IKEA pull out is an “embarassing disaster”; both tax revenue and reputation will take a hit and in time the company may take a hike.

By Pepper Parr

February 21, 2014


In the old Soviet Union, if you didn’t deliver they took you out and shot you.  The Soviets have cleaned themselves up and the Koreans now do that.  Sweden has always been a kinder softer country – but bet everything you have on someone at IKEA having to refresh their resume over the massive screw up on the decision to look at the North Service Road property as a possible new home for them in Burlington.

Multi-national corporations don’t make mistakes like this.  IKEA has a brand, we now call all the strong brands iconic these days, that they promote heavily.  They wanted that brand visible from a roadway where there is loads of traffic.  Thus the decision to find a property along the QEW.  That part of the decision making process IKEA went through may have been the only part that made sense.

There were problems galore with the site – there were also a lot of problems with the way IKEA said they wanted to situate the buildings and parking on the site.

A portion of our prosperity corridor – IKEA had picked a spot close to Walkers Line.

The Burlington Tourism office will tell you that IKEA was close to the #1 tourist attraction in the city; they drew from a dense and very rich market.  We are the only IKEA operation west of the GTA core.

A five minute drive along the North Service road made it very clear the road would have to be widened to at least four lanes.  We did that back in June of 2012 and reported on that.

A little research would have revealed that the Ontario Ministry of transport wanted more room to expand the width of the QEW and the only width available was to go north – which meant pushing the North Service road back – which would eat into the property IKEA had taken an option on.

The property has a barrier on the north side – a railway line.  Walkers Line was known to be close to its capacity – so there was work to be done there.  Creating a turn from Walkers Line onto the North Service Road – going both east and west was a challenge

Add to all that – the Creek that runs along the eastern side of the property. 

IKEA is taking the public position that the site is not quite what they need – take that position with a grain of salt.  The IKEA spokesperson assured anyone who asked that the decision was strictly based on the site. She added IKEA Canada is doing well financially.

Mayor Rick Goldring

Burlington’s Mayor is “discouraged” but adds that the IKEA application “did identify a need for infrastructure improvements”.  It did much more than that; it showed land that was being very much under-used.  Goldring does see a “silver lining” – the IKEA application showed that the transportation corridor either side of the QEW had to be improved. Did we have to wait for the IKEA application to figure that one out.  The economic development master minds should have known that – and the planners could have at least suggested we pay some attention to that part of town.  McMaster moving to the South Service Road should have been hint enough.

The city has managed to convince itself that IKEA pulling out has given us an opportunity to create a shovel ready site for anyone who wants to move to Burlington.  Has anyone seen the line-up of people wanting to move to Burlington?

In the world of property development – two things matter: location and timing.  Why it took IKEA a couple of years and perhaps as much as $1 million to arrive at the conclusion that the site wasn’t what they needed is a tough one to get ones head around.   IKEA had made a decision to move.  The objective was to have space for the headquarters office.  They also wanted to expand the sales side and offer WHAT.  All those IKEA plans are still relevant.  IKEA’s intention was to WHAT and the city rezoned the property so they could do that.

IKEA lives in a competitive environment – they fight every week for market share.  What they sell in this market works its way all the way back to the head office in Helsingborg, Sweden, where they are now asking a lot of questions.  If some IKEA heads don’t role there are surely bonuses that will be a lot smaller.

IKEA wanted to be bigger and a whole lot better – and that plan isn’t going to change. sooner or later – they will move from this site.

IKEA has a very interesting corporate structure.  At the top is a holding company in Luxembourg, tax reasons for that, with group services in Belgium, Franchise in the Netherlands, retail Centre Division in  Denmark, and Finance in Sweden.  The company appears to work as a series of national franchises – wonder who owns the Canadian franchise?  The whole operation is owned by two parties: 51% Inter IKEA Group and 49% INGKA Group.  Complex!

Burlington is trying to put the best face possible on the disaster – and make no mistake – this is a disaster for Burlington.  Not only is there a major client that is not happy, even though much of the mess is their own fault, there is revenue that is lost to the city and we are now in the unfortunate position of having to pay for all of the changes needed on Walkers Line by ourselves.  IKEA was going to be picking up a lot of that expense.

We have also done ourselves a lot of damage in terms of reputation.  The development community knows we parted ways with the former Executive Director of BEDC.  There aren’t that many job opportunities in that field; there are some good people out there but they don’t want to align their careers with loser communities and right now Burlington isn’t looking all that good.

Heaven’s Hamilton is seen as one of the top ten development growth communities and we all know how dysfunctional that city council is.  Burlington has to figure out quickly what it needs to do and then do it.  The problem is that the only people who can manage this type of problem are up to their arm pits with other tasks that are just as important.  The city manager is a) re-casting his capital budget, b) totally revamping the way services are to be delivered and making people personally accountable –talk about a culture shift; c) reviewing  the work force the city has and aligning it with the human resources we have and are going to need. He doesn’t have the time to resolve this problem and the one person he has that can do the job has his plate more than full as well.  The city manager unfortunately doesn’t have the bench strength he needs to run the place and it is going to take him three years, at a minimum, to re-develop all of the human resource side of the city.

Definition of a silver lining: a metaphor for optimism in the common English-language.Heck BEDC can’t get themselves to the point where they are ready to go to market and find the person they need.  They have to restructure and get that approved at the May AGM.

Thinking that we can wait until the BEDC AGM in May is what a high school student might try.  Is that our level of sophistication?

The Mayor and Councillor Dennison seemed to have found a silver line in all this; if IKEA couldn’t work through the difficulties with the location what makes us think someone else will?  The forthcoming staff report will sum up everything – but that’s about all.  Bet on someone finding a way to thank someone for all the hard work that was done.

There is trouble in paradise.  The silver lining the Mayor is talking about might be a thought to put the new city hall on the site.  The late James Gandolfini  of The Soprano’s fame had a word for ideas like that – “fu-ge-da-boud-it”

There are three IKEA stores in the GTA market, Burlington, Etobicoke, and North York.  There is a store in Vaughan and a store in Ottawa.  There is room to the west of Burlington for an IKEA store and Hamilton’s demographics are becoming a lot more appealing to IKEA.

While IKEA has made a decision to remain in Burlington, that may well be just a place holder.  They wanted bigger and better and they put their money on the table to get that.  The deal couldn’t be closed – someone else, somewhere else might come along with an offer IKEA just can’t refuse – and don’t for as much as a second think that there aren’t people out there right now figuring out how to cook up a deal.

Hamilton took International Harvester right off our plate.  Are we going to see a repeat of that kind of play?

One of the smarter commercial real estate types we talked to said: “this is embarrassing”; it might also turn out to be very expensive.  Add this one to the egg on our face with the pier and we aren’t looking so good right now.

Background links:

North Service road couldn’t handle traffic load.


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3 comments to IKEA pull out is an “embarassing disaster”; both tax revenue and reputation will take a hit and in time the company may take a hike.

  • Frank Carbone

    The city should have figured out the feasibility of the IKEA move within about 3 weeks worth of due diligence two years ago.

    The biggest risk was the MTO factor. Any MTO involvement like re-constructing a major interchange requires an extensive Class EA approvals process which takes many years and significant funding allocation commitments. The QEW is fresh from having recent upgrades and widening work, HOV lanes and re-surfacing; you won’t see MTO back through Burlington for another 10-20 years. There was never an interim solution.

    These days, virtually every last penny of federal, provincial, and regional transportation funding is being channeled to support all the rapid transit initiatives and subways throughout the GTA. Somebody at MTO would have told the city to take a hike two years ago; there should be written correspondence to this effect on file. The MTO could care less about IKEA or any other big box retail operation, and MTO is notorious for its inherent inability to function as an efficient and more importantly trusted bureaucracy. The MTO is dysfunctional, period.

    The drainage creek is a manageable issue that could have been managed as an engineering cost item as part of typical site development work, by IKEA. The creek has no significant watercourse status and any conservation authority resistance could be neutralized by effective city hall leadership.

    Widening of the North Service Road to four lanes is likely not justified under current conditions, even with the IKEA proposal, and would be expensive and little political appetite over other infrastructure priorities.


    1. Who has title now to the Bell property located on Walkers Line: the City or IKEA?

    2. Who paid for the Bell property? If the City now owns the Bell property, then for what purpose? The highway ramp doesn’t go there, and if it did, it would be an MTO ramp because it would be part of the highway, and MTO would pay. Can the City reverse the Bell property deal? Or, is the City now the proud new owner of a property with questionable utility for city purposes. If the city does own this property, was the price paid worth it? Would somebody else pay the same price?

    3. It is unlikely that a big corporation like IKEA would only focus on one site without guarantees; an impossible site from the beginning. Or, was everybody that was involved on the file, from both IKEA and City, simply that dumb? For two years? Or, was IKEA misled by the promises made at City Hall?

    Goldring announced at some point in time, that IKEA construction was to commence in 2013; that was last year.

    Goldring looks stupid, the council members all look stupid, the planning and engineering and all other involved staff look stupid…………..but it does take attention off the Pier.

    Imagine watching the Mayor trying to assemble an IKEA chair and table set.

    Watch the communication spin on this one! (“well at least we now own a property on Walker’s Line that can access a development site that has sat vacant for the past 10 years while our economic development department made colour graphs, power point presentations, and filled in spreadsheets”; “we now have an understanding that our road system sucks”; “we are confident that IKEA may locate its head office to the PIER, so we have retained more lawyers to look at that”; “we couldn’t figure out how to assemble IKEA furniture anyway”; “we prefer to shop at the Brick or Leons”; “Councillor Rick Craven thinks that IKEA should remain in Aldershot because that’s really the centre of Burlington”).

    Hurry up Goldring, say something funny! Fielding? anybody? Good thing is, there is only a few more sleeps until we hear something really stupid. Just please don’t let us hear you say something like “lessons learned” or “we are now better positioned than before to attract investment” or “we need to be smarter next time”…. just dont quote from the usual crisis script.

    Goldring and company (there’s a lot of company on this one) will find that it would be much easier to navigate through an IKEA store than through this mess.

    This situation is much more than just embarrassing.

  • Chris Ariens

    Interesting take on this, but in my view, very wrong.

    Ikea pulling out is a good thing for Burlington, if we handle it correctly.

    We were going to spend $12 million to widen a bunch of roads, which would create further liability down the road. All for an additional perhaps 100 jobs. We would also have been stuck with an empty site in Aldershot to be dealt with (where we’ve already invested $millions in infrastructure to support Ikea’s operations).

    Now, word is that we are going to do these “needed infrastructure improvements” anyways? What cost-benefit analysis has been done on this expenditure? Who pays for the required fixes down the road?

    Spending $18 million to widen North Service Road at Walkers is an absolute boondoggle that makes the pier decision look like the wisdom of Solomon.

    There is no “Prosperity Corridor” – it’s just a BS name that was cooked up to make the idea of spending $12 million capital funding to create only 100 jobs for Ikea sound more palatable.

    All the other big box furniture outlets (Leons, Brick, Bad Boy) are already in the vicinity. What other business are we hoping to attract by widening the roads? Does prosperity really come from creating more lanes of traffic, encouraging more cars to use the roads and creating a vicious cycle that wastes more and more taxpayer dollars and prevents us from investing in the civic infrastructure we need.

    Increasingly, those who are creating jobs are looking for communities that offer quality of life. They are looking for options to commute, such as cycling, walking and excellent public transit. We have more than our share of roads leading to big box retail outlets.

    If anything, hitching our wagon to that type of business will move us in the opposite direction of prosperity. Very few of the jobs created provide enough income to afford a home in Burlington. It’s time to stop investing in the 1950’s automobile utopia and get with the program. Look to what cities that are actually attracting entrepreneurship are doing.