The Economic Development Growth Engine board had little to say about IKEA not creating as many jobs or paying the wages initially promised when the Swedish retailer opened its first Tennessee store in Memphis in 2016.
As a result, IKEA is voluntarily opting out of receiving two years of its 11-year payment-in-lieu-of-taxes (PILOT) tax abatement. The company had promised to hire 175 but currently employs 147; and was to pay average wages of $41,011 but is now paying $36,944.
“Do we need a motion to approve that?” asked Tom Dyer, vice chairman of the EDGE board, at Wednesday’s meeting.
Michelle Corbet: IKEA voluntarily seeks to lower tax abatement after failing to create 175 jobs
IKEA is voluntarily opting out of receiving two years of an 11-year tax abatement from the Economic Development Growth Engine after failing to meet hiring and wage goals. EDGE president and CEO Reid Dulberger said Wednesday the Swedish retailer seems “committed to making the Memphis store work.” (Daily Memphian file)
“No, that is their right,” said EDGE president and CEO Reid Dulberger.
IKEA could potentially get a year of its initial 11-year PILOT back if it can prove its environmental sustainability efforts, such as water conservation and large solar-paneled roof, are making an impact.
After the meeting, Dulberger said the success of the environmental plan does not require board action, but anticipates the staff evaluation to be a time-consuming process.
The environmental add-on was dropped in 2016 because frankly, Dulberger said, “none of us” are engineers.
“Our focus needs to be on jobs, wages and (minority- and women-owned business enterprises) spend,” he said.
The lower-than-anticipated wages are due to the mix of employees IKEA has and the hours they are working, Dulberger explained after the meeting. The store has more part-time employees who are working fewer hours after the store’s hours were adjusted last year.
Tom Bailey: IKEA reducing operating hours at Memphis store
“I think IKEA really wants to be here,” Dulberger said. “We understand there’s been a tremendous change in brick-and-mortar retail. They seem committed to making the Memphis store work. We’re glad they want to be here and work with us.”
Other news:
In addition to being briefed about IKEA’s PILOT, the board unanimously approved additional years of tax abatement for two companies with existing Memphis operations.
J.M. Smucker Co. and Cleveland Track Material Inc. each received a Jobs PILOT.
Railway track supplier Cleveland Track Material received a seven-year Jobs PILOT for its $6 million investment and creation of 51 new jobs at its Memphis manufacturing facility at 391 E. Mallory.
The investment in the facility is due to increased demand in specialty track work for railroads across the country.
“Our plan and preference would be to grow right here in Memphis. We do have other facilities and we could take that volume elsewhere,” said Jim McCaslin, Cleveland Track’s vice president of operations. “We will have options, but our first choice is the Memphis area.”
The PILOT will save the company about $653,000 over the seven years and generate more than $2.1 million in taxes for the city and county. It comes with a goal of spending about $896,000 with minority- and women-owned business enterprises (MWBEs).
J.M. Smucker Co. received a six-year Jobs PILOT for its $8.8 million investment and creation of 25 new jobs paying an average of more than $43,000 at its Memphis production facility, 4740 Burbank Road.
The PILOT will save the company about $740,000 over the six-year abatement and generate more than $1.4 million in city and county taxes.
The PILOT will result in a goal of spending $585,000 with MWBEs.
The $8.8 million investment is to add a new product, Jif Creamy Clusters, granola wrapped around a creamy peanut butter center.
Carlos Manning, who has been site leader in Memphis for about three years, said the facility has already installed three packing lines for the new product.
The PILOT would enable the Memphis plant to fund two additional lines.
With a Jif peanut butter plant in Lexington, Kentucky, fighting for the same buyers, the ability to spread fixed costs will help the Memphis operation compete, Manning said.
Without the PILOT, there’s a good chance the additional product line would go to the Lexington facility.
“(The PILOT) allows us to compete for that volume,” Manning said.
In 2012, J.M. Smucker Co. was scheduled to close its Memphis operations, but the PILOT program incentivized the company to stay.
To date, J.M. Smucker has invested $102 million in its Memphis plant, which employs 139 people who make Jif and other peanut butter-related products.