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Distribution Key To IKEA’s Midwest Expansion

IKEA sells simple looking modern furniture but its hardly a simple company. It is often misunderstood or misrepresented. Even simple facts are often wrong, which get repeated. For example:

The company has 285 stores in more than 20 countries and designs its own product which is then produced by more than 1,000 suppliers in 50-plus countries. With only 38 stores in the United States boasting an Ikea is regarded by many cities as a retail status symbol.  (nextSTL.com)

The number of locations/countries was repeated by two local mainstream news sources:

The furniture company has 38 stores in the U.S, part of a total of 285 stores in more than 20 countries. (STL Biz Journal)

IKEA has 38 stores in the United States and 285 locations in more than 20 countries. (KMOV)

Unfortunately this repeated information is inaccurate. From a February 26, 2013 IKEA press release:

Currently there are more than 298 IKEA Group stores in 26 countries, including 50 in North America (11 in Canada; 38 in the US; 1 in the Dominican Republic). IKEA has six distribution centers in North America. The IKEA Group employs 131,000 coworkers and had 655 million visitors in FY 11. (IKEA)

So these reports were short 13 stores and 6 countries, but did get the number of US stores correct at 38. True, 26 is “more than 20.” But even that doesn’t give the complete picture, there are 333 IKEA stores in total:

In January a Swedish documentary revealed that Interogo, a Liechtenstein foundation controlled by the Kamprad family, owns Inter IKEA Holding, which earns its money from the franchise agreements Inter IKEA Systems has with each IKEA store. These are lucrative: IKEA says that all franchisees pay 3% of sales as a royalty. The IKEA Group is the biggest franchisee; other franchisees run the remaining 35 stores, mainly in the Middle East and Asia. One store in the Netherlands is run directly by Inter IKEA Systems. (The Economist

Yes, all 333 IKEA stores franchise the concept. Complicated…

ikea-job-interview
Click image to view cartoonist’s website.

IKEA first entered North America in 1976 with a store outside of Vancouver Toronto in Richmond BC. IKEA didn’t open a US store until nearly a decade later in 1985. My first visit to an IKEA was the Woodbridge VA location in August 1990. Since then I’ve shopped at five more locations.

In 28 years IKEA has gone from zero US stores to 38. Founded in Sweden in 1943, IKEA is a retail giant. After 70 years 333 stores exist. How does this compare to other retailers?

Apple opened its first retail store in Tyson’s Corner VA in May 2001. It now has, according to Wikipedia, 400 stores in 14 countries with 250 of those in the US. Obviously Apple is opening locations at a much faster rate than IKEA. But they’re in different segments, what about a more comparable company? Like Crate & Barrel:

By 1985, the chain had grown to 17 stores, and has continued to grow. In March 1995, it opened its first New York location (its 59th location), in Manhattan. After selling a majority stake to German mail order company the Otto Group in 1998, the company had financing to increase its rate of expansion. By 2002, it had grown to approximately 100 locations, and over 135 locations by late 2004.

Today there are over 170 stores in the United States. (Wikipedia)

Crate & Barrel, like Apple, is far more aggressive about opening locations. The point? IKEA takes its time. From March 2007:

Ikea, the world’s largest home furniture retailer, plans to acquire land in Joliet for a new distribution center that could eventually be as large as 1.4 million square feet.

The Swedish company has been searching for a site in the region for about a year, and recently signed a contract for a 72-acre tract in Joliet southwest of Interstate 80 and Illinois Highway 53, according to sources familiar with the matter. (Crain’s Chicago Business

The Joliet distribution center was supposed to open in 2009 but at this point it hasn’t yet.

Map showing IKEA's six existing, and one future, distribution centers in North America. Click image to see PDF from IKEA on distribution channels.
Map showing IKEA’s six existing, and one future, distribution centers in North America. Click image to see PDF from IKEA on distribution channels.

From the PDF linked above:

To meet the growing demand for products at the 48 IKEA stores in North America, IKEA locates its distribution centers in regions of the country in the United States and Canada where the company can optimize delivery of home furnishing products to the nearest IKEA stores.

In the U.S., this effort is aimed at developing a network that includes regional distribution centers in the East, Midwest, Northwest, South, and Southwest – as well as in Canada – for serving existing and future stores.

I’ve found no press release about the Joliet DC other than the original from March 2007. I’d guess once that facility is opened we’ll have a better shot at landing a store in the St. Louis region.

— Steve Patterson

 

You Can Buy Just About Anything Online

March 15, 2013 Featured, Retail 7 Comments

My post Tuesday (The Future of the Brick & Mortar Retail Store) drew some interesting, and outdated, views. For example:

“Pets, musical instruments, clothing, food, furniture, consignment items, alcoholic beverages, ice cream, these things make sense to be purchased out of a retail store.”

“…make our weekly trip to the supermarket to stock up on groceries, things that really don’t work online . . . .”

Some erroneously think because they don’t buy these things online, nobody else does either. By that logic everyone still has a landline home phone and gets the printed newspaper delivered every morning. Here’s a look at the items from these comments.

Pets

Pets should come from a local shelter rather than be bought at a store, of course you can browse animals awaiting adoption online. Like cute cats and lovable dogs.

Pet supplies is a big industry!

The US pet and pet supply store industry includes about 8,800 stores with combined annual revenue of about $12 billion and is forecast to grow at a moderate rate in the next two years. Key drivers of growth include increasing income levels, as well as a trend toward pet humanization, or treating pets like family members. (source)

Online sales are about $2 billion:

Unlike traditional brick-and-mortar retailers, participants in the Online Pet Food and Pet Supply Sales industry do not necessarily establish operations following the distribution of population. Densely populated regions are still important to an operator’s geographic location, but not as much as with physical retailers. Online pet supply companies choose their location with rental and transportation costs in mind, since most e-commerce dealers require large amounts of warehouse space. (source)

Of course having a website is no guarantee of success:

Pets.com is one among many other online retailers that failed as a business-to-consumer e-commerce entity. Pets.com was a San Francisco-based e-tailer existing only as a virtual firm that offered pet products, information, and resources to consumers. The site was launched in November, 1998 about the same time as several other online firms offering pet products. Petstore.com, Petopia.com, Petsmart.com, and PetPlanet.com were a few of the major competitors in the online pet industry, although Pets.com had a first-mover advantage being the first of these virtual pet stores to enter the market. In spite of the rising competition in the online pet market, Pets.com appeared to be on a road to success in the beginning of 1999. Sadly, the success never brought profits for the online firm and Pets.com decided to close its doors in November, 2000 just two years after its launch. (source)

Musical Instruments

Here’s a current example from South Bend Michigan:

Music Factory Direct will close its retail store on South Bend’s northwest side to focus its business on growing Internet sales, its owner said.

Dennis Bamber started Music Factory Direct in 2009 at 4004 Technology Drive. He previously ran Woodwind & Brasswind in the same building, which is northwest of where the St. Joseph Valley Parkway crosses the Indiana Toll Road.

Bamber said the company’s online sales of musical instruments are improving, and the business is growing by 10 to 20 percent annually. Sales at the South Bend store, however, have been disappointing.

Music Factory Direct employs seven people, he said, and the closure of the company’s retail store won’t affect that number. (see Music shop closing to focus on Web)

In the St. Louis region Fazio’s Frets and Friends seems like a thriving and popular retail store.

33 years in business, and going strong!! since 1978, we’ve been St. Louis’ best independent music store and we’re a great resource for instruments, accessories, repairs, used gear, instrument and equipment rentals, amplifiers, lessons and advice. With a fantastic selection of great brands…we offer best value with great prices and friendly, personal service from a professional staff who does this for a living.

Their website allows you to order online, or you can call them toll-free. Clearly they do business beyond the St. Louis region! Big companies like Amazon and Best Buy sell instruments online, as do hundreds/thousands of smaller retailers like our own Fazio’s.

In 2011 local store Drum Headquarters closed (Drum Headquarters Closes After 30 Years).

Clothing

Seriously? Sure, clothes will still be sold in stores but online sales are the growth trend. How many local clothing stores do you know of? How many national clothing retail stores like Old Navy doesn’t sell online? Okay, Kleb Clothing & Shoe at 8529 S. Broadway is still in business and it doesn’t even have a website! Kleb’s is an anomaly though, it can’t survive forever, much less increase sales.

Some of the designs available on stl-style.com
Some of the designs available on stl-style.com, click for website

In less than a decade Zappos.com reached $1 billion in sales, it was then bought out by Amazon. Online clothing sales are huge!

Food

You have to buy food in a grocery store, right? Wrong! Locally you can order groceries online from Local Harvest GroceryStraub’s, Dierbergs, and Schnucks, maybe more. Companies like Amazon & Peapod are forcing Walmart to sell food online too. Target doesn’t ship food online but items available in store are listed on their website.

Furniture

IKEA’s stores are great and their shipping is so expensive other companies have sprung up to pickup and deliver their goods. Design Within Reach offers modern furniture online.  St. Louis had a DWR studio but it didn’t last long.

Consignment Items

Like everything else, the consignment business has also moved online.

For instance, RodeoDriveResale.com focuses on luxury designers like Marc Jacobs, Fendi, and Prada, while the newly launched Tradesy.com offers a mix of mid-market and high-end brands such as Zara, Kate Spade, and Michael Kors. StellaPlusJack.com specializes in children’s clothing and accessory brands like Mini Boden and Ralph Lauren. And some websites, including AntoinesConsignment.com, focus on men’s clothing and accessories.

Many of these sites offer prepaid mailing labels for consigners. “You don’t actually have to get in your car and take the things to a particular place,” points out Montgomery, Ala.-based thrift style expert LaCheryl Cillie. “You can hold them until they sell and you have to ship them.” (US News)

Alcoholic Beverages

Liquor Mart is proud to be able to ship wine and non-alcoholic products to California, Colorado, Florida, Idaho, Nebraska, *New Hampshire, North Dakota, Oregon, Washington D.C., and Wyoming.

Due to shipping carrier policies, Liquor Mart is unable to ship beer or spirits to any state at this time. (Liquor Mart)

Laws means online ordering & delivery isn’t possible but through sites like ShopRandalls.com you can can check availability at four local stores.

Ice Cream

Yes you can get overnight delivery of ice cream & gelato!

eCreamery Ice Cream & Gelato was founded by Abby Jordan and Becky App out of a pure love for ice cream and the power of a personalized gift. We love the idea of making ice cream as a GIFT that will be bringing a smile to someone’s face and make a memory. Whether it’s Birthday Ice Cream, Get Well Ice Cream or Thank You Ice Cream, we want to make the moment delicious. (eCreamery)

If I want gelato or ice cream I’ve got lots of local choices but if I can also send ice cream to family in other states as gifts.

With so much available online this presents very real challenges to urbanists who dream of bustling retail streets. Small retail storefronts for larger online operations is one option, as long as it isn’t a burden having an actual storefront. Or maybe have a storefront but not sell anything in it?

Bonobos, (say “bu-NO-bos”) Guideshops are men’s clothing stores that basically don’t sell anything. Customers can try stuff on for size, put outfits together and get advice from salespeople. But if they like it, they’ve got to order it on the Bonobos website.

This small store is a big deal. If other stores catch on — and it may be more of a question of when than if — this could ultimately change the business model for the nation’s 895,800 retail establishments. (USA Today)

Retail is continually changing…

— Steve Patterson

 

Enough With The IKEA Rumors

Having worked in real estate I learned not to spend the sales commission until after the deal was closed. Blogging is similar.

ABOVE: Ikea in Bolingbrook, IL
ABOVE: Ikea in Bolingbrook, IL was built in 2006 on a 23 acre site

On Sunday nextSTL.com got many St. Louis IKEA fans excited:

Several WhoLou sources are alleging that highly-coveted Swedish-based furniture chain Ikea intends to develop their first St. Louis store close to the campus of St. Louis University. The 300,000 sq. ft. store will allegedly be built near the Laclede Gas and Salvation Army Adult Rehabilitation Center complexes on Forest Park Ave. between Sarah Street and Vandeventer Ave.

While IKEA does have some inner-city locations, most are in suburban sprawl. IKEA contributes to sprawl.

The next day the Post-Dispatch had a story saying the rumor was untrue:

Responding to the nextstl.com post, [Ikea spokesman] Roth said Monday: “We still have not committed to a time frame, let alone a specific site.” The chain has not listed St. Louis among the cities where it plans to open a store. “Nothing has changed,” Roth said. “We continue to evaluate opportunities in the market,” he said. (stltoday.com)

Online many were excited when they saw the original rumor, repeated on KMOV, Fox2, KPLR, but disappointed when IKEA officials said no deal to build a St. Louis store.

I have no doubt that local commercial real estate brokers are talking to every big retail chain to try to lure them to various sites. These retailers might even show some initial interest in one site or another. But until something is signed I feel it’s too premature to report.

— Steve Patterson

 

The Future of the Brick & Mortar Retail Store

Many of us think of a big chain store first when we need to purchase something but the retail landscape is changing as many big chains face financial difficulty:

ABOVE: Garage-level entrance to the Best Buy in Brentwood
ABOVE: Garage-level entrance to the Best Buy in Brentwood

Retail is an industry in decline—but only for traditional retailers. For companies that have become successful doing something else, opening a chain of stores can bring millions of new customers and the profits that go with them. This paradox of the retail marketplace is evident in some of the biggest names at the mall. Traditional retailers such as Best Buy, J.C. Penney, Sears, and Kmart are struggling to reverse losses, turn themselves around and give shoppers new reasons to think they’re relevant. The recently announced merger of Office Max and Office Depot is just the latest example of a retail glut that has already sunk Borders, CompUSA, Circuit City, and many others. Yet Apple, a technology company and newcomer to the retail scene, operates a network of more than 200 U.S. stores that have created a new paradigm for brick-and-mortar success. Microsoft, a software company, runs about 60 U.S. stores, with plans to open more. Even Google, an information company, is rumored to have retail ambitions. (US News)

Even giants like Walmart are doing good to get 5% growth:

That sluggish curve is clearly one reason the Arkansas-based company has started devoting so much time and attention to its Silicon Valley operations. Headquartered just south of San Francisco, Walmart.com is heavily recruiting tech talent. And in some ways its investment is starting to pay off. The company’s wide-ranging experiments in “clicks-and-mortar” retail have put it at the forefront of merging online, offline and mobile commerce. (Wired)

Are retail stores doomed as more of us shop online? Thankfully, no.

Just because more people shop online, though, doesn’t mean they’ll stop shopping at stores completely. Indeed, for most retail sectors, a physical store can serve a fundamentally different function, giving consumers the ability to see, taste and touch the products in a way that is impossible online. The challenge for retailers in the future, industry analysts say, will be to figure out a way to play up the strengths of the bricks-and-mortar store while incorporating new technology into the experience. (The Street)

The changing retail landscape does mean everyone involved in city development needs to rethink what “retail” means. For many the word conjures up images of 2-3 massive big box (50,000-200,000sf) stores connected by numerous small (5,000-15,000sf) stores.  Those who think of this when they hear retail don’t understand how I can advocate for street-level retail in commercial districts. How will it fit? Parking?

ABOVE: Retail operations pop up all over the city everyday
ABOVE: Retail operations pop up all over the city everyday

They fail to realize retail doesn’t even need a box. The point is “retail” comes in all shapes & sizes, it’s ridiculous to try to put all retail into the same box. We also can’t fool ourselves into thinking people will ever buy stuff the way they did decades ago. Downtown will never again be the retail center of the region.

— Steve Patterson

 

I’d Love an Urban Plant Nursery in Downtown St. Louis

In the first months of this blog, three years before I moved downtown, I posted about what Washington Avenue was missing. In the eight years since many of the types of stores I listed have opened, though some closed as well. A florist & kitchen store are examples of two types of stores that opened and closed.

One retail type that didn’t occur to me at the time is a nursery.

ABOVEL Nursery in Manhattan on October 30, 2001
ABOVEL Nursery in Manhattan on October 30, 2001

Living downtown for 5+ years now I see a need for a nursery that can easily be reached without a car. Potted plants for indoors, bedding plants for the balcony, seeds and  other supplies. In addition to residents, office workers might like a small plant to brighten their desk. Paperwhites anyone?

Such a business could transform a dreary & forgotten space. All that’s needed is a fenced area that gets some sun & rain plus access to water & power.

ABOVE: One location might be this unused corner of the Mansion House complex
ABOVE: One location might be this unused corner (bottom left) of the Mansion House complex

There may not be a sufficient market for such a retail business downtown, it would most certainly be seasonal. Still I hope some green thumb reads this and considers it.

In the Central West End is the very nice, but pricey, Bowood Farms and associated Cafe Osage. Both are great but they’ve made a substantial investment in the location which is reflected in the prices. Still, when I had a car I’d go there as well as the former gas station turned nursery of University Gardens.

— Steve Patterson

 

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