Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Roaring Rush for Retail

Moscow's retail sector is poised for unprecedented expansion as Muscovites eagerly embrace Western-style shopping centers and established stores aggressively expand their operations, reports Andrew McChesney.


A group of prosperous Turkish business leaders looked north of Turkey's border in 1997 and saw a country ripe with opportunity.

They saw a Moscow with millions of consumers eager to take advantage of the convenience of one-stop shopping long taken for granted in the West, but unable to do so because the capital lacked any such shopping center.

So officials from supermarket chain Migros, food-trading giant Ram Foreign Trade and real estate giant Enka teamed up to form Ramenka,with the vision of setting up Ramstore shopping centers, hypermarkets and supermarkets all around Russia.

"We felt the need for this business. There were no Western-type shopping centers." Ramenka general director Aziz Bulgu recalls.

"We wished to penetrate the different districts of Moscow ... and become the leading chain throughout Russia," he said.

Fast forward to January 2000, and it would appear that, despite the devastating 1998 financial crisis, Ramenka is well on its way toward fulfilling its ambitious goal. With two hugely popular shopping centers and two recently opened supermarkets under its belt, the Turkish company is preparing to open yet another mall and four more supermarkets this year in the capital.

In its bid to be the leading chain, Ramenka is at the forefront of a massive consolidation sweeping the post-crisis retail sector. A dozen or so established retailers are aggressively expanding their chains, leaving their smaller rivals in the dust.

Also, by opening Moscow's first two Western-style shopping centers, Ramenka has paved the way for an explosion in mall construction that real estate insiders say could only be dampened by disappointing March presidential elections.

"Ramstore is a pioneer, that is a fact," said Michel Pascalis, a partner at Jones Lang LaSalle real estate agency.

"I'm sure that within five years from now most of the other big retail chains will be in Moscow. ... German and French groups are already eyeing Moscow," he said.

A whopping 110,000 square meters of new shopping-center space is expected to be added to the existing 210,000 square meters in the capital next year alone, according to Stiles & Riabokobylko, the Moscow associate of Healey & Baker.


The retail sector was dealt a body blow by the financial crisis, sparked in part by the devaluation of the ruble in August 1998. According to industry insiders, sales plummeted 70 percent as consumers' buying power shriveled up and imported goods suddenly became much more expensive.

But the sector has stabilized over the past year and a half. Although sales are still 25 percent to 30 percent below pre-crisis levels, demand is continuing to pick up, especially for more competitively priced goods found in chain stores, experts said.

Now a group of established retailers are strengthening their grip on the market by aggressively expanding their chains to stabilize sales volumes and improve profitability.

"Most of the retailers today that have survived have restructured, and we are seeing more and more demand on the retail side, especially from small shops that have five to 10 shops already," Pascalis said.

The strongest demand is coming from food retailers, with Ramstore and Russian firms Seventh Continent and Perekryostok leading the way, real estate experts said.

At the end of November, Ramstore opened two 1,000-square-meter Ramstore supermarkets in renovated space, bringing to four the number of food shops it operates in Moscow. Ramenka also runs a 6,000-square-meter and a 20,000-square-meter hypermarket in its two shopping centers here.

Ramenka plans to open four more 1,000-square-meter supermarkets this year and about 20 within the next three years, Ramenka marketing director Anastasia Karmazina said.

Perekryostok plans to add two supermarkets to its stable of 14 within the next few months, and Seventh Continent is expected to open two stores - giving it a total of 12.

"The most powerful retailers are becoming stronger and smaller companies with only one or two stores are dying," said Sergei Gipsh, director of retailing at HIB Collins in Moscow.

"From my point of view, we are seeing a reduction in the number of companies."

Food retailing is growing more rapidly than other parts of the retail sector "because the income of 80 percent of Muscovites is only enough to buy food," he said.

Presidential elections aside, real estate experts predict that the supermarket trend will continue for at least the next five years, following a pattern set by emerging economies in Eastern Europe.

"We anticipate the same fast retail development seen in Eastern Europe," said Natalia Oreshina, retail property consultant with Stiles & Riabokobylko.

Unlike previous years, when supermarkets tended to set up shop within the city center, the trend is to now place new stores in the suburbs, specifically those with high populations, such as those in south and northeast Moscow, experts said. That pattern follows an emerging trend to set up hypermarket-anchored shopping centers in the city's outskirts.

"New developments will take place out of the city center," Pascalis said. "That will allow shopping centers to be of a larger scale in comparison to downtown."


The growth of new supermarkets and hypermarkets is expected to be phenomenal.

"I see approximately 15 to 20 hypermarkets in Moscow and 200 to 300 supermarkets [in five years]," Pascalis said. "According to our estimates, the city has the potential of 60 hypermarkets."

Moscow now has 20 to 30 supermarkets belonging to chains and only two hypermarkets, those belonging to Ramstore. All together, Moscow has 5,427 food stores, of which about 170 are supermarkets, Jones Lang LaSalle said.

There is also a crying need for more retail space to meet the needs of its residents, real estate experts said. The capital currently has a scant 0.2 square meters of retail space for every resident, a figure that places it far behind the average 1 square meter per person in Western Europe and 2 square meters in the United States, Jones Lang LaSalle said.

Moreover, Moscow only has 0.06 square meters of Western-quality retail space, built after 1992, per inhabitant, Stiles & Riabokobylko said.

As of September, food stores accounted for 1.7 million square meters of the 3 million to 3.6 million square meters of Moscow retail space, according to Jones Lang LaSalle. That figure is a big jump from the 609,400 square meters available in 1997, when food stores numbered 1,396.


While the nonfood side of retailing is seeing less dynamic growth, established retailers such as Sportmaster, Office Club, Komos, Chevignon and Benetton are following the expansion trend by opening new stores this year and planning more next year.

The more aggressive player is arguably the partnership between TJ Collection and Carnaby, whose number of footwear boutiques in Moscow grew to 14 last year.

The most recent additions to the chains were a TJ Collection and Carnaby salon on Tverskaya Ulitsa in October and a joint boutique, with 220 square meters of retail space, that opened on Prospekt Mira in mid-December, TJ Collection said.

"We are able to grow because we are able to sell what we are offering," a TJ Collection spokeswoman said.

She declined to say what the boutiques' plans are for this year, saying they would be finalized at the end of January.

Despite the blow of the crisis, retail shops have in part been able to soldier on thanks to a massive cut in rents, real estate experts said. From about $1,350 per square meter last year for space in store fronts, rents have plummeted to $650 per square meter, Stiles & Riabokobylko said. Rents in prime locations such as Tverskaya Ulitsa are now topping out at $1,200 per square meter, Stiles & Riabokobylko said. The rent average on store fronts is expected to fall next year to $500 per square meter.

Rents on shopping-center space have also dropped, from some $2,000 per square meter to $1,470, and are expected to slide to $1,200 next year, Stiles & Riabokobylko said. Rents in prime locations like GUM and the Manezh mall are going for $1,500 to $3,000 per square meter, while other shopping centers are asking for $1,200 to $1,700.


If retailers with lofty expansion plans are looking to new shopping centers in hopes of landing space, they could be initially disappointed, real estate experts said.

No fresh shopping centers came onto the market last year and occupancy rates are a high 94 percent, Stiles & Riabokobylko said.

"There's a lot of shopping-center demand out their right now because supply is limited and demand is picking up," said Mark Stiles, a partner at Stiles & Riabokobylko.

"We have a lot of orders for quality retail premises and 99 percent are from Russian customers," Gipsh of HIB Collins said.

But the pain of finding no shopping-center space will only be fleeting. With 110,000 square meters expected next year, there should be plenty of supply to meet initial demand.

Swedish giant IKEA is expected to open a 33,000-square-meter superstore March 22, thus completing the first stage of its 150,000-square-meter shopping center in the northern suburb of Khimki. The second phase, which includes a 10,000- to 15,000-square-meter hypermarket and 15,000-square-meter shopping gallery, is scheduled for completion in 2001.

Toward the end of 2000, Ramenka plans to open a 30,000-square-meter complex with a Ramstore hypermarket on Kashirskoye Shosse near Domodedovo metro station.

The 90,000-square-meter 31 Novinsky Bulvar complex, with 16,000 square meters of retail space, near the U.S. Embassy may also open next year.

In 2001, an additional 90,000 square meters will open at the Garden Ring shopping center beside Kursky Station. That project, which stalled after the 1998 crisis, is expected to restart now that Russian developer Engeocom nailed down a construction deal with French builder Bouygues late last month.

The expected flood of one-stop shopping space will undoubtedly do more than leave retailers with satisfied customers: It is the realization of a dream of Moscow's mayor, Yury Luzhkov.

The mayor has for years been campaigning to beautify the capital, and one of his main peeves have been the popular - and so eye-appealing - rynki, or outdoor markets, where 60 percent of Muscovites flock to find wholesale prices.

"Luzhkov wants to transform rynoks into shopping centers to make them more civilized," Gipsh said.

While shopping centers are not seen as posing an immediate threat to the survival of outdoor markets, their popularity is fading and the number of markets is expected to shrink over the next couple of years, real estate experts said.

"I think we are seeing the beginning of a migration from the open-air markets to the shopping centers, which is very good for the consumer," Stiles said.

Meanwhile, Ramstore is setting its sights on being the main player to sway Muscovites away from the outdoor markets and is confident that, despite Russia's challenges, it will succeed.

"The retail business is quite a difficult business ... especially in unstable situations," Ramenka general director Bulgu said.

Echoing what may be the sentiment of all expanding retailers here, he added: "But we are here for the long term, and in the future we believe that economically Russia will be in a better position."