Aiming at Ikea

Crate & Barrel finally expands to Canada as the U.S. market slows

This is the time of year that Canadians on the hunt for moderately priced design-savvy home furnishings face a conundrum. They can go to Ikea, which dominates the sector, to see its new models, but will have to battle through the seasonal back-to-school chaos that envelops the mammoth outlets as parents and students alike scour the 300,000-sq.-foot stores for inexpensive Ivar shelving, Lycksele sofa beds and Forsytia bedspreads. Not fun.

Competition to the ubiquitous blue-and-yellow behemoths is coming, however. On Sept. 25, Crate & Barrel will unveil its 35,000-sq.-foot two-level outlet in the upmarket Yorkdale mall in Toronto while West Elm, the younger, more hip and urban line from the makers of Pottery Barn, will open on Oct. 16 in a 20,000-sq.-foot historic building located a few kilometres away. For both brands, this will mark their first foray outside the U.S.

Crate & Barrel was “pulled up to Canada,” explained CEO Barbara Turf, by Canadians who shopped in their 158 U.S. stores and wanted an outlet north of the border. The firm’s products “can compete with Ikea and go up,” says Turf. “Young, old, modern and transitional customers can find something because we’re a little bit broader.” Its products run the gamut from cheap and cheerful tableware to Italian-made buffets and hutches costing $1,399 each. And while Allen keys are necessary for some ready-to-assemble items available at the store, bigger items will be delivered with its white-glove service that includes not just assembly but also packaging removal.

For West Elm, its Toronto location in the middle of a rapidly condo-izing area of the downtown core was a way to differentiate itself from the other home decor chains. With its global-style mix of modern, organic and ethnic, president Dave DeMattei wants to attract customers who appreciate its “youthful attitude.” So West Elm’s Parsons bookcase is priced at US$349, a matching cube side table retails for US$159, while a set of two autumnal hand-blown glass gourds are US$34. (West Elm hasn’t released Canadian prices.) “We’re a speciality version of Ikea,” says DeMattei. “We’ll lay out rooms for you with designers on staff.” And though a lot of the inventory will be on location in flat-pack boxes, employees will load customer’s vehicles.

As both retailers gear up to the crucial holiday season, Bradley Thomas, a retail analyst for KeyBanc Capital Markets in New York City, believes they won’t be the last ones to move north, pointing out that Bed Bath & Beyond recently opened stores in the Greater Toronto Area. “We think that just about every one of our retailers, if they’re not in Canada right now, should and will be considering it over the longer term.” The reason is in the numbers: while home furnishings and furniture store sales are up more than four per cent in Canada, people have all but stopped decorating homes in the collapsing U.S. housing market. As a result, American home decor sales are expected to drop five to 10 per cent this year. Already, at least 18 companies in the sector have declared bankruptcy, including Bombay and Linens ’n Things. And Thomas’s forecast is gloomy: “We aren’t expecting a bottom in the sector until mid-2009 for the fundamentals of the companies. That’s our optimistic scenario, and it could certainly get worse.”

At the end of August, Williams-Sonoma, which owns Pottery Barn and West Elm, reported second-quarter net revenues dropped 4.6 per cent. Williams-Sonoma isn’t feeling the pain alone: privately owned Crate & Barrel’s same-store sales fell one or two per cent in the first half of the year. And the pressure isn’t just from consumers closing their purses. Thomas points out that mass merchants, especially Wal-Mart and Target, have improved their furniture and decor merchandise. In 2005 they had 22 per cent of the market. By 2012, they will control nearly one-third.

And given consumers usually go downscale in tough times, pricing will be crucial to the new stores’ success. Though both Crate & Barrel and West Elm insist their Canadian and U.S. pricing will be comparable, disparities remain: Crate & Barrel’s popular Troy sofa is priced at $999 on both sides of the border, but all other Troy upholstery items, such as their storage ottoman, are $50 to $150 more expensive in Toronto. Still, news that Crate & Barrel is opening a store in Calgary next year is welcome news to Canadians weary of Ikea’s confusing pictograph instruction pamphlets.

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