IKEA expansion ahead of company expectations

Expansion

Construction on the 54,000-square-foot expansion began in October, but already much of the new space is well on its way to completion.

The store will cover 306,000 square feet and have an extended self-serve area, more checkout lanes, a larger warehouse, a larger home delivery center and a better selection, store manager Gerd Diewald said.

As of late February, the expansion's walls had been raised and skylights were being installed as well as the roof.

The new parking garage will offset the loss of parking spaces created by the expansion of the building, keeping the total parking available to 1,200 spaces for the retail giant.

Roth said construction—which is being performed by Tribble and Stephens Construction Ltd., which also constructed the original building—is planned for completion in late spring or early summer.

The expansion, Diewald said, shows just how well the store is doing.

"We hardly ever do an expansion like this, and when we do, it's not this quickly," he said.

'An entirely new deal'

The initial opening of IKEA in 2006 in Round Rock represented something of a turning point in the city's approach to economic stability.

"It's going to change Round Rock the way Batman changed Gotham City," Mayor Alan McGraw, then the mayor pro tem, said in the city's video, "Greatest 10 Round Rock Events of 2006."

IKEA's opening was coupled with the opening of the Round Rock Premium Outlets that same year to give the city two destination retail centers in one area.

"This is an entirely new deal for the city of Round Rock," McGraw said in the same video. "There's very few cities in the state that can claim that they have true destination retail."

Since IKEA's grand opening, the surrounding area has developed many options for dining and retail.

That, said Jeff Newberg, managing principal of Endeavor Real Estate Group—which developed the shopping center where IKEA sits—was always the plan.

"We had been looking at Round Rock. Round Rock was booming at the time," Newberg said. "We had identified this corner as being the next [growth] intersection."

Newberg said the promise of multiple hospitals and higher education centers along University Boulevard seemed like it would be a natural fit for any kind of major retail center, but the fact that IKEA was interested gave the shopping center an advantage that increased its appeal and marketability.

"We were going to do a project there regardless. To have IKEA was just a really wonderful surprise and win for us," he said, adding that the project might have been slightly smaller had another retailer taken IKEA's place.

Financial impact

Roth said the impetus for the expansion was a combination of strong sales and a need to increase the store's volume.

IKEA, a privately owned company, declined to release sales data, and sales tax information cannot be released by the city without the company's consent. However, some city data does point to a shift after 2006 to a more retail-oriented economy rather than one that relied heavily on sales tax from Dell Inc.

"2006 was really a year when many of the economic development policies and financial strategies that the council implemented over the years really began impacting the city's annual operating budget," said Cindy Demers, then the city's financial director, in the 2006 video showcasing the top stories of that year for the city.

Much of the city's sales tax dollars still come from Dell. For example, in fiscal year 2009–10, Dell accounted for about $18.9 million in sales tax revenue, Round Rock Finance Director Cheryl Delaney said. In 2005–06, that number was $24.9 million, also the peak for Dell sales tax revenue, she said.

Total sales tax revenue for the city in 2009–10 was about $46.1 million, while sales tax revenue for 2005–06 was $48.1 million. That means non-Dell revenue increased from about $23.2 million to $27.2 million while Dell revenue fell.

IKEA is also enjoying strong sales across North America. While the company would not release sales data for individual stores, Roth said IKEA cleared $3.7 billion in sales in 2011 across 37 stores in North America, plus one month of a new store in Denver.

That means IKEA stores in North America averaged a bit less than $100 million in sales per store.

While the city's increase in non-Dell sales tax revenue cannot be directly attributed to the opening of IKEA, the development of the area around the retailer—which includes such anchors as JC Penney and REI—was at least in part due to their big blue neighbor.

"They provide us with something that we rarely have, which is an anchor that is going to draw from 100-plus miles away," Newberg said.