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IKEA to double number of stores

Swedish furniture retailer Ikea is heading towards sales of $1 billion in Australia, thanks to a decision last year to slash prices and a planned doubling of its stores.

IKEA, which operates five massive ‘warehouse’ size stores along the east coast of Australia, reported sales of $650 million for the twelve months to August 31, 2012, a 24% rise over the previous year. Sales were helped along by the opening of a new 39,000 square metre store in Tempe, in Sydney’s inner-west, and a second store in Springvale, Victoria.

Underlying profit for the year surged from $2.8 million in 2011, to $13.5 million in 2012, according to The Sydney Morning Herald (SMH). A decision join other furniture retailers such as Nick Scali (ASX:NCK), Fantastic Holdings (ASX:FAN) and Harvey Norman Holdings (ASX:HVN) in slashing prices, strengthened the group’s market position and helped to bring a flood of consumers flicking into its stores. Prices on 900 products were cut by as much as 50%.

Having established a presence in Australia nearly 30 years ago, IKEA had only had three stores operating until 2011, with franchises in Perth and Adelaide. But the company has now accelerated its store openings, and plans to at least double the number of stores. At least in four in Sydney, four in Melbourne and three in Brisbane are planned according to the SMH. A store for Canberra and the NSW Central Coast are also believed to be in the pipeline.

An online store was recently launched for Australian shoppers, and IKEA has gradually increased the allocation of floor space to Swedish culinary delights such as marinated herring, sprats, chocolate, and meatballs.

Globally, IKEA is targeting sales of around 50 billion Euros by 2020.

Foolish takeaway

Australian consumers must love flat-pack products, judging by the success IKEA has had so far. Doubling the store count and the launch of an online store could easily see IKEA pull in $1 billion in Australia within the next few years, and likely much more if consumer sentiment improves.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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