IKEA will open here if the cap fits

SWEDISH retailer IKEA has told the government it will provide 500 jobs and invest €100 million in its first Irish store if the cap on retail warehouses is lifted.

The furniture superstore group has said it wants to open a 28,000 square metre store, somewhere near the M50, but will not do so unless the planning guidelines introduced five years ago are changed. The government is expected to launch a review of the guidelines next month.

According to files released by the Department of the Environment under freedom of information, IKEA has been lobbying the government since 2002, when it wrote to then Junior Minister Dan Wallace saying it wanted to gain a foothold in Ireland but would not do so unless the cap on the size of retail warehouses was lifted.

A cap of 3,500 sq m on the size of supermarkets and 6,000 sq m on the size of retail warehouses was implemented in 1998 in a bid to stem a move to out of town superstores which were seen to have damaged small towns abroad.

On a trip to Scotland in February, Environment Minister Martin Cullen visited a Glasgow IKEA store. The Minister told IKEA he was willing to look at our retail planning guidelines but the greater Dublin area might not be the most appropriate location for them.

This is in direct conflict with IKEA’s own analysis which sees “a rapid deterioration in sales potential as we examine sites further away from the M50”.

The government is aware of how controversial any lifting of the cap would be. It would be trenchantly opposed by IBEC and ISME but especially by the independent retailers’ group RGDATA. The association says the removal of the cap would reduce competition by forcing small retailers to close. It has already motivated its members to lobby their TD’s voicing opposition and piles of letters have already been arriving at the department.

One retailer which would welcome a relaxation on the cap limit is DIY store B&Q. It has one store in the Liffey Valley shopping centre which employs 225 people and another facility due to open in Tallaght in September with the addition of 100 jobs. Tesco and other large retailers are also likely to lobby for an increase in the size of supermarkets.

But the question of whether removing or raising the cap would increase choice to consumers is a vexed one. The Competition Authority heartily supports such a move but one economist says it would be dangerous to opt for populist solutions which might not necessarily result in lower prices and choices for the consumer.

Jim Power, chief economist of Friends First said last week that Ireland does not have the population to justify the building of monster superstores, and it also lacks the road infrastructure to facilitate them.

A previous economic analysis on the impact of the cap commissioned by the government and carried out by Goodbody Consultants concluded that even if economies of scale exist, there is no evidence that they persist up to the cap of 6,000 sq m. “Accordingly, the cap is not seen as giving rise to increased costs and consumer prices.”

The scale of demand for an Irish IKEA is not clear. The superstore itself estimates that 14,000 travel from Ireland, north and south, to its Scotland store each year.