Indy's IKEA hopes dashed, but not decimated

March 12, 2008

What does Cincinnati have that Indianapolis doesn't?

As of today, an IKEA.

The popular Swedish home-furnishings chain opened its 34th U.S. store this morning in suburban Cincinnati, its final foray into the Midwest after a five-year growth spurt that never quite made it to Indianapolis.

Instead, IKEA chose to add locations in Bloomington, Minn., near Mall of America; Bolingbrook, Ill., outside Chicago; Canton, Mich., outside Detroit; and now West Chester Township, Ohio, Cincinnati's fastest-growing suburb.

"This is it for the Midwest for the time being," company spokesman Joseph Roth said. "We're counting on Indianapolis customers to make the drive."

So far, so good. Even before the Cincinnati-area store opened, IKEA had about 25,000 central Indiana residents in its customer database, he said. Some made the trek to nearby stores - the closest have been in Bolingbrook and Schaumburg, Ill. - and others ordered from the annual catalog.

But that apparently wasn't enough to attract IKEA, which considered several area locations, including Lafayette Square Mall and Eastgate Consumer Mall, when scouting new sites.

"Everyone here got extremely excited about it," recalled Jeb Conrad, executive director of Indianapolis Economic Development Inc. "There are only a few of these destination retailers out there, and everyone wants one in their market."

IKEA - named for founder Ingvar Kamprad and the farm called Elmtaryd he grew up on in the Swedish village of Agunnaryd - is known for its hip-yet-cheap home furnishings and almost painfully deliberate growth strategy.

Until recently, its massive stores have been few and far between, drawing shoppers from hours away. Most stores sell about 10,000 products, which range from hardwood flooring to overhead lighting and almost everything in between.

IKEA's global sales totaled $27.9 billion in the fiscal year ended Aug. 31; about 10 percent of that came from its U.S. stores. The Ohio store is expected to generate $6.25 million each year in state and local sales taxes.

Then there are the intangibles, like additional development that springs up around big draws like IKEA. Central Indiana got a taste of that when outdoor retailer Cabela's announced now-delayed plans to build a megastore in Greenwood.

Developers snapped up land for more than 100 acres of hotels, a water park, restaurants and other retail space near the store site. Most of those projects are on hold until Cabela's construction resumes.

"When you consider the additional investment ... it's always something we want to look at," Conrad said.

IKEA evaluated all major cities in the Midwest when planning its expansion, Roth said. "We have to think strategically, take into consideration our existing stores and how best to further our reach," he said.

Indianapolis had a couple strikes against it, including its distance from existing stores and distribution centers, which would have made supplying a store here more expensive. And despite its reputation as the Crossroads of America, Indianapolis just didn't have enough potential shoppers within driving distance.

"There are 14-15 million people within two hours of Cincinnati," Roth said. "Indianapolis did not have that number."

West Chester Township, population 56,500, is located along Interstate 75 just north of the Interstate 275 loop around Cincinnati in a fast-growing area that seems destined to merge with Dayton. It also has a reputation as a community that embraces development, Roth said.

Since the Union Centre Boulevard exit off I-75 opened 10 years ago, developers have invested more than $1 billion in the area, said township spokeswoman Barb Wilson. And that's without many financial incentives.

IKEA received no tax breaks or other enticements, she said. In fact, the retailer contributed about $400,000 toward the $2 million cost of improving roads and adding traffic signals near its 28-acre site, which includes a sprawling 344,000-square-foot store and about 1,700 parking spaces.

Roth would not disclose specific construction costs for the store, but called it a multimillion-dollar project.

Although some cities might dangle incentives to get the retail behemoth's attention, Roth said IKEA officials are more focused on finding ideal locations than chasing offers. They evaluate available property and highway access, crunch demographic data to come up with sales projections, and get a feel for the climate for development.

"Our stores are rather large and rather blue," he said. "Communities have to be OK with us coming in."

Indianapolis economic development officials discussed incentives with IKEA in broad terms, Conrad said, making it clear that some financial tools were available to help IKEA carve out its place in central Indiana.

When it didn't, hopes were understandably dashed.

"If people in Indianapolis want to go to IKEA, they'll have to go to Cincinnati. And they will," he said, given the relatively easy drive. "Obviously, that moves us way down on the list of future expansion sites."

Maybe so, maybe no. Once IKEA opens its 1.4-million-square-foot Midwestern Distribution Center under construction in Joliet, Ill., Roth said, the company could again turn its attention to the Midwest.

"Some might say [Indianapolis is] perfectly positioned for a store sometime down the road," he said. "It just won't be for a while."

In fact, Indianapolis' hopes may well depend to some degree on the West Chester store's success. When a store gets too busy, IKEA starts thinking about expansion, Roth said.

"One of the ways we could offer relief would be to open another store," he said.

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