Swedes smell success: Ikea plans to challenge Stor furniture stores.

Swedes smell success: Ikea plans to challenge Stor furniture stores

The battle between City of Industry-based Stor Furnishings International Inc. and Plymouth Meeting, Pa.-based Ikea U.S. Inc., a fight once waged only in the courtroom, will be realized at Southern California cash registers in October when Ikea opens a 238,000-square-foot store in Burbank.

With its trademark blue-and-yellow design, the Ikea store will be the 84-store Sweden-born chain's first California fortress in the "head-to-head" competition between the two retailers, vying for a healthier slice of the $70 billion home furnishing industry.

In an attempt to keep a step ahead of its older, bigger, richer, Ikea rival, Stor launched an initial public offering of 2.25 million shares of common, at $9 to $11 a share, "to finance additional superstore openings, to repay bank borrowing and for working capital." The offering is scheduled to be completed by mid-April.

Stor's IPO and Ikea's invasion of the market promise to heat the Los Angeles County retail industry, said analysts.

"We're going head-to-head with Stor," announced Rene Hausler, division president of Ikea U.S.A. West. "We've watched Stor closely. They are a significant competitor. With department stores and discount stores also adding competition, the California market will be intense. We are confident, however, that Ikea will receive acceptance."

October will not be the first time the two chains clashed. Stor and Ikea went lawyer-to-lawyer in 1987 and 1988. Alleging copyright infringement over its catalogs and trade dress infringement over store format, Ikea sought damages against Stor.

As part of the settlement reached in April 1988, Stor agreed to change parts of its catalogs, eliminate a Swedish ballroom (a room full of balls for children to play in while their parents shop) and stay away from the blue-and-yellow color scheme that consumers associated with Ikea, according to Hausler.

"We sued Stor saying that they took our concept," said Hausler. "The result is that Stor had to change parts of its operations so that our target audience will not confuse our operation with theirs."

The target audience is 25-year-old to 45-year-old consumers with an average income of $35,000 according to Hausler. Furniture, linens, cabinets, lighting, wall coverings, floor coverings, office furniture, bookcases, storage systems, and window treatments are the lures, he added.

The massive Ikea furniture store will compete against the three "high-volume supercenters" that Stor opened in Los Angeles and Orange Counties in 1987, 1988 and 1989.

"Consumers will be able to get anything they could possibly need at Ikea's store when it opens in Burbank," said Hausler.

Stor touts "everything (consumers) could possibly need," in its March 7 prospectus to potential investors.

"Affordable home furniture and furnishings, as well as housewares and accessories, for every room in the home, available in-stock for customers to take home the same day," reads the prospectus.

Stor corporate officers are in a Securities and Exchange Commission mandated quiet period and would not talk to the Business Journal. The SEC prohibits companies from discussing upcoming offerings in the press to prevent touting of the stock.

Stor began a "road show" to financial analysts and investors last week in its attempt to generate about $20.25 million in net proceeds from the offering. Target date for completion of the offering, according to San Francisco-based underwriter Robertson Stephens & Co., is mid-Arpil. The downtown L.A. securities house Bateman Eichler, Hill Richards is co-manager of the offering.

Jack Kyser, chief economist for the Los Angeles Area Chamber of Commerce, said consumers have warmed to Stor's stores, even if it is too soon to tell how investors will react.

"Stor has done an excellent job attracting mid-range consumers to their stores," said Kyser. "It will be interesting to see how they do in the face of competition when Ikea opens in Burbank."

The two will also compete in Long Beach, and Orange County, and Riverside. Ikea plans to open four stores in the Southland by 1992. More stores are in the offing after that, said Hausler.

"We waited a long time to come into the California market, primarily because the state's standards are the highest in the world," said Hausler. "Much of our labeling had to be changed before we could think about coming into the California market."

Because a majority of Ikea's 12,000 products are imported from Europe, it needed to establish an effective distribution system before considering retailing on the West Coast, Hausler said. Ikea opened its first U.S. store in 1985, in Philadelphia. Three other stores followed. Last year's U.S. sales topped $130 million.

"Although (Stor) cannot predict the effect of Ikea's entry into the Los Angeles market," reads the Stor prospectus, "competition from Ikea could adversely affect the company's sales and gross margins, and could result in the loss of key employees if Ikea were successful in hiring from (Stor's) ranks."

Stor reported a net loss of $6.9 million in 1988 and a net loss of $6.9 million in 1989. For the first 40 weeks ended Jan. 5, Stor reported a $3.9 million loss. Because of expansion, Stor executives expect a loss in 1991.

Two Stor supercenters are planned for outside the Los Angeles area in 1991. Four are planned for 1992.

PHOTO : Lots in Stor: Customer peruses offerings at Torrance location.