Red Tape, Corruption Seen Hampering Stores

Red tape, corruption and the sheer size of Russia are among the main barriers facing retailers and producers of consumer goods in the country, according to PricewaterhouseCoopers.

"Deliveries from one part of the country to another can take six to seven days," PwC said in a video presentation at a St. Petersburg retail conference last week. "Bureaucracy has been one of the main problems historically. Corruption, which is everywhere, is in retail as well."

Shortages of qualified personnel, exacerbated by the country's declining population, and of available retail space also make it harder for companies to expand, the accounting firm said.

The country's $434 billion retail industry is luring investors such as PepsiCo and IKEA as the country's economic growth boosts incomes and consumer spending. International producers are expanding in the country as local sales rise faster than at home, offsetting higher staff and distribution costs.

"Russia can't be ignored," Chris Skirrow, head of services for retailers and consumer goods producers at PwC in Russia, said at the presentation. "It's competing for investment, and its closest competitors are the other BRIC countries: Brazil, India and China."

Russian retail sales will increase by 22 percent annually through 2010, according to UBS. It's the fastest-growing market for IKEA, the world's biggest home-furnishings retailer, and may become its main revenue source in Europe in five to 10 years, said Nick Peel, general director of IKEA's Dybenko store in St. Petersburg. Land purchases are one of the biggest challenges for IKEA in Russia, Peel said, "so we expand up now" rather than building stores that extend over large lots.

Alliance Boots is "very happy" with its Russian sales through about 300 stores run by Pharmacy Chain 36.6 and does not plan its own outlets in the country, Michael Caves, head of strategic development for Boots Retail International, said in an interview.