Swedish Modern Comes To Town

Rising beside an industrial canal near Stratford, the site of last summer’s Olympic Games, a slender wooden tower marks the spot of London’s most ambitious redevelopment scheme. At its base is Dane’s Yard Kitchen, a smart new restaurant tucked inside a former ink factory,filled this afternoonwith a multi-ethnic throng of families enjoying a late lunch.

“This place was abandoned for 60 years before Ikea put money into it,” the bartender says, waving at the concrete walls and minimalist fixtures. “They’re going to build shops, schools, theaters, a hotel,” along with flats to accommodate 6,000 people in the 26 acres of what will come to be known as Strand East, all at an estimated cost of around a half-billion dollars. Clearly, this is Ikea on a different scale than anything we’re used to.

Strand East will indeed be wholly owned and operated by the Inter Ikea Group, the closely held parent company of the $34-billion-a-year home furnishings giant that colonized our living rooms with Lack side tables and Billy bookshelves. The company now aims to do the same for cities by replacing derelict hulks with privately managed, all-rental neighbor hoods of vaguely Scandinavian provenance. And while the houses won’t be assembled with Allen wrenches or landscaped with lingonberry bushes, company executives insist they’ll be offered in the same spirit as the furniture—with high (enough) quality and low prices for all.

The new project is only the first step of Ikea’s journey into urbanism. Inter Ikea’s LandProp division has acquired a second parcel north of London and has initiated talks for a $1.45 billion project in Birmingham twice the size of the one in London; it has reportedly shopped for sites in Hamburg, Germany, too. LandProp also intends to build a hundred budget hotels across Europe and is considering a push into student housing, all covered by the stores’ bottomless cash flow. “Once we decide to do something, we go like a tank,” said LandProp’s chief, Harald Muller, at Strand East’s unveiling in 2011. (Citing overwhelming media interest, LandProp refused repeated requests for an interview.)

But why is Ikea charging into Europe’s sluggish real estate markets when its flat-pack furniture is still flying off the warehouse shelves? Sales keep climbing (up 7% each of the past two years) and it has plans to open hundreds of stores (and nearly double sales) by the end of the decade, expanding in China and planting the Swedish flag in India. Strand East and any sequels are sideshows by comparison.

In fact, these urban experiments may mostly be a legacy-building exercise by Ikea’s controversial founder, Ingvar Kamprad. Now 86, Kamprad has spent decades building an increasingly labyrinthine series of tax shelters to ensure family control after his death, transforming Ikea into a vast conglomerate comprising wind farms, office parks, and even a line of electronics.

A typical maneuver last year involved Interogo, a Liechtenstein-based foundation Kamprad established in 1989 to act as a holding company for Inter Ikea (itself a holding company), both for tax reasons and to guarantee control of the Ikea brand. Inter Ikea quietly disclosed in its 2011 annual report (the first in its history) that Interogo had sold Inter Ikea the chain’s own intellectual property assets (most notably the trademark for the Ikea brand) for $11 billion, all in the name of transparency (previously Ikea had to pay Interogo a licensing fee). Building your own neighborhood as a place to park your cash is easy compared to those machinations.

The property move also follows several scandals that have rocked Kamprad’s retirement years, ranging from 1994’s disclosure of a youthful Nazi flirtation to last summer’s revelation that Ikea executives in Germany may have knowingly used East German suppliers that were exploiting political prisoners as labor. Strand East serves as both an investment designed to outlive him and a final gambit to restore his reputation.

The new town within a town pursues this dual goal by putting the Swedish vision of the folkhemmet (the “people’s home”) to the test. It’s a utopian dream that dovetails nicely with the aim of London officials to use the Olympic legacy to address historic inequalities in the city’s East End. Plans for Strand East depict car-free streets lined with low-slung multifamily town houses, while smaller homes face the back alleys in an echo of London’s beloved mews. Of the 1,200 homes and apartments, LandProp promises that 40% will be large enough for families; another 15% will be set aside for affordable housing, for which London has considerable pent-up demand. The remainder of the site will consist of public squares and parks, with mid-rise commercial districts along the edges.

So far, urbanists are impressed with what they’ve seen of the project. “Compared to the towering cities popping up around the world, Strand East is a quaint, pleasant surprise, mixing old and new in a way that gives the area an uncommon sense of history and place,” says Paul Kroese, strategic adviser for the International New Town Institute. The plans are of a piece with Ikea’s other ventures, too. “Ikea wants to build a world that leverages its knowledge of how people live,” says Steen Kanter, a former top Ikea executive in the United States who today runs his own consultancy, Kanter International. “And it’s a good way to gain expertise installing kitchens and wardrobes and other large environments.”

Indeed, some retail analysts suggest that Strand East is both a branding exercise for Ikea and a living laboratory for a renewed drive into housing. The company has been trying to crack the U.K. market since 1997, when it intro duced a flat-pack home. The BoKlok comes in three configurations (none larger than 800 square feet), with prices starting at about $112,500. (The houses are assembled by Ikea’s construction partner, Skanska.) More than 4,900 BoKloks have been built to date in Scandinavia, but it hasn’t caught on in the United Kingdom despite recently renewed interest in prefab housing.

Yet some wonder whether Ikea is assuming an unacceptably high level of risk by investing brand equity in products that aren’t designed to lead a relatively short, peaceful life and retire to a landfill. “Personally, I think they’re a bit insane, because there’s nothing with a longer shelf life than a house,” says Euromonitor senior retailing research analyst Antonia Branston. “What if, in 20 years’ time, Strand East is known for crack houses?”

Ironically enough, for someone whose company has chopped Russian old-growth forests into particleboard, Strand East’s longevity may be its greatest appeal to Ikea’s founder. “Nobody can guarantee a company or a concept eternal life, but no one can accuse me of not having tried to,” Kamprad told the Financial Times last fall by way of explaining Inter Ikea’s diverse portfolio.

The company will likely survive Kamprad’s conflicted history. Whether he has laid the foundation for the city of the future remains to be seen.