16 April, 2018

IKEA’s locational strategy - ‘Back’ to the city, or just another facet of urban-economic development? UPDATE


Photograph: The picture shows the Magdeburg, Sachsen-Anhalt, facility opened in August 2017 as store no. 53 in Germany. It is probably one of the last ‘standard’ department stores of IKEA located on a more or less typical urban fringe location. Courtesy: obs/IKEA Deutschland GmbH & Co. KG/Stefan Deutsch

Last week the corporate headquarters of IKEA Germany announced a new locational strategy for the Swedish furniture and lifestyle provider, which would also have direct consequences on the company’s actual expansion plans. In the near future, IKEA says that it will be shifting away from the classical suburban big-box location choice – which was key to its market success in many countries for decades. In Germany alone, the company had regularly opened up two to three stores on average per year in the country’s 80m+ market. In order to ensure sustained growth in a changing market environment, additional stores would now be sought for in urban, rather than fringe, locations. This shift, so the company argued, was a consequence of the rising share of urban – not sub-urban or rural – population, and of changing consumer preferences to which any retailer would have to respond to. In particular, online sales are growing at a much faster pace than bricks and mortar retail, which obviously causes the entire industry to re-think related strategies.

Upcoming decisions to be made by IKEA include the following: The firm is considering a pause in its expansion plans, but may decide to implant a few new stores in core areas of metropolitan regions such as Cologne, Frankfurt, Hamburg or Munich. The first of the upcoming inner-city stores will be opened in Karlsruhe, in 2020. Meanwhile, planned investments in new facilities in, for example, Bottrop, North Rhine-Westphalia or Memmingen, Bavaria, might be cancelled. Thus, the store that was introduced in 2014 in the core area of Hamburg-Altona (probably the first-ever inner-city IKEA location), may serve as a general template for future expansion plans. While the old big-box locations remain the ‘standard’ department stores, one may also see new ‘fulfillment centres’ (a term frequently used by Amazon.com) emerging in due course, for instance in Memmingen or in Nuremberg. These would suit for the picking-up of stuff that was ordered online, meaning that these centres might look rather different compared to the all-in-one warehouse that IKEA is known for so well. 

How do we have to interpret this change? Does the firm’s announcement indicate a paradigm shift in the location choice of retail, or do we observe more of a successive transition? First of all, corporate data indeed reveal that IKEA’s market position has come under pressure, as the usual growth rates observed in the past have been dropping recently. This has questioned the firm’s traditional business model. Consequently, IKEA may seek to develop new market segments, in response to an aging average customer population (baby boomers) that may prefer to settle in cities rather than on the urban fringe, and which is less prone to car use than it was before. Of course, new technologies such as Internet-based e-commerce and related changes also play a role in this re-orientation.

It is thus likely that in the foreseeable future big- and small-box will be developing in parallel, as online and stationary retail will do as well. As of now, the company’s plans may represent a modification to, rather than rupture in, the locational dynamics, since no existing big-box facilities are about to be closed down at this point. Also, the recent move is not equivalent to a ‘back to the city’ strategy of something that had initially dispersed and is now re-centered. It is about additional investments that will primarily flow towards urban areas. This will also bring conflict and competition for space back to the city, which might be more difficult to resolve than the clean and green imaginaries of the smart city and booming metro narratives suggest. Another question is whether cities will benefit from the appearance of IKEA in areas that suit for take-away shopping, or whether the strong competitor will erase the last remainders of brick and mortar trade in these areas. Admittedly, it looks pretty significant if the Walmart of Europe, the trendsetter in big-box and drive-in shopping since the 1970s at least, is now turning to the city. However, while some commentators may feel inclined to read vital signs of an urban renaissance, it actually represents a rather normal adaptation of firms’ locational behavior to changing framework conditions. The case reveals many questions, not clarity about Billy, Köttbullar and the like to re-urbanize.

The lesson to be learned from this case is not necessarily a new answer to an old question: city or suburb – a question that seems also highly superficial in cases like the city of Bottrop, in the Ruhr area, which is simultaneously city, suburb and something in between the two. The most important point that this issue brings to the fore is, above all, just a fundamental property of the city: it is basically a case of logistical configuration, and this is now going to be re-configured. When agglomeration and associated socio-economic benefits appeared to be the strongest momentum for cities to emerge, it was in the exact context of the efficient management of flows that both the mercantile and the industrial city were taking the shape that became predominant for either period of urbanization. The former represents the dense, compact arrangement of land uses and economic activity within the urban core, and the latter evolved as an increasingly de-concentrated configuration of material flows, retail and commodity trade that was bringing about an associated landscape of urban centres, nodes and peripheries. The invention of logistics (not only the standard container, but also highly efficient techniques of the storage and in-house movement of items), the data driven management of supply chains, and the mere physical distribution of goods had a clear impact on the layout and design of buildings, development sites and step-by-step of urbanized areas as well.

In a nutshell, this story is perfectly told by Jesse LeCavalier’s dissertation on the case of Walmart, probably one of the first template corporations that brought the “rule of logistics” to some perfection (LeCavalier 2016). It thus had a major imprint on communities across North America, with consequences both good and bad. Obviously, IKEA demonstrates a comparable success in applying such principles to furniture and interior merchandise. With accelerating e-commerce gaining a higher share of the whole cake of retail and wholesale trade, the next transformation is likely to occur. It will bring another round of restructuring to the spaces of logistics, and thus to cities, particularly by adding an urban layer of distribution, as the case of IKEA indicates. Amazon.com seems best prepared not only to achieve leadership on related markets, by organizing the seamless flows of data, goods, workforce and money. Effectively, it comes close to market domination, which raises more general concerns about the societal importance of logistics (Hesse 2018). This is rarely taken into account so far. IKEA’s new plans remind us to think more about even small logistical changes that can have a huge urban-regional impact.

A piece that appeared in yesterday's edition of the Guardian makes the case of distribution centres that have mushroomed in the UK in recent times. They are transforming previously rural landscapes into sort of industrialised spaces that provide services once offered by inner-city retail, mostly triggered by online merchandise. The story of Dirft or Lutterworth, Milton Keynes Magna Parks and the likes evokes a classical phrase by the late architecture theorist Martin Pawley (1994), who emphasised the "abstract urbanism of trade routes" that would increasingly replace traditional, place-based urban economies. While Pawley seemed to be ahead of time then, it now looks as if we're getting closer to his predictions.

Markus Hesse


References

Hesse, M. (2018): ‘The logics and politics of circulation. Exploring the urban and non-urban spaces of ‘Amazon.com’, forthcoming in The Routledge International Handbook on Spaces of Urban Politics, ed. by A.E. Jonas, B. Miller, K. Ward & D. Wilson, 404-415. Oxford: Routledge.

LeCavalier, J. 2016. The Rule of Logistics. Walmart and the Architecture of Fulfillment. Minneapolis: UoMinnesota Press.

Pawley, M. 1994. The Redundancy of Space. Die Redundanz des urbanen Raums. In: Meurer, B. (ed.): The Future of Space. Die Zukunft des Raums, pp. 37-57. Frankfurt/New York: Campus.

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