Moskva in Hunt for Luxury Retail Tenant

Itar-TassA crowd gathering at the entrance of the Pyotr I hotel for its opening event.
Luxury shopping in Moscow is likely to reach new heights in 2008, when the poshest store in town is expected to open across from the State Duma building in the heart of the city.

DekMos, which is partly owned by the Moscow city government and is carrying out reconstruction work at the Moskva Hotel site, said about 10,000 square meters of the new building would be dedicated to luxury retail -- and that it had been in negotiations with both the Harvey Nichols Company in London and Saks Fifth Avenue in New York.

The 600-room Moskva Hotel, built in 1935, was demolished about two years ago. DekMos, named the project's developer for reconstruction, is 49 percent owned by the Moscow city government and 51 per cent by the firm Dekorum.

The original project has been almost completely altered, and the floor space is to increase from the original 97,000 square meters to 181,060 square meters.

DekMos general director Dmitry Garkusha said the most recent concept calls for the combined apartment-hotel under Four Seasons management occupying only 71,790 square meters, leaving 83,210 square meters to accommodate a 21,670-square-meter conference hall as well as parking, administrative and technical premises.

The remaining 26,060 square meters are intended for an elite department store, retail gallery and restaurants.

The new arrangement was confirmed by Irina Ushakova, analyst for Jones Lang LaSalle Hotels, consultants to DekMos on the project. The complex's opening is planned for 2007-08.

Developers intend to attract a well-known international chain such as London's Harrods or Harvey Nichols to operate a department store of about 10,000 square meters, Ushakova said. Another representative of Jones Lang LaSalle said that France's Galeries Lafayette had shown interest as well.

"It is true we plan to invite operators with an international name, but most likely it will be a luxury department store," said Garkusha, adding that negotiations were under way with some of the most expensive department stores of London, Paris and New York.

A source familiar with the negotiations said that DekMos already had preliminary agreements with the Harvey Nichols Group and Saks Incorporated, and that consultations had begun with Harrods and Galeries Lafayette as well.

Of these companies, only Harvey Nichols, which has department stores in Great Britain, Ireland, Hong Kong and the United Arab Emirates, had openly declared an interest in the Russian market to date. Richard Gray, public relations representative for the company, said in October 2005 that it considered the Moscow market an object for investment. And the Russian Development Bank, which is building a shopping center on a former library site at No. 12 Ulitsa Kuznetsky Most, said Harvey Nichols might become its tenant.

A Harvey Nichols employee confirmed last month that the company was planning to open a Moscow store.

A Harrods representative refused to discuss the possibility of its arrival in Russia, noting the company "does not comment on future deals."

Spokespeople for Saks and Lafayette were unavailable for comment.

"Certainly, negotiations with these department stores will be prolonged for at least one year," said Garkusha. "The difficulty lies in the fact that they sell brands that already have exclusive dealers in Russia, including Mercury, Bosco di Ciliegi and Jamilco."

Garkusha said they might form a three-party agreement, with Russian distributors supplying the goods to the department store, or might even form a joint venture with them.

However, Mercury general manager Alexander Reebok did not see the sense in supplying his entire line to another company's department store.

"Why should we create a competitor literally across the street?" he said.

Mercury controls the TsUM department store on Ulitsa Petrovka.

Reebok said he was surprised by DekMos' decision to invite a foreign operator, saying that "Russian department stores are as good as Western ones."

Taimuraz Guguberidze, the managing director of the GUM department store, located beside Red Square, said that without a partnership with a local operator, neither Harvey Nichols nor Saks could work in Russia. He said GUM negotiated for the purchase of the Harvey Nichols franchise but that so far nothing had come of it.