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IKEA Opens Its First Strip Mall Location: What It Means for Investors

Jan 15, 2021 by Liz Brumer
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IKEA, known primarily for being a big-box home-goods retailer with 445 locations across the globe, is transitioning into a new type of retail -- strip malls. The company announced plans to expand its real estate footprint, building several small-format stores in top locations across the globe in 2019, starting with Queens, New York. The IKEA Queens store in Rego Center opened January 11th, 2021, several months after originally planned due to coronavirus setbacks, and is now offering a full range of products in its 115,000 square feet of space.

Diversification in a challenging sector

The company plans to join existing mall space in addition to building its own strip malls. This move helps diversify the company's income through rental real estate rather than relying solely on product sales volume. The strip malls or small-format stores are in prime locations near public transportation and designed to meet the ever-changing needs and demands of their customers in high-density, urban areas. Getting closer to the customer while improving the list of services to include product assembly and delivery, one-on-one design services, and personalized products designed for the area will hopefully draw customers to the center.

What it means for investors

Retail landlords, including big real estate investment trusts (REITs), particularly mall owners, are struggling with record-high vacancies, depressed rental rates, and low demand. Adding a new, highly sought after name as an anchor tenant will hopefully bring new visitors, particularly if the retailers are designed to meet the continued needs and demand for the area. Rego Center -- which is owned and operated by Vornado Realty Trust (NYSE: VNO) and already has big name brands like Costco (NYSE: COST), Marshalls, and Best Buy (NYSE: BBY) in its indoor/outdoor strip center -- can now add a new big name to the list, while also benefiting from the strength of the other quality anchor tenants.

Future store plans, including its 6x6 San Francisco development, which is slated to include additional retail space for rent, should revive certain retail areas, but this resurgence won't happen immediately. The timing of the stores isn't necessarily ideal as a record number of residents are fleeing the cities where IKEA is focused on expanding, including Chicago, San Francisco, and New York.

My hope is that the company can ride out the current economic conditions and that the small- scale concept lasts. I believe that in the long run, this move into urban hubs will help with the retail resurgence and bring retail investors up with it.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool has a disclosure policy.