IKEA home furnishings store anchors The Elizabeth Center at 13A in New Jersey's top Urban Enterprise Zone.
Redevelopment is a term frequently heard as prime retail sites across the nation are snatched up and developers search for creative alternatives.
Even so, the 1990 decision by Plymouth Meeting, Pa.-based IKEA U.S. to open a store on a former landfill in a highly industrialized area of Elizabeth, N.J., was considered by most in the industry to be "very risky."
So says Roy Perez-Daple, president of Elizabeth, N.J.-based IKEA Center Urban Renewal Inc., IKEA's development arm. Perez-Daple serves as development director of the 61-acre The Elizabeth Center at 13A, a project anchored by North America's top-performing IKEA store.
The store has been so successful in that location that it is now undergoing a $20 million renovation and expansion that will increase the store's size to 350,000 sq. ft. by the time the project is completed this August. At the same time, Perez-Daple's team is preparing to break ground this summer on 220,000 sq. ft. of additional retail space, bringing The Elizabeth Center's total square footage to 850,000.
What makes this brown field development even more unusual, says Perez-Daple, is that it also lies within Elizabeth's Urban Enterprise Zone (UEZ). Benefits include a 3 percent sales tax for retail customers, compared with New Jersey's usual 6 percent tax and neighboring New York City's even higher 8.6 percent tax.
On big-ticket items such as electronics, furniture and appliances, these savings are significant. But IKEA took a chance on that aspect of the, too, because the tax discount offered by the zone was only a proposal at the time the home furnishings giant purchased the original 20 acres.
"We really pushed to get it through," says Perez-Daple of the sales tax break. But with annual contributions of more than $2.5 million, IKEA is the largest revenue producer for Elizabeth's top-ranked UEZ, pumping funds back into the local community to improve the city's business climate. These funds are used for such things as extra-duty police officers, infrastructure improvements, new business facades and matching grants.
UEZ status also earns retailers that operate within The Elizabeth Center reduced electricity rates, rebates on state corporate taxes, no state tax for store fixtures and equipment, and rebates on some contributions to the state unemployment insurance fund.
The land for The Elizabeth Center at 13A was purchased through a series of deals from the Port Authority of New York and New Jersey. In choosing to redevelop the former landfill, IKEA banked on the area's proximity to the Manhattan market and accessibility to the New Jersey Turnpike (at Exit 13A) and Newark International Airport.
Ironically, the region's strong demographics showed that northern New Jersey was and still is understored, says Perez-Daple. While locally based retailers are well represented, national retailers not based in the New York metropolitan region have traditionally shied away from the market's high entry costs.
"Our goal from the start was to create surrounding retail space so that IKEA would not stand alone. We see IKEA as the center of gravity for the local home furnishings market, while we work to attract the kind of stores that will complement IKEA," Perez-Daple says, citing such stores as Clifton, N.J.-based Linens 'N Things and New York-based ABC Home & Carpets.
The New York/New Jersey retail market has been strong for the past four years, and that trend is expected to continue, says Perez-Daple. Although the home furnishings sector lags a little behind the economy, its performance has been similarly impressive.
Next to the IKEA store, Paramus, N.J.-based Toys "R" Us Corp. opened the prototype KidsWorld superstore for children in 1996. The KidsWorld concept offers 100,000 sq. ft. of retail and entertainment space, including Toys "R" Us, Kids "R" Us, Babies "R" Us, Warner Brothers, Kids Foot Locker, a photo studio, children's hair salon, play area, candy store and Pizza Hut.
A 185,000 sq. ft. Incredible Universe store, also part of the project, was vacated in May 1997 when New York-based Tandy Corp. opted to close 16 Incredible Universe stores nationwide. IKEA is working with Tandy Corp. to help bring home electronics back to the site, with a sublease to an Office Max or Computer City quite likely, says Perez-Daple.
About $50 million of new retailat The Elizabeth Center will include a restaurant and an 80,000 sq. ft., 18-screen Crown Theatres cinema -- elements intended to keep IKEA's weekly draw of 35,000 customers at the shopping center longer, says Perez-Daple. For this newest phase of the project, the general contractor is Bovis Construction Corp. of New York; the architect is HACBM of Princeton, N.J., which designed and built the existing portion of the center.
The new amenities at The Elizabeth Center will create a nightlife for the area's local population. And for out-of-towners, discussions are advancing for a four-star, 300-room hotel on the site that would service travelers from the airport.
In fact, plans are in the works for extending monorail service from the airport into The Elizabeth Center at 13A. Although most of the center's customers travel by car from within a 35-mile radius, several bus lines from New York City and New Jersey already stop at the center. Because the store is so heavily shopped on weekends, IKEA runs dedicated buses between two downtown Manhattan locations and the center on Saturdays and Sundays.
Less than a half-mile away on a site within the city's UEZ, a second shopping center, 1.8 million sq. ft. Jersey Gardens (formerly the New Jersey MetroMall), is being developed by Columbus, Ohio-based Glimcher Realty Trust. The project is slated to open by Christmas 1999.
While The Elizabeth Center will serve as a major value-oriented power center, Jersey Gardens will focus more on discount and off-priced soft goods.
"I think the two centers will complement one another and together create a critical mass of retail in the area," says Perez-Daple. "It was our intention from the start to attract more retail. MetroMall is here because of us."
The more than 2.5 million sq. ft. of new retail space under construction in Elizabeth's UEZ is an "extremely rare phenomenon" for an enterprise zone anywhere, says Bill O'Dea, director of Elizabeth's zone.
He credits IKEA with pioneering new retail development within the zone, and touts the zone's aggressive business incentive package as a major attraction to retail operations. The zone has more than 1,000 participating businesses, more than any other zone in New Jersey, including those in much larger cities. Most notable of all, Elizabeth's UEZ program is ranked first in the state and second in the nation for effectiveness.
For IKEA, the Elizabeth project is leading to other such development. In San Francisco, the company has just purchased another brown field site for an IKEA store with plans to develop additional retail space.
In the New York area, IKEA recently opened a store on Long Island in Hicksville, N.Y., and the search is under way for a suitable site for another store in Westchester County, N.Y. - projects intended to carry out the corporation's regional business strategy. "The three stores will form a triad, straddling the entire region," says Perez-Daple.
Worldwide, IKEA Corp. has been moving more heavily into real estate development as it builds upon the experience gained through such projects as The Elizabeth Center at 13A.
"IKEA is a major attraction. We have the experience and the capital to develop," says Perez-Daple, "and this way we can bring in the right neighbors to ensure our success in a given location."
When renovations are completed this August on the IKEA store in Elizabeth, N.J., it will be the largest IKEA in North America and one of the largest of the 142 IKEA stores worldwide. With this expansion, the value-oriented retailer, which advertises home furnishings for the young-at-heart, sends even deeper roots into a market that has yielded hefty returns since the company's entrance almost a decade ago.
With more than 2 million visitors a year, the Elizabeth IKEA has seen robust business since the store opened in 1990. Its sales are the highest of the 21 stores in North America and rank among the top five IKEA stores in the world.
Although public transportation to the IKEA shopping center is available, most visitors come by car for a day's outing. A major home delivery operation at IKEA makes more than 40 deliveries a day to Manhattan alone.
The expansion under way will increase IKEA's size by 80,000 sq. ft. to 350,000 sq. ft. and is expected to boost sales by 30 percent. The store, which anchors the 61-acre Elizabeth Center at 13A retail project developed by IKEA, expects to add between 75 and 100 employees to its 400-person staff.
"Very simply, our size was not big enough to handle the high volume of shoppers, particularly on weekends," says Roy Perez-Daple, president of IKEA Center Renewal Inc., who is directing the IKEA project as well as developing the Elizabeth Center at 13A retail power center.
The IKEA store, which has remained open during construction, will sport a new entrance and 30,000 additional sq. ft. of showroom space. Aisles are being widened to improve accessibility and increase the view lines for a more open layout. The children's furniture area and play/ball room will be enlarged, and the store's restaurant will be able to serve twice the number of people as before.
"We have specialists from as far away as Canada, Sweden and Germany working around the clock to get the job done. The store's interior has been completely gutted and redesigned for a homey atmosphere with more appealing lighting," enthuses Perez-Daple.
"IKEA's appeal has always centered around value, style and functionality," Perez-Daple says, adding that the new improvements embody those qualities to an even greater extent.
Princeton, N.J.-based HACBM is the architect for the IKEA project, with New York-based Bovis Construction the general contractor.
Alison Gillespie is a Bucks County, Pa.-based freelance writer.