A Day After Fire Destroys Flagship Store, IKEA Starts Picking Up the Pieces

The building itself will be knocked down and rebuilt entirely; the management says it expects to reopen within six months to a year.

IKEA's flagship store in Netanya was entirely destroyed by a fire on Saturday, but you wouldn't have known it to judge by shoppers at its other branch, in Rishon Letzion.

Once you entered the company's offices, however, things looked different. The hallways were full of people, many of whom had been working in Netanya until the fire destroyed everything. People and their laptops were squeezed into every office.

ikea - Meir Fartush / Israel Hayom - February 7 2011
Meir Fartush / Israel Hayom

In the makeshift office of CEO Shlomi Gabay, there were a handful of half-burned items that had been rescued from the Netanya building - laptops, some folders and even the Netanya branch's business permit.

"We managed to save the data on the computers, so the workers will receive their salaries on time," Gabay said happily.

Yesterday, the extent of the damage began to emerge: One-third of the store's inventory went up in flames, including thousands of pieces of furniture, as did its management offices and expensive electronic equipment.

"One-thousand sofas and 150 kitchens were destroyed," said Yigal Siso, vice president of operations. "If sales at the Rishon branch increase 30% to 40%, as we predict, we have enough stock to last 14 to 15 weeks," he noted, adding that a shipment is on its way with another 12 weeks worth of merchandise.

The fate of the company's workers is still unknown. The Netanya branch had 480 employees and worked with 1,000 service providers. IKEA has said it will be paying January and February salaries and 2010 bonuses, but has not promised anything beyond that.

Gabay would not say how many employees were likely to lose their jobs due to the store's extended closure, but said the company was not yet planning layoffs.

Employees from the call center were working the phones in Rishon yesterday, and one said the company had arranged a ride from Netanya to their new office.

The building itself will be knocked down and rebuilt entirely. The management says it expects to reopen within six months to a year.

The fire started on the building's roof on Saturday morning, and quickly spread to the lower floors. It was extinguished by mid-afternoon, by which point the roof had collapsed and the entire building had been destroyed.

The damage to the building is estimated at NIS 150 million. The building is owned 50-50 by British Israel and a subsidiary of the Bronfman-Fisher Group, which owns IKEA Israel. The companies informed the stock exchange yesterday that there was insurance against fire damage as well as lost revenue from the Phoenix Group.

In addition, the companies are expected to lose revenue because they won't be renting out the building while it is being rebuilt. In 2009, their revenue from renting the 24,000-square-meter structure was NIS 25.7 million.

However, the Phoenix Group will not be paying the brunt of the expense, since it is reinsured by foreign insurance companies; the local firm is thus expected to pay a few tens of millions of shekels, at most.

For IKEA, the greatest damage is the revenues the company stands to lose while it is closed - about NIS 1 million a day. The company's revenues from the Netanya store last year is estimated at NIS 320 million. After increased sales at the Rishon branch are taken into account, the company will likely lose NIS 100 million to NIS 150 million in sales, the consulting company Czamanski Ben Shahar told TheMarker.

In addition, the damage to the furniture and office equipment is estimated at tens of millions of shekels. These items are fully insured by Clal Insurance; Clal, too, is reinsured by foreign companies.