Delivering Infrastructure

As a general rule, the distribution network of most bricks-and-mortar retailers calls for each distribution center (DC) to serve a significant number of stores. In many cases, large national chains have a handful of strategically located DCs, each serving hundreds of stores.

IKEA, the Swedish retailer that has won the hearts and pocketbooks of American consumers, is building a distribution network that stands in stark contrast to the norm. With 29 stores currently open in the United States, one might expect IKEA to operate one, possibly two, DCs. Instead, the retailer’s 40 North American stores are served by six DCs, with a seventh opening this summer in Savannah, Ga., and another under way in Tacoma, Wash.

Recently, the company announced plans to build yet another DC, this one in Joliet, Ill., dedicated to servicing the retailer’s growing Midwestern presence. In addition to two stores in the Chicago area, IKEA has stores in Canton, Mich., and Bloomington, Minn., and is contemplating how it might serve future locations in Denver, St. Louis and Kansas City—markets that are particularly well-suited to the IKEA objective of targeting trade areas with expansive drawing power.

TARGET Expanding Food Distribution

Target Corp. is constructing a new food distribution center (DC) in Lakeland, Fla. Opening in late summer 2008, this is Target’s first company-owned DC dedicated to perishable foods. Frozen, refrigerated and fresh foods will be processed at this DC, which will serve Target locations throughout the Southeast.

The Lakeland DC will be operated in partnership with Minneapolis-based SuperValu, which Target partnered with previously to distribute perishable foods throughout the Southwest. (In addition to the approximately 2,500 stores in its retail portfolio, SuperValu provides supply chain services to more than 5,000 retail locations.) In its prepared statement, Target said the company would open additional food DCs over the next several years.

However, the Joliet DC has the potential of serving a dual role. In addition to providing inventory to the Midwestern IKEA stores, this location may also become a pivotal connection point for shipments between East and West Coast stores.

“Typically we need a critical mass of four to five stores to warrant opening a DC, and our fifth Midwestern store is opening in Cincinnati,” explained IKEA spokesman Joseph Roth. “The Joliet DC is in a great location to serve our Chicago stores, and it has the added advantage of being in very close proximity to rail connections, which will reduce transportation time and costs.

“We are also building it to facilitate cross-country transportation of goods. If we ever have an issue with ports congestion on either coast, we can shift shipments to the other coast and use the Joliet DC to route the goods across the country.”

Like IKEA’s other DCs, the planned 1.4 million-sq.-ft. Joliet facility is being constructed in phases, with the 650,000-sq.-ft. first phase slated to open early in 2009. Each DC carries IKEA’s full inventory of some 10,000 exclusively designed items, totaling more than 80,000 SKUs. Shipments arrive from all corners of the globe, representing more than 1,300 suppliers in 53 countries.

In another strategically differentiating move that runs counter to the trend for taking manufacturing offshore, IKEA announced in October that its first U.S.-based furniture-manufacturing facility will be located in Danville, Va. The proposed 810,000-sq.-ft. factory is expected to open early in 2008 and will create an estimated 740 jobs.