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UPDATED: IKEA Calls Off Plans for Big Box Stores in Three US Markets

Furniture Retailer Redirecting Resources to Back E-commerce Expansion, Testing Smaller Urban Store Concept
June 9, 2018
After opening 27 stores in the U.S. in the past 15 years, iconic Swedish component-furniture retailer IKEA has called off expansion plans in three markets while it considers making potentinally far-reaching changes to its growth plans in a rapidly changing retail environment.

The three stores the retailer had planned to open but decided against were in Glendale, Arizona, Nashville and Cary, North Carolina.

"I spoke with IKEA's real estate manager... who shared that, because of IKEA's evolving business model, there will be no store in Cary. They are moving away from suburban big box retail outlets and into global city centers," Cary town manager Sean R. Stegall, said in a prepared statement posted on the town's website. "When I asked whether there was anything Cary could do to influence IKEA's decision, I was told that there was nothing; not even an incentive would make a difference."

The decisions are a blow to the communities and the property owners with which IKEA was working. In Cary, for example, IKEA had a contract to purchase land at Cary Towne Center, a mall being repositioned by CBL Associates Properties, the REIT reported Friday June 9.

Cary Towne Center secures a $46.7 million interest-only non-recourse loan that had a clause stating that the loan would mature on the date if the contract with IKEA were to be terminated. The contract was officially terminated June 4, making the loan due and payable.

CBL has engaged in conversations with the lender regarding a potential restructuring of the loan. Based on the results of these conversations, CBL concluded that it would take a non-cash impairment estimated to be in the range of $52 million to $62 million because it said that it is unlikely it will be able to recover the asset’s net carrying value of $87.4 million through future cash flows. The impariment will be recorded in the second quarter of 2018.

[Editor's Note This story was update June 9, 7 am, with the information pertaining to CBL & Associates.]

IKEA shared some additional details on its new direction with Stegall, such as planning to move more operations online, push into new markets such as India and South America, and developing smaller, urban store format targeting such places as London, Moscow and Tokyo.

"Urbanisation and digitalisation are changing the way people work, shop, connect and play, and we are all rapidly adjusting to the new pace of life," Joseph Brodin, president and chief executive of Ingka Holding B.V., the parent company for all IKEA Group companies, wrote in Ingka's 2017 annual financial summary. "We are committed to making IKEA more accessible to those who cannot afford our products and services today, and for those who cannot get to us where we operate. We will improve the ways customers can reach us - whether it's in our stores, online or through the services we offer."

In Moscow, it was reported this month that IKEA recently opened the first of a new breed of store measuring only about 3,200 square feet of floor space. It has also ditched its showroom-store function in favor of becoming a service point for pickup of orders placed online.

In the U.S., there were already indications that IKEA was shrinking its store size. The last three stores to open here averaged about 287,000 square feet, according to CoStar data. That is down from an average of 365,000 for the previous 10 openings.

In the past year, IKEA introduced a new app -- IKEA Place - that lets users shop online in 3-D for more than 3,200 IKEA products from sofas and lighting to beds and wardrobes.

"Barriers between the digital and physical world are disappearing fast. To keep pace with that change, we focus on opening up new ways for people to access IKEA, wherever they are", Michael Valdsgaard, leader digital transformation at Inter IKEA Systems, said at the time of the launch.

It is not clear what the change in the retailier's expansion strategy may mean for other IKEA projects underway in the U.S. and Canada, where the company operates 56 stores. IKEA company officials could not be reached for comment.

IKEA's long-time U.S. expansion/property public affairs manager Joseph Roth recently left the company to pursue other opportunities, according to Roth's voice mail recording. Roth had overseen all areas of IKEA's 27 store openings going back to 2002.

IKEA announced plans last fall for a new store in Fort Worth that was to open next year. That project has yet to break ground.

In addition, there are two stores currently under construction, one in San Antonio and one in Norfolk, Virginia. IKEA is also completing a 1.2 million-square-foot distribution center in the Laraway Crossings Business Park in Joilet, Illinois, set to open this summer.

IKEA also has been expanding across Canada. In 2015, IKEA Canada announced its ambition to double the number of stores in Canada from 12 to 24 and expand from coast to coast. It announced the third of those stores last December to open in London, Ontario.

A spokesman for IKEA Canada would only say that, "We are on track to expand our presence in Canada." As future locations are still under negotiation, would not share details of where it might expand.

IKEA Canada, however, is going ahead with new distribution centers in Beauharnois, Quebec, and Richmond, British Columbia.

Brokers involved in IKEA's Canadian expansion told CoStar that strict confidentiality agreements prevented them from discussing any of IKEA's efforts there.

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