IKEA, A.O. Smith and Moen Reshape China Footprints as Direct Retail Retreats
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IKEA China, water-heating brand A.O. Smith, and Fortune Brands, the parent company of Moen, have carried out sweeping operational shifts across China in 2026. IKEA announced in January that it would close seven shopping malls to focus on urban small formats, A.O. Smith agreed in late October to transfer an 81 per cent controlling stake in its local business, and Moen confirmed in early November that it will exit regional commercial operations.
The moves dismantle traditional consumer-facing retail setups across three distinct home improvement sectors. A.O. Smith’s transaction with private equity firm CPE Yuanfeng carries a 400 million US dollar valuation, while Moen’s parent Fortune Brands is winding down local commercial sales desks through 2027.
Multinational suppliers are moving away from capital-heavy suburban flagships and company-run showrooms to curb direct commercial overhead. Operators are shifting toward neighborhood boutique stores, long-term brand licensing, or converting mainland production sites entirely into export back offices.
IKEA Shrinks Store Formats and Accelerates Digital Pilots
IKEA dismantled part of its traditional suburban destination model in January 2026, closing large retail properties including sites in Baoshan, Shanghai and Panyu, Guangzhou. The Swedish furniture group is replacing them with urban small-format stores ranging between 1,500 and 4,000 square meters.
The company opened four small-format outlets during the 2026 fiscal year in Dongguan, Changying, Changping, and Tongzhou in Beijing. These downsized urban formats generated roughly 7 million visits, while IKEA’s digital sales reached 29.7 per cent of total China revenue in fiscal 2026.
Online expansion has supported the network reduction. IKEA established flagship digital channels on Tmall in 2020, opened an official storefront on JD.com in August 2025, and tested an instant retail delivery network through JD.com across nine cities in January 2026. Subsequent rollouts included a Taobao flash shopping trial in July 2026 and a live-commerce storefront on Douyin in October 2026, paired with its proprietary website and WeChat mini-programs.
Fortune Brands Cuts Asian Sales to Feed North American Supply
Fortune Brands confirmed an internal directive in early November 2026 to shutter local commercial selling operations for its Moen plumbing and fittings brand across Asia. The group will terminate most of its Asian regional sales and marketing jobs by the end of the second quarter of 2027.
“The company opened four small-format outlets during the 2026 fiscal year in Dongguan, Changying, Changping, and Tongzhou in Beijing.”
Remaining commercial cuts will finish by the end of 2027. The brand owner will not close its regional industrial base, choosing instead to retain its manufacturing and logistics facility in Changshu, its research and development centre in Guangzhou, and its regional procurement divisions.
Those operational assets will shift exclusively to supplying products for Moen’s core North American market. Fortune Brands reported group sales of 1.1137 billion US dollars during the third quarter of 2026, down 3.1 per cent year-on-year, or 2.4 per cent lower when stripping out the Chinese market, prompting headquarters to eliminate low-margin Asian retail overhead.
A.O. Smith Converts Direct Sales to Private Equity Licensing
Water-heating and appliance manufacturer A.O. Smith took a separate path to strip out operating risk, agreeing on October 27 to sell 81 per cent of its China business to private equity firm CPE Yuanfeng for 400 million US dollars. Including the net present value of long-term brand licensing, the total valuation tops 500 million US dollars.
Headquarters retreated after successive sales contractions. Revenue from A.O. Smith’s China operations slid 12.9 per cent year-on-year in 2025 to 690 million US dollars, dropping its contribution to total group turnover down to 18 per cent. Local-currency sales in the Chinese market fell a further 17 per cent in the third quarter of 2026.
The Shift to Refurbishment and Maintenance Operations
The simultaneous retreats expose how the end of China’s residential construction boom broke the economics of traditional home retail. Suburban big-box stores and company-owned showroom networks relied on new homeowners buying complete packages of plumbing, water heaters and flat-pack furniture. Today, residential property demand centers on partial renovations, product replacements and aging apartment upgrades.
Operating single large suburban warehouses carrying high floor-space lease costs makes little financial sense when consumer visits skew toward replacement parts and minor cosmetic changes. Running direct dealership tiers also leaves multinational headquarters exposed to regional receivables and inventory burdens that local buyout funds can manage more aggressively.
Earlier earnings from global home appliance and fixture suppliers showed steady margin compression in mainland retail channels as domestic competitors captured entry-level and mid-tier renovation budgets. That margin erosion pushed boards to choose between funding complex store overhauls or transferring direct retail execution to domestic distributors.
The next phase of the transition rests on network execution. IKEA plans to open more than 10 additional small-format urban stores across Beijing and Shenzhen over the next two years, while A.O. Smith and CPE Yuanfeng must resolve distributor terms ahead of their planned mid-2027 closing date.
Questions & Answers
Q.Why are multinational home improvement brands retreating from traditional showrooms in China?
Why are multinational home improvement brands retreating from traditional showrooms in China?
The end of the country's residential construction boom shifted consumer demand from full-package purchases to partial renovations and replacements. Large suburban flagships became financially unviable due to high lease costs, margin compression from local competitors, and heavy inventory and credit risks.
Q.What is IKEA’s strategy for replacing its closed suburban shopping malls?
What is IKEA’s strategy for replacing its closed suburban shopping malls?
IKEA is opening urban small-format stores between 1,500 and 4,000 square metres, with plans for more than 10 additional sites across Beijing and Shenzhen. It is also expanding e-commerce partnerships through platforms such as JD.com, Taobao, and Douyin to support the downsized physical footprint.
Q.How will Fortune Brands use its Chinese operations after exiting local commercial sales?
How will Fortune Brands use its Chinese operations after exiting local commercial sales?
The group is winding down Asian sales and marketing roles by late 2027 but retaining its Changshu factory, Guangzhou research centre, and procurement divisions. These facilities will stop serving the domestic market and shift exclusively to supplying products for Moen’s core North American business.
Q.What are the terms of A.O. Smith’s transaction with CPE Yuanfeng?
What are the terms of A.O. Smith’s transaction with CPE Yuanfeng?
A.O. Smith agreed to sell an 81 per cent controlling stake in its China operations to private equity firm CPE Yuanfeng for 400 million US dollars. The total valuation tops 500 million US dollars when including long-term brand licensing, with completion planned for mid-2027.