IKEA Fire Caused Hundreds of Millions in Damage, Destroyed Store Entirely

Fate of workers is still unclear; some will be moved to Rishon branch.

The fire that destroyed IKEA's Netanya store yesterday probably caused hundreds of millions of shekels in damage, according to preliminary estimates. The company predicts that it will need at least six months to a year to reopen the store, and it will lose more than a million shekels a day for every day the site is inactive.

ikea - Nir Kafri - February 6 2011
Nir Kafri

The fire started on the building's roof yesterday morning and quickly spread to the lower floors. The Netanya municipality has ruled that the building's carcass is a dangerous structure. It will have to be knocked down with a new store built in its place, said IKEA Israel Chairman Ron Hadassi.

The fire, which was visible for kilometers, is believed to have been started by a technical or electrical failure.

This was the country's first IKEA branch, and it was immensely popular. The 23,000-square-meter store opened in April 2001 with great fanfare, drawing 40,000 customers and turning over NIS 4 million in one day. In March last year the company opened its second branch in Israel, a 34,000-square-meter store in Rishon Letzion. The Swedish furniture giant has 320 stores in 38 countries.

The two Israeli stores had annual turnover of NIS 678 million last year, up from NIS 496 million in 2009, when the company had only one store here. The two stores saw 3.5 million visitors in 2010.

The sight of the burning building brought Hadassi to tears.

"We don't know what happened," he told TheMarker yesterday. "The fire started at 5:45 A.M., and the security guards saw it and called the firefighters, who arrived within minutes. Since then the matter has been under the complete control of the police, the firefighters and the Netanya municipality."

Hadassi said he and IKEA Israel CEO Shlomi Gabay had spent the entire day at the site of the fire.

"There were two matters to address - ensuring that there wasn't additional damage to the building and its surroundings, and trying to determine how the company would continue from here," he said.

The company has the backing of IKEA international, he said.

The building is owned 50-50 by British Israel and by the Bronfman-Fisher Group, which owns IKEA Israel.

ikea - Nir Kafri - February 6 2011
Nir Kafri

"IKEA rents the building, and the loss of the building's contents and all additional damage will be borne by IKEA," said Hadassi. The Netanya building was ensured by the Phoenix Group, while its contents, including thousands of pieces of furniture, was ensured by the Clal Group. It also was insured by Clal against lost revenue.

All the merchandise inside the building was destroyed, said Hadassi.

The fate of the company's employees is still unknown. Hadassi said the company would take care of them, and that many would be shifted to the Rishon branch. He could not say how many would be laid off. Also, the company's headquarters will have to be moved to the Rishon site.

The police have not yet let assessors from the two companies enter the building to judge the extent of the damage, although the extent of the fire suggests tens of millions of shekels.

Both Phoenix and Clal have reinsurance policies with foreign companies, which would bear part of the cost.

The fire was a particularly hard hit for IKEA, which had been preparing for the exceptionally large turnover of Passover week.

Hadassi said the company was planning to reinforce staff at its Rishon branch to handle demand; it did not expect merchandise shortages.

In addition, the industrial zone surrounding the Netanya store opened only after the IKEA store launched there. The jury is out on whether the zone has enough life on its own to survive the loss of its flagship store.

Other stores there include branches of the Tiv Taam grocery chain, clothing chain Factory 54 and coffee shop chain Arcaffe. There is also a two-floor Power Center, and dozens of smaller furniture stores clustered around IKEA.

While IKEA clearly has suffered immense damage, it may profit over the long term because people will get used to going to its Rishon branch, balancing out demand between the two sites, said Tamir Ben Shahar of the Czamanski Ben Shahar consulting company.

Customers who were waiting for deliveries from the Netanya branch will get them from the Rishon branch instead, the company said. Items bought at Netanya may be exchanged in Rishon.