The idea behind IKEA

Opinion

Hey there, time traveller!
This article was published 25/11/2012 (4677 days ago), so information in it may no longer be current.

Over the past couple of months, the energetic people at IKEA Canada have done their best to get Winnipeg excited about the opening of the chain’s first Manitoban store.

As far as marketing efforts go, this wasn’t exactly a tough task, given how many people in this city seem to care an awful lot about new brand names, franchises and big-box stores.

If you’re not an obsessive shopper, the consumerism can seem a bit much. But there are 22 million reasons you should pay attention to the opening of an IKEA store.

Partly due to pandering, a wee bit out of cynicism and largely out of misguided economic-development policy, the city and province plied IKEA Canada and co-developer Fairweather Properties with $22 million worth of infrastructure subsidies to build a new big-box shopping district at what used to known as the Tuxedo Yards.

Back in 2007, when Mayor Sam Katz and former premier Gary Doer giddily announced IKEA was coming to Winnipeg, the deal was sealed with the help of what was originally pegged at $18.5 million worth of public funds.

At the time, the mayor and premier tried to characterize this subsidy as speeding up existing city infrastructure plans. This was an abject lie.

“The widening of Kenaston Boulevard and Sterling Lyon Parkway is already included in the city’s Plan Winnipeg, but would be accelerated to accommodate IKEA’s development plans,” Katz and Doer said in a 2007 press release titled Province, city to accelerate capital plans as part of proposed IKEA site.

Winnipeg’s capital plans, however, did not call for the $26.5 million worth of work that was eventually conducted. The specific work conducted by IKEA and Fairweather, which included new traffic signals and turning lanes to accommodate future shoppers, did not appear in the city’s capital-budget forecast, the city’s long-term transportation plan or even in Plan Winnipeg, the city’s old long-term planning framework.

The political claim about speeding up nonexistent plans was made simply to avoid the appearance of looking like both governments were doling out straightforward development subsidies. Katz’s office, to its credit, conceded as much when asked to demonstrate which existing city plan called for widening Kenaston to 12 lanes near a future IKEA store.

Doer’s staff, however, insisted vague Plan Winnipeg language about economic-development incentives justified the political claim, even though the actual portion of Route 90 listed as the first priority for widening actually lies between Taylor Avenue in River Heights and Ness Avenue in St. James.

To be fair to Katz and Doer, they didn’t have to make any ridiculous claim. Given the enthusiasm about an IKEA store in Winnipeg, they could have called a spade and spade and suffered no political fallout for eventually agreeing to pay back $22 million of the $26.5-million infrastructure tab.

By pandering to shoppers, who make up a large component of the electorate, Katz and Doer could do little political wrong. Spending money to bring IKEA to Winnipeg was deemed to be such a popular move, Katz highlighted the IKEA development during the 2010 civic election campaign as his main economic-development achievement and continues to do so. The NDP government, now led by Premier Greg Selinger, gave IKEA prominent play during last week’s throne speech.

On Wednesday, city council’s executive policy committee will meet 45 minutes later than usual to allow Katz and other officials time to attend the IKEA opening. The city is clearly proud of its role in stimulating the Tuxedo Yards redevelopment, which will include not just an IKEA, but other big-box stores and a mall called Seasons of Tuxedo.

The belief at city hall is the subsidy is a good deal, as the development will generate new property taxes. That opinion is based on the assumption there will be no drop in property-tax revenue or business taxes anywhere else in Winnipeg as a result of the IKEA-led development. That is possible but hardly certain, as it would be foolish to assume consumers will not change any shopping habits after IKEA and other nearby stores open.

As uncertain as IKEA’s effects on the retail market may be, a subsidy for a furniture store does not represent a sound economic-development strategy. The next time a developer considers building retail in Winnipeg, will the city and province be just as willing to pony up for the infrastructure costs? Normally, it’s up to developers to pay for the new roads, sewers and watermains.

Like it or not, the IKEA subsidy sets a precedent for retail-district development. The political math would assume the public simply does not care. And perhaps we would not, if the city and province had anything that remotely resembles an economic-development strategy.

The province has placed a lot of its eggs in CentrePort, the Winnipeg trade hub that competes with every other trade hub in North America. The city has left the task to the likes of Yes Winnipeg.

But there is nothing resembling real leadership from either Selinger or Katz when it comes to economic innovation. Both leaders, struggling as they are with a shortage of operating revenue, seem too preoccupied with budget headaches to worry about long-term strategies for their respective governments.

IKEA itself is a dubious beneficiary of a government subsidy. IKEA Canada and co-developer Fairweather already are extremely successful entities. And IKEA’s parent entities are especially adept at minimizing their exposure to taxation around the world, thanks to a brilliant but byzantine ownership structure investigated over the past decade by The Economist. At the heart of the onion layers lies a charitable entity, the British magazine first reported in 2006.

IKEA nonetheless maintains a positive corporate image, untarnished even by the recent revelations of the use of prison labour by a supplier. To the brand’s credit, IKEA accepted responsibility and apologized.

There is no reason to protest the opening of a new retail store at the former Tuxedo Yards. The total value of the overall development could be $400 million by the time it is complete. The location, between existing Tuxedo residential homes and Kenaston commercial buildings, cannot be accused of constituting sprawl.

And there are many, many Winnipeggers who feel a sense of pride when a new brand shows up in town, as shallow as that sentiment may be.

So, celebrate the arrival of IKEA if you like. Or don’t shop there. Just don’t assume this furniture chain’s arrival says anything about Winnipeg’s economic status.

Fairweather’s brilliant Michael Nozick offered IKEA Canada a development deal the chain would have been foolish to refuse. The city and province sweetened the pot.

Time will tell whether the $22-million subsidy was worth it.

bartley.kives@freepress.mb.ca