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Shopping Centers Today -> September 2002
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RUSSIAN COUNCIL OF SHOPPING CENTRES FORMED
By Ian Ritter
Russia is the largest country in the world in terms of land mass and has huge retail development potential. Now developers and retailers are turning that potential into reality, and this summer formed the Russian Council of Shopping Centres.
With the Russian economy now growing at just under 4 percent a year, developers and retailers are beginning to take an interest in the country. France’s Auchan Group, Scandinavia’s Ikea International and Turkey’s Ramstore have all established a presence in Moscow, and others are expected to follow.
“Altogether it’s a huge potential market,” said Michel Pascalis, managing director of Jones Lang LaSalle’s Moscow office. “Russia is recovering quite quickly, but it still lacks retail.”
Pascalis said there are currently 700,000 square meters (7.5 million square feet) of retail space in Moscow, but he predicts that will increase to between 2 million and 3 million square meters within the next five years, in the form of about 50 new shopping centers. The new Russian council will help direct how that space is developed, he said.
ICSC-Europe formed the Russian Council of Shopping Centres in June, and the new council’s 17-member advisory board hopes to attract even more international operators and increase retail development in the country, said Pascalis, also the advisory board’s president.
The national economy is recovering from the severe economic downturn of 1998, when the Russian stock market crashed, the ruble became nearly worthless and foreign investors fled, he observed. One of the council’s functions will be to bring the heads of West European and U.S. retailers to Russia to show them the market’s potential and dispel what Pascalis characterizes as overblown fears about the country’s instability.
“You have to sell Russia better than they do [now],” Pascalis said.
One destination likely to be on the tour of retailers visiting Moscow is Mega, the 2.5 million-square-foot shopping center under construction by Ikea and scheduled to open in December. Other international brands set to go into the center include Italy’s Benetton and Spain’s Mango clothing chain. Ikea has further expansion plans in Russia. It opened its first store in 2000 in Moscow, and it aims ultimately to open three more stores in that city alone.
Mega will feature the country’s largest cinema complex to date: an 11-screen theater built by National Amusements, a subsidiary of Viacom. With stadium seating for 3,500, the cinema, called KinoStar, marks the first major U.S. theater chain venture in Russia. KinoStar’s opening is scheduled for the spring of 2003.
Though Moscow is by far the largest market in Russia, there are advisory board members from St. Petersburg and even from Siberia, underscoring the board’s intent to encourage development all over the country. The board also includes representatives from Russian retailers such as Gum (the country’s first department store, which opened in the 1860s) and the M-Video chain, as well as from Auchan, Ikea and the Economic Development and Trade Ministry.
For retail development to thrive in Russia, competition is necessary, said Natalia Oreshina, head of retail at Stiles & Riabokobylko, a Moscow real estate services firm that is working with London’s Cushman & Wakefield Healey & Baker. In the past Russians have had to cope with a shortage of quality goods and prices that were too high, she said.
“When the market started to deliver more space, obviously the competition increased [among] retailers,” she said. “You are now in a market where there is competition and there is room for improvement.”
The areas needing the most improvement, Oreshina noted, are those of store design and diversity.
“[The stores are] all the same,” she said. “You don’t have a nice environment where you have a big department store or a quality clothing store.”
U.S. chains such as Gap and Banana Republic would be more than welcome in Russia, but before that happens, people’s perception of Russia as an unfavorable place to do business needs to change, she added.
“The major problem is that people read in the press all the negative things,” Oreshina said. “They have a different picture of the market than it actually is.”
With the addition of the Russian group, ICSC now has 22 national councils.
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