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. Last Updated: 07/27/2016

Besieged IKEA Set to Alter the Face of Retail




"If you build it, they will ... stampede?" That might just as well be how the old saying should be updated when it comes to Swedish furniture giant IKEA.


A mere 14 days after IKEA threw open the doors of its first Russia-based outlet, a mammoth $100 million superstore in the northwestern outskirts of Moscow, the outpouring of enthusiasm from tens of thousands of Muscovites appears to remain unquenched.


Retail and real estate experts call the mad dash for affordable pine beds and Swedish lamps a sign that consumers' buying power has strongly rebounded. IKEA's initial overwhelming success, stemming from its decision to invest in the project at a time when Russia was deeply mired in the economic doldrums of the 1998 crisis, could well persuade other foreign retailers to shrug off any lingering fears about entering the market, experts said.


The mammoth IKEA complex, and a 150,000-square-meter shopping center that will be built beside the store, are seen as a big step forward in the evolution of the retail real estate sector. IKEA now provides not only an example of what kind of retail services attract consumers, but it proves that retailers can build in the suburbs far from the city center and still be a hit, experts said.


Two other specialized shopping complexes have been built out of the city limits, the Tri Kita and popular Grand furniture stores, but neither has seen anything close to the flow of customers flooding IKEA.


By Wednesday, two weeks to the day after opening, a staggering 261,500 customers had swooped down on IKEA, an average of 19,000 a day after a high of some 40,000 people on the first day, according to IKEA officials.


"It's crazy, absolutely crazy," Lennart Dahlgren, IKEA's director for Russia, said in a recent interview. "All of our expectations in every area - the number of customers, turnover and whatever else you can name - is absolutely much more than we expected."


IKEA marketing director Johannes Stanberg has his own take. "We are seeing more visitors than all of our seven stores in Poland put together and we have been open in Poland eight years," he said. "It goes to show we have had a magnificent start."


While officials declined to give out sales figures, Stanberg said they are "far beyond our expectations."


"About one-third of the visitors became our customers, which is a great result when you consider that we are new in the country," he said. "Russians tend to be suspicious in the beginning ... and people don't have that much money."


Massive traffic jams have plagued Leningradskoye Shosse, the main highway leading to the store in Khimki, for the past two weeks. IKEA is scrambling to expand its 1,500-car parking lot to accommodate 1,000 more vehicles.


Such sheer interest in a retailer has not been seen since Turkish grocery giant Ramenka opened the nation's first and then second Ramstore hypermarkets. The Ramstores are located in the city outskirts, but unlike IKEA they are within the city limits. Ramenka plans to open a third shopping center and hypermarket at the end of this year and more than 30 free-standing supermarkets over the next 10 years.


IKEA stands out in the retail arena because it is the first retailer to sink such an enormous sum of money into the sector, a move that may convince other companies to enter the market, industry experts said. In addition, it is helping pull up the retail real estate market to the standards seen in the West, they said.


"IKEA is the first company to invest such a huge amount of money in retail. I think it [IKEA's success] will bring other retailers onto the market in the future," said Natalia Oreshina, retail property consultant at Stiles & Riabokobylko, the Russian associate of Healey & Baker. Stiles & Riabokobylko is also IKEA's exclusive leasing agent for its future shopping center.


"IKEA became the first development that is considerably out of town," she said. "We think that shopping center developments will go more to the suburbs now where there is more space and better parking facilities."


"It is the next step of the Moscow retail market toward worldwide trading technologies," said Natalia Osipova, retail expert at Colliers HIB.


Although IKEA follows Grand and Tri Kita in opening out of the city limits, it stands alone in offering low-priced goods for the middle class that can be picked up immediately after being purchased, Osipova said.


"It [IKEA] does work all over the world and we think it will work and be popular in Moscow," she said. "But today 28,000 square meters is not enough to affect the Moscow retail market much. IKEA will not be an obstacle for existing shopping centers."


While IKEA is continuing to see interest going into its third week on the market, other real estate experts questioned the longevity of that excitement.


"Obviously there has been a huge amount of interest in the store, but a lot will depend on how it does in the longer term," said Amanda Spring, managing director at DTZ Moscow real estate agency. "Right now, I think it is very much of a novelty."


IKEA currently is averaging over 10,000 visitors on weekdays and 25,000 on weekends, according to the company. About 35 percent of those visitors are buying goods. The food court is attracting 4,000 to 5,000 people on weekdays.


"The thing I am most happy about is I had expected many foreigners to come, but more than 95 percent of those visiting the store are Russians," IKEA director Dahlgren said. "That is exactly what we wanted."


IKEA officials said at the store opening that they hoped to see a steady stream of 15,000 visitors a day within three years - after the shopping center with dozens of boutiques, a multi-screen cinema, food court and perhaps a bowling alley is built.


No leases have been signed yet for the shopping center, but retailer interest is high, Stiles & Riabokobylko said.


A date for construction to start on the center depends on the signing of a hypermarket to operate as an anchor tenant, Oreshina said. Construction itself would take six to eight months.


"We feel that the market is waking up and there are very many companies looking for new sites," Oreshina said.


In the meantime, IKEA is already laying out plans to open five more stores in and around Moscow and two in St. Petersburg. The company has already leased a 53-hectare plot of land in the southwestern suburb of Kolmunarka for another outlet and shopping center. That location is also outside of the city limits.


IKEA marketing director Stanberg said, though, that IKEA first would like to open a shop within Moscow and is trying to hammer out a deal with City Hall under which it would be granted land for a reasonable price. Moscow has already offered several sites, but their asking price for a 49-year lease has been much too high, he said.