.

“There’s been a transition in how malls are viewed, people are looking more for a lifestyle center, gathering places—you don’t just buy stuff and leave," said Baird. Ingka isn’t the only proprietor attempting to enliven its malls, he said, though its ability to use IKEA stores to generate buzz makes it unique.

Ingka’s push into malls has latterly been driven by the invention of a new compact-format IKEA store, designed for the city centers rather than its typical suburban warehouses. IKEA is rolling out downtown stores globally to tap in to an urban audience it believes is underserved by its out-of-town locations.

Ingka prefers to open downtown IKEAs in its own properties, where it has free rein to construct them to its preferred specifications and where it doesn’t have to pay rent.

The Swedish furniture brand’s popularity ensures that a mall hosting an IKEA store will receive a certain level of traffic. But one store can’t support a mall single-handed.

Even before the Covid-19 pandemic, Ingka understood that the mall needed updating, said Andersen. But after Covid decimated mall traffic, finding new ways to attract visitors has become much more urgent, she said.

It responded by investing €60 million, equivalent to around $65 million, on developing new concepts to attract consumers and retailers to its properties. These will eventually roll out globally.

“It’s not just about renting out space, it’s about activating it and making it much more alive," Andersen said. That includes using a mall as an event space, she said, and encouraging service businesses such as hair salons and medical centers to occupy spots alongside retail brands.

A new co-working brand called Hej! Workshop is one such means of bringing traffic into its malls.

Ingka recently opened the third Hej!—Swedish for hello—at its mall in downtown San Francisco. With capacity for 500 workers, and costing $399 a month, the shared-office space is fully loaded with IKEA furniture, including sofa areas for relaxation.

Hej! is intended to both help populate Ingka’s malls and be a stand-alone, profitable business, Andersen said.

The San Francisco mall will also be the first to host Saluhall, Ingka’s new food hall concept, which is slated to open in the spring. With Nordic cuisine as its inspiration, the menu will be 80% plant-based and use local suppliers.

Play areas for children—including one called SpaceLab that is offering space-themed creative activities—and repair hubs for clothes and other products are features Ingka has been trialing in some of its malls to boost their appeal.

The IKEA operator says its approach is working, with visitor numbers at the company’s malls increasing.

Traffic at Ingka’s mall in London, for example, nearly doubled last year from the year before. When the company bought the Hammersmith mall about a quarter of its units were vacant. Now it’s fully let after a makeover that revamped community spaces, added food options and opened the door to nonretail occupants that have regular visitors, including a gym.

“It’s coming back strongly," Andersen said of traffic to Ingka’s malls. As the pandemic’s impact recedes, “people want to be together."

Write to Trefor Moss at Trefor.Moss@wsj.com

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