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When IKEA enters: Do local retailers win or lose?

Author

Listed:
  • Daunfeldt, Sven-Olov

    (HUI Research)

  • Mihaescu, Oana

    (HUI Research)

  • Nilsson, Helena

    (HUI Research)

  • Rudholm, Niklas

    (HUI Research)

Abstract

IKEA is one of the world’s largest retailers, but little is known about how IKEA impact incumbent retailers when deciding to enter a local market. Previous studies on the effects of big-box entry on surrounding retailers have also generated inconclusive results, and mainly been focused towards entry of Wal-Mart in the United States. We contribute to this literature by investigating the effects of IKEA entry on revenues and employment for incumbent retail firms in three Swedish municipalities during 2000-2010. Our results indicate that a new IKEA store increases average revenues for incumbent retailers within the entry municipality by 11%, but also that the effect is highly heterogeneous within the municipality. Retailers that were located up to 1 km from IKEA experienced a 26% increase in revenues when IKEA entered the municipality. However, the positive spillover effect of a new IKEA store on retail revenues diminished with the distance to IKEA, and turned insignificant for retailers in the city centers and those that were located 5-10 km from IKEA. The effects on employment were much less pronounced, and in most cases statistically insignificant.

Suggested Citation

  • Daunfeldt, Sven-Olov & Mihaescu, Oana & Nilsson, Helena & Rudholm, Niklas, 2015. "When IKEA enters: Do local retailers win or lose?," HUI Working Papers 109, HUI Research.
    • Handle: RePEc:hhs:huiwps:0109
    as

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    Citations

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    Cited by:

    1. Mihaescu, Oana & Korpi, Martin & Öner, Özge, 2020. "Are New Shopping Centers Drivers of Development in Large Metropolitan Suburbs? The Interplay of Agglomeration and Competition Forces," Ratio Working Papers 332, The Ratio Institute.
    2. Rudholm, Niklas & Li, Yuijao & Kenneth, Carling, 2018. "How Does Big-Box Entry Affect Labor Productivity in Durable Goods Retailing? A Synthetic Control Approach," HUI Working Papers 130, HUI Research.
    3. Sven-Olov Daunfeldt & Oana Mihaescu & Niklas Rudholm, 2022. "The Decline of Small Cities: Increased Competition from External Shopping Malls or Long-Term Negative Trends?," International Regional Science Review, , vol. 45(2), pages 225-257, March.
    4. Nilsson, Helena, 2020. "IKEA entry - Effects on firms in retail and hospitality," HFI Working Papers 11, Institute of Retail Economics (Handelns Forskningsinstitut).
    5. Yujiao Li & Johan Håkansson & Oana Mihaescu & Niklas Rudholm, 2019. "Agglomeration economies in urban retailing: are there productivity spillovers when big-box retailers enter urban markets?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(19), pages 1586-1589, November.
    6. Håkansson, Johan & Li, Yujiao & Mihaescu, Oana & Rudholm, Niklas, 2016. "Big-box retail entry in urban and rural areas: Are there productivity spillovers to incumbent retailers?," HUI Working Papers 118, HUI Research.
    7. Daunfeldt, Sven-Olov & Mihaescu, Oana & Öner, Özge & Rudholm, Niklas, 2019. "Retail and place attractiveness: The effects of big-box entry on property values," HFI Working Papers 1, Institute of Retail Economics (Handelns Forskningsinstitut).

    More about this item

    Keywords

    Big-box retailing; retail revenues; firm entry; propensity-score matching; panel data;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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