Auchan Store Mired in Red Tape

MTWrapped goods lining the shelves of the unopened Auchan store Monday.
The huge glass-fronted windows of French retailer Auchan's spanking new Troika mall in northeast Moscow reveal shelves in pristine condition, stacked with rows and rows of already priced goods.

Yet although the $180 million mall has been ready for business since its planned opening in November, it has remained shuttered in a frustrating three-way dispute over planning permits that is costing Auchan and its partners an estimated $1.5 million per day in lost sales.

The holdup is over a strip of land behind the mall, designed to include two other French companies, DIY goods chain Decathlon and sporting goods retailer Leroy Merlin, where Auchan wants to build access roads and a parking lot.

The land currently belongs to state-run Russian Railways, or RZD, which has blocked Auchan from using it on the grounds that it may want to build extra rail tracks there from the three railway stations nearby, on Komsomolskaya Ploshchad, for express trains to Sochi or St. Petersburg.

The holdup is not the first time that foreign retailers have experienced delays in opening new superstores and malls in the country.

Swedish home-furnishing chain IKEA has been beset with delays since it opened its first store in Khimki, north of Moscow, in 2000. Then, local authorities blocked the construction of an access road on the grounds that it obstructed the view of a World War II monument.

Complaints from local authorities delaying other IKEA projects have ranged from a lack of access roads to safety concerns over a gas pipeline and fire code violations.

The dispute over the Auchan mall opening may be different, however, as this time it appears that city government officials, whose permission is required for the roads and parking lot, are on the side of the retailer.

The officials, anxious for the opening of the mall, located at the busy intersection between Verkhnyaya Krasnoselskaya Ulitsa and the Third Ring Road, are mindful of the need to manage the extra traffic it would attract. They are eager to see the access roads built, but have so far been unable to get RZD to give way.

"We need this mall. Such a big trading complex like Auchan would enable residents here to buy groceries at affordable prices," said Yekaterina Zolotaryova, a spokeswoman for the city's Central Administrative District. "We have done all we can for the trading center to start its operations as soon as possible."

Six months after the hoped-for opening of the 150,000-square-meter mall, designed to include children's entertainment facilities, cinemas, a fitness club, cafes and restaurants, it is still unclear when it will open its doors to shoppers, analysts said.

Olga Samarets, a retail analyst at Prospect Investment, calculated that every day the delay is costing Auchan and its partners more than $1.5 million in unearned sales, compared with upper-end supermarket chain Sedmoi Kontinent's larger stores, which last year averaged $4 million in sale per day.

Auchan executives, contacted last week, declined to comment on the problem or how they intended to resolve it.

But Andrei Ionin, technical director at InzhKonsaltStroi, the management company for the project, said the bone of contention was a narrow strip of land owned by Moscow Railways, a subsidiary of RZD, for which Auchan has to obtain city authorities' approval to build access roads and parking facilities before the mall can be opened.

Dmitry Pertsov, a spokesman for RZD, said Monday that the land could be needed to build extra tracks for express trains between Moscow and Sochi for the 2014 Winter Olympics, or for express services to St. Petersburg.

Pertsov said Auchan was to blame, as it had not resolved the issue while it was building the mall.

"Parking spaces and access roads must be provided for at the planning stage even before construction work starts," Pertsov said. "I cannot understand why they chose to put the cart before the horse."

Pertsov said the problems were "resolvable," however, adding that RZD was in talks with the companies concerned to find ways out of the dilemma.

Ionin, of the management company, confirmed that talks were held in April but that they centered on "adapting City Hall's plans for network roads to the situation on the ground."

He said the main stumbling block was the federal ownership of the land, which made its utilization by city authorities impossible.

Zolotaryova said the city government's food products department had made written appeals to federal authorities on the issue.

She said that, despite the city administration's lobbying, the traffic police would not allow the mall to open unless Auchan built access roads. Without such roads, the area would be plagued by constant traffic jams, Zolotaryova said.

An official at Leroy Merlin, whose DIY superstore is expected to occupy one floor in the mall, said neither his company nor sporting goods retailer Decathlon could do much to resolve the problems because they were not directly involved.

"We are just renting the space. We have nothing to do with planning and construction," the official said.

A spokesman for Decathlon, which will also occupy one floor of the complex, also referred all inquiries to Auchan.

A source close to one of the French companies said Moscow Railways was using the delay to bargain for "a solid sum of money" in exchange for permission to use the land.

"They would give it up if the price was right," said the source, who requested anonymity because he was not authorized to speak on the issue. "Everything revolves around money. Auchan is losing about $1.5 million every day and nobody wants that to go on forever."

Ionin of InzhKonsaltStroi insisted that the problems were technical and had nothing to do with money changing hands.

"I do not believe that Moscow Railways' reluctance to cede ownership of the strip of land has to do with upping the ante to rake in more money," Ionin said. "This is a very complicated matter and it will take time to resolve."

Ionin said talks would restart on Monday with city planning authorities, the traffic police and the city's transportation department.

"This is not a financial issue, because the strip of land was there to allow trains to pass by safely," Ionin said. "We are looking for a solution that will allow for safety, as well as plenty of parking spaces."

Ionin said there was some misunderstanding between City Hall and Moscow Railways on the land issue.

"The [access roads] proposed by city planning authorities are crucial to unclogging traffic in the area," Ionin said.

Auchan, owned by France's Mulliez family, currently operates over 18 hypermarkets in the country and in December concluded a lease agreement with Turkish firm Enka Insaat to operate a further 14 Ramstore hypermarkets here, which are to be rebranded as Auchan stores.