.Battling the Box

IKEA and the future of East Bay retail

Sometimes it seems that all the cars in the East Bay are in the IKEA parking lot on any given Sunday afternoon. And those not already in the lot are lined up waiting for their chance to pour in. The line for the parking lot clogs up Shellmound Street, choking intersections and prompting bleats of fury from impatient drivers behind the wheels of U-Hauls and SUVs. They’ve come to buy, not idle. Since IKEA East Bay opened its doors in April 2000, tens of thousands of customers have spilled through its double doors and later staggered out, sated on Swedish meatballs, and laden with low-cost furniture.

The East Bay emporium is one of only twenty stores that IKEA operates in the United States. Covering nearly 300,000 square feet, and offering more than 9,000 different products at prices that only a bankruptcy sale could beat, IKEA would seem to represent a formidable challenge to the East Bay’s smaller, costlier furniture stores. And coupled with the other “big box” retail stores that have taken up residence in the vicinity, it looks like Emeryville is offering the East Bay’s retail community a run for its money.

Surprisingly, however, rather than quailing at the sight of IKEA’s crowds, many of Berkeley’s smaller furniture stores responded by banding together in an effort to save their businesses. And as the East Bay’s older retail areas struggle to remake themselves into viable competitors to Emeryville’s hardball retailers, many are watching closely as smaller furniture stores position themselves against the big blue box.

At least from the perspective of convenience, the little guys would seem to have a leg up. IKEA could be a study in how much abuse customers are willing to take (apparently, if they can get a bookcase for under fifty bucks, a lot). “The whole idea of the way an IKEA store is planned,” says Michael O’Rourke, IKEA East Bay’s store manager, “is to create an outing for visitors so they’re really spending quality time with us.” Quantity time, too. The company is working to address its parking problems with a new $12 million, 1,000-space, four-story parking garage, but that won’t be completed until this fall. So for now, when drivers aren’t vainly scanning the rows of cars, they can rest their eyes on the scenery. Overpasses and bridges tower over the parking lot — one of IKEA’s strictest requirements is that all stores be located directly off a major freeway, and IKEA East Bay looks out across the Eastshore Freeway, with the Bay Bridge visible in the distance. Next door, construction crews are breaking ground on something called “Bay Street” — Emeryville’s latest mixed-use development, which includes upscale townhomes and condos with 450,000 square feet of retail space and a movie theater.

Those lucky souls who find parking make their way to the huge building’s entrance. The company’s advertising campaign promises “Something for Everyone,” but it’s clear who has heeded IKEA’s marketing call. The store is filled with college students on a budget, twentysomething couples attempting to give their studio apartments a makeover, and young marrieds shepherding strollers, toddlers, and diaper bags into the great blue beyond.

The way IKEA accomplishes its promise of providing “stylish furnishings at a low price” is by selling unassembled furniture to customers who are willing to hoist boxes of furniture from pallets, coax the packages into their waiting vehicles, and then, Allen wrench in hand, bring the tables, chairs, and bedroom sets to life in the middle of their living room floors. It is a testament to IKEA’s marketing acumen that it has managed to create a willing spirit in a customer base whose idea of manual labor might extend no further than a visit to the gym three times a week.

“A part of the process here is to try to create a mechanical sales system that allows the customer to do a lot of the job themselves when they’re in the store,” O’Rourke explains as he shows me around the store in the quiet hour before the doors open to the teeming masses. We meet at the “coworkers” entrance (the term IKEA uses to refer to its employees). All coworkers, including O’Rourke himself, wear the same casual uniform: a light-blue polo shirt with the IKEA emblem stitched across the right breast, tucked into smart navy chinos. With his curls of auburn hair, O’Rourke looks to be on the youngish side of forty, but it’s hard to tell, and he generates an air of being fit and well-rested as he confidently strides through the different departments of his giant store, describing IKEA’s self-service strategy. To keep prices low, IKEA relies on a motivated customer. Product information is conveyed on lengthy price tags in a “frequently asked questions” format. This allows the company to cut down on the number of employees actually on the selling floor at any one time. Even so, IKEA East Bay employs over 500 people, including 68 managers. The largest cohort mans the cash registers — one giant row of them with conveyor belts and gates and large spaces through which customers can hurry along the purchasing process by bagging their own items.

Like most private companies, IKEA is intensely secretive about what information it is willing to impart to the public. The company guards its stores fiercely, and of the 157 IKEAs worldwide, only 18 are run by franchisees. The company founder, Ingvar Kamprad, is still around and kicking, and a favorite part of company lore is how Kamprad founded his beloved IKEA in 1940 in the little farming town of Agunnaryd, Sweden, near where IKEA headquarters are today. The company’s history is mostly contained within Europe; IKEA opened its first US store, in Pittsburgh, only in 1985. Since then, it has opened 19 more, and today the United States ranks third in IKEA’s top five revenue-generating countries. (Germany, which is home to the most stores at 27, accounts for the largest chunk.)

Germany figures into IKEA history in another way as well; Kamprad was an early Nazi sympathizer. Still, IKEA’s gleam has not been tarnished by this news. Even protests against IKEA’s use of subcontractors who utilize child labor in making their products have not seemed to have made the company’s image makers’ jobs much harder. A 1998 book, Leading by Design: The IKEA Story, written by Swedish author Bertil Torekull, compares Ingvar Kamprad to, alternately, Jesus and the Pope. Torekull forgives Kamprad for his youthful, fascist transgressions by, in part, blaming Kamprad’s grandmother for pressing movement literature on him at a young age. (The epigraph heading the chapter acquitting the demigod Kamprad is, fittingly, a quote from Psalms: “Remember not the sins of my youth.”) As for child labor: “The problem is more a matter of development for the country in question than for us,” says one of Kamprad’s three sons in the book (as a condition of the interview, Torekull agreed not to divulge which son said what). “We do not want child labor, but why does it exist at all? It’s not enough to say that we don’t want it. We must also ask the question of what happens to the children if we abandon an order. Are they to go back to selling themselves on the streets instead?”

For customers, IKEA is laid out so there’s only one way to progress through the store, and you move through it as efficiently as a Coke bottle moves through a processing plant. In fact, the only way to get out of the windowless showroom is to go through the entire store. A main path undulates through the sales floor, twisting and turning on itself so many times that it changes what could be a short walk into a nearly mile-long trek. In the process, the customer is quite effectively exposed to almost all of the 9,000 articles that IKEA carries, many of them exhibited in life-size displays of model living rooms and bedrooms (“It’s like a magazine you can walk through!” the IKEA brochure exclaims). At first, it’s easy for the uninitiated to lose their bearings: Didn’t I just pass by this four-drawer Askedal dresser? Now, I know I’ve seen that Effektiv desk before. If customers feel they have to come back, so much the better, of course. O’Rourke estimates the typical IKEA customer makes four return trips a year.

After touring the showroom and making a quick stop at the in-house restaurant — where arugula graces the salad plates — and the strategically placed bathrooms (Torekull’s book lets the reader in on another Kampradism: “a full bladder must not be what decides the customer on buying or not buying something”), you continue down the stairs. Here’s where the smaller pieces are — the rugs, the kitchenware, the curtain rods. After that is the self-serve furniture area, a large, traditional warehouse with rows and rows of sky-high shelves full of identical cardboard boxes. The vital price tag information comes into play here to guide you to the proper row and column where the furniture is located. Once there, you must maneuver the heavy boxes onto your cart, and hope that all the parts are contained within. (If not, expect some heavy delays, as IKEA’s policy on missing parts is to ship them to the customer.)

So far, all of this is working smoothly. Every night, ten semi trucks loaded with chairs, tables, and mattresses arrive from IKEA’s warehouses in Southern California; it takes the entire night to restock the displays and warehouse. O’Rourke is clearly proud of what IKEA East Bay has wrought. “The biggest challenge we have,” he calls down to me as we walk up the stilled escalator, “is that the store itself was dimensioned for a much smaller volume than what we’re dealing with now.” It’s true. When IKEA East Bay first opened in April 2000, a veritable tent city of people was waiting outside, each hoping to be one of the first one hundred to enter the store (the prize for that coveted position was a free Poäng chair). Since then, the store has been handling two and a half times the number of people it had originally projected. At that rate, even the new parking garage won’t be spacious enough to meet the demand. O’Rourke stops short of revealing exact attendance figures for IKEA East Bay. “Oh yeah, we keep count,” he says. “We are very proud of the numbers that we do in the store, but I have to be equally concerned about what my competition wants to find out [about] what I’m doing.”

Competition? What could possibly pose a viable threat to a 275,000-square-foot store attached to a multimillion-dollar international chain that is attracting tens of thousands of customers a week? One group of furniture store owners in Berkeley would like to think it has that distinction. When they first heard that IKEA was heading into town, the furniture retailers, all of them owners of independent stores, hastily formed a sort of furniture store posse.

It was Patrick Galvin of Galvin’s Business and Home Office Furniture who came up with the idea of forming the Berkeley Furniture Association soon after the IKEA Group signed the deal to set roots in the town next door. Galvin was born into the furniture business; his dad began selling hammocks in San Francisco’s Ghirardelli Square in the ’70s. As times changed, the family business changed with them, first toward appliances, then contemporary furniture, then bedrooms, and finally, furniture for home offices. Galvin has been running his office furniture business in a former warehouse on the corner of Seventh Street and Potter for two and a half years. He also co-owns another store with his father on the Peninsula. He’s young and upbeat and surveys his warehouse from a beautiful mahogany-paneled office. But Galvin, along with the other members of the fledgling BFA, wasn’t always so cheerful. In the beginning, the thought of IKEA, which also sells home office furniture, moving in just down the road made Galvin downright queasy.

Eric Gellerman was another early BFA member. Gellerman, who owns the Wooden Duck, a furniture company that makes tables and chairs and curio cabinets out of recycled and reclaimed wood, remembers that when he first heard IKEA was coming, “We had a little bit of dread, like oh God, is the world going to change?” Since Gellerman’s store is right next to Galvin’s, word of the BFA first spread there, then seeped into the wider furniture community.

“The initial meeting was like a scene out of the Godfather,” Galvin recalls, laughing. “All the competing mob bosses coming together around the table, all suspicious of each other.” But after the group was whittled down to eight retailers, things started to progress more smoothly. From the beginning, BFA members knew that they couldn’t do anything to stop IKEA from coming in. IKEA had a lot invested in the East Bay; the company had plopped down a lot of money for the fifteen-acre parcel of land in Emeryville and Oakland and was planning to spend $46 million to construct its building. But if IKEA was definitely going to be a reality, the BFA’s founders began to consider how they might change the way in which they thought of IKEA. Galvin quickly recast IKEA not as a menace, but as an indicator of boom times for East Bay’s retail. The big store was sure to draw in huge numbers of people to the East Bay, all primed to buy furniture. “A rising tide,” Galvin proclaimed, “lifts all boats.”

The first task, the BFA decided, was to let IKEA’s customers know that their stores existed. Soon the loose association of eight furniture stores had begun to turn itself into a joint marketing venture. They created a Web site that advertised the different stores. They published a glossy, tri-fold brochure that included a map showing the location of the eight retailers in relation to IKEA. They even chartered a little plane to fly high above IKEA on its opening day fifteen months ago. The plane circled over the maelstrom of cars and people and boxes, tugging a banner that read: “Welcome IKEA — BerkeleyFurniture.com.” The plane later flew over a Giants game at the newly opened Pacific Bell Park, bearing the same message. The idea was that IKEA was attracting so many customers to Emeryville that there was bound to be spillover, especially of the higher-end customers who might grow disillusioned with IKEA’s do-it-yourself style.

It’s not terribly crowded on a weekday afternoon inside the Wooden Duck on Seventh Street in Berkeley. Only two women are moving between the rows of bookcases, chests of drawers, and towering armoires. The decor of the converted warehouse could be described as functional: the furniture has been put under a roof to keep it out of the rain. A puppy lies prone on a baby blanket near the front desk — she’s one of five that employees bring from home to the warehouse. Like IKEA, the Wooden Duck also has descriptive price tags, but these detail where the wood came from, who crafted the piece, even the ingredients in the paint. All of the Wooden Duck’s furniture is made from salvaged wood. Several times a year, owner Eric Gellerman makes a trip to Indonesia to scout out abandoned wood to craft into new furniture. Asked about his travels, Gellerman pulls out a stack of snapshots from his latest trip. These are not the photos of lush jungles or colorful marketplaces that you would expect from a recently returned traveler; his pictures highlight piles of wood higher than a man. “Here’s a table leg,” he says, excitedly jabbing his finger at a dull pole of wood in the stack. The rainforest can be seen, but only in the background. Similar pictures, poster-sized and framed, line the wall.

We squeeze past a stack of ottomans and arrive at Gellerman’s office. A boyish man sporting a shock of brown hair, Gellerman sprawls across a leather sofa, which is accompanied by more pieces of recycled furniture — a desk, a table, a little hand-crafted nightstand. Like the retailers in the BFA, Gellerman too says he isn’t worried about IKEA for the simple reason that people who want the furniture he offers won’t find it at IKEA. “It’s the McDonald’s of furniture,” he scoffs. “All the stores have the same SKU numbers — it’s worldwide standardized. You can buy the same table in New York that you can buy in LA. You’d be lucky to find the same piece in [the BFA member] stores.” (They also won’t find the same prices; a recycled bookshelf covered with buttermilk paint at the Wooden Duck easily goes for $500, and at the Magazine, a modern furniture store on the Eastshore Freeway, a sofa can easily set you back $2,000. For the cost of that sofa, you might furnish two entire rooms in IKEA chic.)

In spite of IKEA, the year 2000 was a banner year for local furniture sellers, their fortunes no doubt buoyed by the extravagant spending of the dot-com industry, the denizens of which simply could not do without having a $2,500 stained mahogany conference table at which to discuss their lack of a business plan. While 2001 doesn’t look to be holding that same promise, there will always be people with money. IKEA’s multimillion-dollar marketing campaigns may attract Lexus and Mercedes cars along with the Hondas and Nissans, but they don’t stay long. “[IKEA] makes such a buzz about itself, and then when customers get there they say, ‘This is it? I drove all this way for this?’ That’s where we see our opportunity with the homeowners who made the haul up here,” Galvin says. If IKEA spends millions of dollars on marketing the idea that people should spend their money on furniture, he figures, then all furniture stores in the area benefit. “You have this retailer sending out the message that people should buy furnishings,” he says. “They’re raising the awareness level that home furnishings is what you should spend your money on.” People from miles around in every direction travel to IKEA — and, Galvin says, it’s inevitable that some will stray from the well-beaten path.

“We have quite a few long-distance travelers,” IKEA’s O’Rourke agrees. “It’s a pretty wide circuit from well above Sacramento to down past Monterey and Carmel.” And if IKEA ends up helping other businesses, O’Rourke says, he’s pleased. “One of the reasons that IKEA wants to establish itself in different areas is that we know there’s a tremendous spillover effect in terms of what we can do for local economies. When you’re pulling as much traffic to a location as we are here, then a wide range of services get the benefit of that — everything from gas stations to restaurants to retailers.”

How does it feel, fifteen months later, to be a small furniture store owner in a post-IKEA era? Ask any BFA members, and they’ll say it feels pretty good. Here’s Gene Agress, president of custom furniture store Berkeley Mills and onetime member of the BFA: “I don’t think IKEA’s affected us at all,” he says. “It’s just another cheap furniture bang-out, waste-resources type of company. It’s just about moving merchandise, and it’s not a respectable way of running a business.”

“As far as we’re concerned,” he says, “they don’t really exist.”

That sentiment is echoed by Agress’ business partner, Cynthia Miyashita, who believes that IKEA’s business model can’t last in the long run. “Someone gets a brilliant idea — let’s let the customer do everything themselves,” she says. “Then you get a store like IKEA. There’s not a human being around there who can help you. You are guided by signs and instructions on merchandise instead. The prices are so incredibly cheap, and at first glance they look attractive because they’re presented well. But beneath the veneer is particle board.”

If local furniture sellers are dismissive of the IKEA threat, other small East Bay retailers are not so sanguine as they watch the transformation of Emeryville into a successful retail behemoth. Last year, merchants from Berkeley’s various shopping districts — Solano Avenue, Telegraph, downtown — assembled themselves into the Main Street Alliance specifically to confront the question of competition from big-box retail and the Internet. Lisa Bullwinkel is the executive director of the Solano Avenue Association and a charter member of the Main Street Alliance. “A lot of [potential] tax dollars from the city of Berkeley get drained by Emeryville and Richmond big-box stores,” Bullwinkel says, adding that consumers should understand that shopping locally is more than just keeping small business owners alive. “One percent of sales tax goes into the city coffers to fix the potholes in front of your house. If you aren’t shopping Berkeley, then you can’t complain about your potholes.”

The new alliance got Berkeley’s Economic Development Department to cough up $40,000 for a study on how to keep Berkeley citizens from shopping outside the city’s borders. The “shop local” study began this month and is expected to be completed by early next year. It’s a last-ditch attempt to get Berkeley residents thinking of going to Truitt and White instead of Home Depot, or Berkeley Bowl instead of Costco. It’s also designed to make Berkeley into a regional destination — one with many interconnected retail areas. Berkeley will never have a multitude of big-box retail with accompanying acres of parking lots within its own borders — but Berkeley retailers believe they have distinct strengths to play up.

Joanne Brion of Brion and Associates is doing the study, which will be completed in February. “We’re really looking at what the retail strengths are in Berkeley,” she explains. “How can we strengthen what we have? Berkeley doesn’t want to be Emeryville, and it’s going to continue to be an issue. People are going to want to shop [in Emeryville], you can’t change that. So what we can do is make people aware of what’s available here.”

Emeryville Mayor Nora Davis just laughs when she hears about Berkeley’s alarm, and insists Emeryville’s retail outlets benefit everyone. Rather than threatening the tax-revenue base of other cities, she says, Emeryville actually draws people into the wider area. “This part of the East Bay, the inner East Bay ring is, if you really look at the retail statistics, dramatically underserved by retail,” Davis says. “I don’t believe there’s really any warfare between Berkeley and Emeryville,” she adds. “We’re just one tiny little square-mile town. Come on.”

So how worried should the East Bay’s small local merchants be as Emeryville’s new shopping core continues to develop? The answer, even at this relatively late stage in the game, is still not clear. Louis Bucklin is a professor at UC Berkeley’s Haas School of Business and the editor of the academic Journal of Retailing. “Studies have indicated that where retailers are innovative, they can often survive these things,” Bucklin says. While in isolated rural areas the arrival of a large retailer like Wal-Mart often means a quick death for small stores, in a thriving urban area like the East Bay, retailers can survive if they study the enemy and then change to complement it rather than compete with it. It’s not a new question, Bucklin points out. “I liken it to the problems that smaller retailers have faced for the last 75 years since supermarkets and variety stores started emerging,” he says. “And that was back in the first quarter of the last century. When the first department stores came in on the East Coast, you had small-scale merchants saying, ‘This is terrible, the sky is falling in!’ But if you look at the incidence of small stores, you still see a lot. We’re not a nation of small stores as we were a hundred years ago, but nevertheless, there are still large numbers of small stores who have found niches in the market.”

The IKEA Group must be pleased with the way their comparatively small East Bay store has been doing, because they are moving forward with plans to build two additional IKEA stores in the area. Ground will be broken for an IKEA store in East Palo Alto next year, and the IKEA Group has just purchased 24 acres of land near Pleasanton for a new store even larger than IKEA East Bay. That, O’Rourke says, will relieve the pressure on the already overburdened Emeryville location. It will, of course, also cut off the traffic from the far north and south that currently goes to the Emeryville store. But even that doesn’t worry Patrick Galvin.

“It isn’t a zero-sum game, where IKEA’s gain is everyone else’s loss,” he says. “We have more of a zero-sum game with the automobile industry. I would prefer people to spend more on their homes than on their cars.”

“I’ll tell you,” Galvin adds. “Our Redwood City store is going to be about three miles away from their store. If I were to open a third store, I’d open it in Pleasanton.”Who could possibly pose a competitive challenge to a 275,000-square-foot store that is attracting tens of thousands of customers a week?

A group of small Berkeley furniture store owners believe they can.


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