Why are Ikea and Costco expanding as other retailers close stores and lay off staff?
Opening new stores may be a way for some retailers to position themselves for both a downturn and a recovery.
The retail industry has been a little anxious lately. Retail sales fell in March as consumers pulled back on spending and continued to focus on services. Layoffs have been happening at Whole Foods, Saks, Wayfair and others. And companies like Walmart, Bath & Body Works and Gap are closing stores.
Meanwhile, some retailers are using this time to forge ahead. Ikea, Barnes & Noble and Costco are among those that recently announced plans to expand their footprints. That seems a little odd, considering the economic uncertainty in the air. What gives?
Have you put off making some decisions over the last few years? Maybe stalled on making a big purchase. Having kids. Changing careers. Maybe you said you’d just wait until the pandemic is over or until inflation cools. Or until this whole “Are we or are we not headed into a recession?” thing becomes a bit more clear.
But did you eventually take the plunge anyway? Because really, how long are you going to put everything on hold just to time life perfectly?
“I think that’s exactly the way a lot of these executives are looking at it,” said Joel Rampoldt, a retail consultant at AlixPartners. “Everything is uncertain. The range of bad outcomes that could come to pass is broad and deep. But not acting aggressively is as big a risk as acting.”
Of course, acting requires some financial security. But if you’re a company with some cash, there are plenty of opportunities. Businesses that are closing stores create openings for those that want to expand, Forrester retail analyst Sucharita Kodali explained.
“If good real estate has come available that had not been available before, these retailers may be jumping on it,” she said.
Another reason it might be the right time? Some stores do well when people’s wallets are tight. More shoppers have been turning to membership clubs like Costco. And someone who once shopped at Crate & Barrel may now feel more comfortable on an Ikea budget.
“The consumer is still there,” said Mark Cohen, the director of retail studies at Columbia University. “Though they may have traded down a bit, they still have disposable income. And they spend it.”
Plus, Cohen said it takes a couple of years for stores to follow through on expansion plans.
“There are companies that are betting that this inflationary cycle will have abated by the time they actually get to open their doors,” he said.
If a company can take on risk during a shaky economic time, it’s hoping it’ll be primed and ready for the reward that could come during a rebound.