New Owner Streamlines TsUM

The Tsentralny Universalny Magazin, or TsUM, has a new, energetic shareholder.

Lev Khasis, board member of Alfa Group's Perekryostok supermarket chain, is intent on turning the venerable, four-story trading house opposite the Bolshoi Theater into a retail success story.

AIG Brunswick Capital Management investment firm, which owns 15.5 percent of TsUM shares via a Cyprus offshore company, sold its stake to companies controlled by Khasis, sources said. Khasis is a former vice president of Alfa Bank and board chairman at the Samara-based Aviakorp factory.

Soon after changing shareholders, TsUM completed the purchase of STD-Holding for 190 million rubles ($6.5 million). STD-Holding owns two retail centers with a total area of 8,000 square meters; both shopping centers are home to a Perekryostok supermarket. The stores are located in the Krylatskoe and Tyoply Stan regions of Moscow.

"TsUM's new strategy involves using existing trading premises more rationally and expanding commercial real estate. There's probably no sense in putting a Perekryostok in TsUM, but when developing any retail center, some kind of food section should be a major anchor," Khasis said.

Sergei Chemerisov, who heads several companies belonging to Khasis, has been appointed as TsUM's financial director. He also runs the Darnel group, which provides consulting services in retail and commercial real estate investment.

Darnel's clients include the Perekryostok chain and Bosco di Ciliegi of the Vostok i Zapad company.

The present management will be in charge of the restructuring.

"No major staff changes to the TsUM management are planned or are being discussed," Khasis said.

TsUM and its big-brother neighbor, GUM, are the only Russian retail enterprises quoted on the stock market, and for this reason, foreign companies have traditionally owned major stakes in both former Soviet showpieces.

Analysts consider TsUM, with a market capitalization of $21 million, more attractive for investment than the larger and flashier GUM, with a market capitalization of $70 million.

In general, however, analysts are pessimistic about the state of both shopping centers. The furious expansion in the retail sector has scarcely been reflected in the companies' sales. In terms of earnings and growth potential, they clearly lose out to the new generation of retail chains. Perekryostok posted sales last year of $156 million — almost five times higher than TsUM's.

And both department stores have their weak spots. According to Troika Dialogue analyst Andrei Ivanov, if TsUM's retail area is not expanded, the store will be unlikely to increase its earnings by more than 5 percent to 6 percent per year.

And unlike retail chains, TsUM and GUM are unable to influence suppliers' prices to increase profitability.

Finally, they don't have a brand of their own.

"If I say GUM or TsUM, you know that there is a building of that name. Until a chain is established under a single name, the growth potential is not high," Ivanov said.