FILE PHOTO: Customers walk out of an IKEA store in Madrid, Spain, October 10, 2018. REUTERS/Susana Vera

MEXICO CITY (Reuters) - IKEA is scouting Mexico’s biggest cities for its first store locations in the country, the furniture retailer said, as it expands in Latin America to battle growing competition in its core U.S. and European markets.

The Swedish chain known for modern and inexpensive designs is looking at sites in Mexico City, Guadalajara and Monterrey, the company’s local franchisee said.

“We’re looking at the biggest cities in Mexico, with those three being the most important,” said Antonia Banuelos-Leon, country marketing manager for IKEA Mexico, in an interview on Monday. “We’re also looking at the country as a whole.”

The company is likely to announce its plans within a month, and is considering various store formats, Banuelos-Leon said. She declined to comment on store numbers or the timeline.

Stores in Europe and the United States drive the majority of sales for Inter IKEA Group and its franchisees, but rival retailers, especially online, are increasingly vying for shoppers. IKEA has 427 stores across 52 markets, with more in the works aimed at growing its customer base.

Late last year, IKEA announced plans to enter Latin America, starting with Chile in 2020 followed by Colombia and Peru.

Banuelos-Leon said IKEA Mexico, which is part of IKEA franchisee Ikano Group, opened an office in Mexico City last April and has advertised job openings in the capital and Guadalajara in recent months.

The country’s dense capital area, with more than 20 million people and scant open space, could challenge IKEA’s traditional model, which calls for vast warehouses on city outskirts packed with goods from lamps to couches and eateries known for their Swedish meatballs.

That model is changing. In January, IKEA announced plans to open its first store in the center of Paris, selling a full range of goods on a compact footprint.