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2. Consumer Characteristics
2.1. Consumer Demand up by 3,4 per cent over first semester 2010
2.2. Real Income rose by 13,4 per cent until May 2010
2.3. Strong recovery in demand for new automobiles
2.4. Share of private clothing expenditures abroad on the rise
3. Retail Development
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1.1. Gross Domestic Product might rise by 6,2 per cent in 2010
September 2010, Bloomberg Corporate Executive Board (CEB) and cisstat
After subsequent higher one digit growth of the Russian Gross Domestic Product
(GDP) over the past ten years, this indicator dipped by 7,9 per cent in 2009. Over
the first quarter of 2010 GDP increased by 2,9 per cent against the same period of
2009. The first semester of this year saw a rise of 4,0 per cent. According to the
chart below, CEB projects a GDP growth for 2010 ranging between 2,9 % (low
estimate), 4,0 (medium estimate) and 6,2% (high estimate) at real terms:
1.2. Industrial production up by 10,2 per cent over 2nd Quarter 2010
September 2010, www.cisstat.com, main macroeconomic indicators
Industrial production increased in Russia at an average rate of 5,3 per cent from
2000 till 2008. In 2009 this indicator declined by 10,8 per cent against 2008.
During the first quarter of this year industrial production attained a growth of 5,8
per cent. From January till June output of the Russian industry recorded an
increase of 10,2 per cent against the first semester of 2009. Agricultural
production faced different results. Whereas turnover rose by 3,6 per cent during
the first quarter of this year, the first six months saw a reduced growth at 2,9 per
cent.
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1.4. Imports back on the growth path
September 2010, cisstat.com, first semester key macro indicators
According to Matthias Siller, manager of Barings Russia Fund, the country is the
cheapest market for investors at a time right now when fundamental economic
data for Russia are commonly considered as very convincing. As Siller says, global
portfolio investors find no way around Russia for getting higher yields than here.
Shocked by the Euro-crisis in May, this year, global institutional investors jumped
on Russian government bonds issued in Roubles and US Dollars, bringing the
investor an annual yield of 5,4 per cent. According to Segei Arsenyev, analyst at
Goldman Sachs, he expects high profit margins from investments in stock of
Russian trading and retail companies selling consumer products as well as raw
materials for industrial use.
Although monthly inflation came down from 8 per cent at the beginning of this
year to 3,6 per cent in May, forecasts of the Russian Ministry of Finance aiming at
an average inflation rate of 5 to 6 per cent for 2010, may not come true.
According to the US economist Nourid Roubini, there are a number of indicators
pointing at an overall inflation rate possibly reaching 8 per cent this year. Higher
inflation than originally forecasted by the government may result from strong
rising prices for wheat, other foodstuffs and basic commodities, raw materials,
increase of salaries and wages such as from a declining US $ in combination with
a stronger € and a weaker Russian Rouble.
It is still premature to assess the economic and social damage caused by the
heat-wave and forest fire devastation which have hit Russia in July and August
2010. Experts speak of a cost burden of around US $ 15 bn resulting from this
catastrophy. Almost any economy sector has been directly or indirectly affected.
Mobile telephone providers were hit extremely hard because their networks
collapsed under destroyed transmission posts, telephone cable and networks.
Water supply was partially interrupted from the breakdown of power pumps.
Consumption of electricity surged because air conditioners operated at their
maximum capacity. In 27 Russian federal regions agriculture faces losses in crops
of wheat and other foodstuffs accounting for 20 percent below average summer
crops results. The government stopped wheat exports on August 5. This decree is
valid until December 31, 2010. Russia is the fourth largest wheat exporter world
wide and expects a negative effect on its balance of trade. According to Vladimir
Milov, former federal energy minister and leader of the liberal opposition party
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claims that the environmental disaster will Russia push back by several months in
its attempt to overcome the global economic and financial crisis. His opinion is
shared by experts saying that the economic recovery will be delayed because
higher cost for anything related to food, energy supplies and telecommunication
will be put on the shoulders of the public, beginning in autumn of this year.
Exports of textile apparel and accessories from the 27 member states of the
European Union to Russia kept declining by 15 per cent over the first six months
of this year reaching an ex factory value of € 0,958 mn. Last year shipments had
to face a decline of 29 per cent representing a total of € 2.1985,5 mn. This means
that European clothing suppliers to Russia were in a position to cut their losses
almost by half. Over the delivery period of the first quarter of 2010, clothing
exports from the EU to Russia saw a decrease of 20 per cent. The European
Fashion and Textile Export Council (EFTEC), monitoring export development of
European clothing to Russia on a quarterly basis for each member state and for 33
main product categories since 2002, expects a return from "red" to "black" export
figures after the first semester of 2011.
2) Consumer Characteristics
2.1. Consumer Demand up by 3,4 per cent over first semester 2010
September 2010, cisstat
2.2. Real income rose by 13,4 per cent until May 2010
3rd Quarter 2010, The Global Blue Perspectives
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2.3. Strong recovery of demand for new automobiles
September 2010, Bloomberg Corporate Executive Board Research
Car sales, an important indicator for consumer sentiment, reached their peak in
Russia in April 2008, when around 300.000 cars were sold. Since then, there was
a constant decline in sales of cars. The bottom line was reached in January 2010,
when just 75.000 cars found customers. At the end of April 2010 car sales
increased by 20 per cent against the same month of last year. In June 2010 car
dealers reported a surge of 57 per cent compared to June 2009.
The Russian Federal Tourism Agency confirmed that more than 6,64 mn Russians
headed abroad during the first quarter of 2010, an 11 per cent increase compared
to the first quarter of 2009. According to the Federal Agency of Air Transport, the
highest number of passengers to outside Russia destinations are recorded at
Moscow airports in June 2010 totalling 2,462 mn people, a 23 per cent increase
against June 2009. There are several reasons for the surge of Russians travelling
abroad: the perceived end of the crisis, pent-up demands, the increased value of
the Rouble and easier travel rules. Spain for example now issues six month
multiple visas and Italy and Greece announced similar steps. Turkey for any
Russian and Eastern traveller, is a visa free destination likewise Egypt and the
United Arab Emirates.
3) Retail Development
According to Elena Afanayeva, head of the commercial real estate agency Prime
Time Reality, she observes an upward trend in lease rates for retail stores which
are estimated to increase by 10 to 15 per cent in autumn 2010. Landlords already
signalled since July to revise rents in shopping centres and malls, in particular, for
which demand at this time of market awakening is feasibly rising. Prospective
tenants are said to be very active in catching the last competitively priced store
facilities. The most attractive objects are still those of the middle market segment
at leases going from € 500 to a maximum of € 2,000 per sq. meter per year.
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3.2. ARMANI COLLEZIONI opened mono-brand store in Ekaterinburg
July 7, 2010, malls.ru
GINGER is a Russian retail chain selling trendy clothes for children and teenagers
from 7 to 17 years. Up till present the company operates above 20 stores in
regional cities like Ekaterinburg, Vladivostok, Kirov, Murmansk, Nizhnevartovsk,
Zheleznagorsk; Irkurtsk and others as well as in Astana, Kazakhstan. GINGER
announced plans to expand the network by 13 new stores across Russia. The
company further stated that it is in course of trading up its brand to become more
attractive.
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take responsibility for the Belo-Russian market. According to Kommersant ADIDAS
announced to open approximately 15-20 stores in the territory in 2011, all
countries which are part of the new Customs Union which Ukraine is expected to
join in 2011.
After the opening of the shopping mall STOCKMANN NEVSKY CENTER on Nevsky
Prospect at the end of 2010, the company will most probably shut its traditional
STOCKMANN DEPARTMENT STORE which is also located on Nevsky Prospect. The
old premises were under negotiation between STOCKMANN and H&M as a second
store facility for H&M on Nevsky Prospect, but the parties could not agree in lease
terms, although H&M will move as anchor tenant into the new STOCKMANN
NEVSKY CENTER. At the moment the average rent on Nevsky Prospect is in
between RUR 3.500 and 5.000 (€ 90,-/US $ 117,-) per square meter per month.
According to RIA Novosti, the Russian news agency, Finnish retailer STOCKMANN
recorded sales in 2009, which fell by 16,3 per cent against 2008 to € 212,7 mn.
Over the first six months of 2010 STOCKMANN registered earnings accounting for
€ 97,5 mn compared to € 81,1 mn in the fist semester of last year. The operating
loss declined from € 17,5 mn to € 10,2 mn. As of July 2010 STOCKMANN runs 5
department stores in Moscow and one in St. Petersburg. Besides the department
store business the company operates mono-brand clothing stores under the
brands of Seppala, Lindex and Bestseller which are also controlled by STOCKMANN
in the Ukraine.
British young fashion retailer NEW LOOK prepares its further expansion in Russia
in co-operation with its master-franchiser DELTA SPORT since the beginning of
2009. At present NEW LOOK covers Russia by a number of 14 stores. According to
the terms of contract DELTA SPORT committed to open a total of 96 NEW LOOK
stores in Russia over a period of 5 years. In July the British extended the co-
operation with DELTA SPORT on the territory of Ukraine. DELTA sold its original
distributionships for SPRINGFIELD, WOMEN'S SECRET (Cortefiel) and COLOURS &
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BEAUTY to Russian MFG Group, which DELTA owned before. According to
Alexander Tomasevic, head of marketing of DELTA, the company will now fully
concentrate on the expansion of NEW LOOK in Russia and Ukraine. Pricewise NEW
LOOK positions itself on a comparative level with PEACOCKS and Inditex's
BERSHKA and STRADIVARIUS. For example, a pair of jeans under the brand of
NEW LOOK retails from RUR 799 to RUR 1.600 (US $ 26,80 to US $ 53, 60), and a
jacket from RUR 999 to RUR 2.500 (US $ 33,50 to US $ 83,80). Experts say that
entering the Ukrainian market at a competitive price level together with a vast
range of collection being speedily updated appears to be very prospective venture
at this time because there is a lot of abandoned retail space now available at
shopping malls in Kiev and in other Ukrainian large cities offering low rent
opportunities. The Ukrainian clothing retail market is expected to recover in the
medium price segment from the crisis in 2011.
3.9. Did heat wave and smog affect retail sales in Moscow?
August 11 2010, malls.ru / ITMM
Retail experts are undecisive whether or not the environmental catastrophy over
July and August affected retail sales in the capital. Some argue that both heat
wave and smog attacks came along during the key Russian holiday season, when
Moscow is usually empty anyway. Others, like the management of EVROPEYSKY
shopping mall in Moscow reported frequency of visitors increased from 4,28 mn
people in June 2010 to 4, 35 mn in July, which is around 1 mn more visitors than
in July 2009. Whereas retailers selling electric home appliances like air
conditioners and fans made a life time fortune in selling such products out, dealers
of consumer goods including fashion recorded a "slight drop" of sales. This was
reported by RBC, a Russian market research news provider.
PODIUM FASHION GROUP, one of the leading Russian retailers selling premium
and avantgarde clothing and footwear in Moscow and the regions, will open its
first large format fashion department store at the renovated historical building of
Hotel Moscow, located at the Manege Square in the centre of the capital. The
store is positioned on the second and the third floor of the building. It comprises a
retail area of 6.600 square meters. "Our new store will present a number of
unique and ambitious brands which have not been sold in Russia before"
announced PODIUM through RBC Daily. PODIUM is the first anchor tenant in the
building providing a total of 12.000 square meters retail space. PODIUM operates
in the Russian fashion market since 1994 and runs 24 multi-brand concept stores
on a total area of 14.000 square meters in Moscow and other selected Russian
large cities. The portfolio of PODIUM comprises more than 350 brands. In addition
to clothing and footwear PODIUM also sells luxury jewellery, watches, home
furnishings, perfumes and cosmetics. The company goes international as well.
Two boutiques selling jewellery were opened in Paris and Courchevel in France.
As it was reported by the real estate broker Jones Lang LaSalle on August 16,
2010, the Californian BCBG Fashion Group, owned by MAX AZRIA, will open a
store on 170 square meters under the brand of MANOUKIAN at the new shopping
mall GALLERY in St. Petersburg, located at the Moscow Railway Station. The new
mall is planned to start operations at the end of 2011. According to Nadejda
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Shpagina, Director General of DIALMA, the franchise partner of MANOUKIAN, the
store will extend on two floors. Jones Lang LaSalle also announced, that three
British fashion brands, WAREHOUSE, FRENCH CONNECTION and RIVER ISLAND
have chosen GALLERY as location for the opening of mono-brand stores. Lease
contracts have been signed by the master franchiser for WAREHOUSE and
FRENCH CONNECTION named CENTERPOINT and SK BREEZE, the developer of
GALLERY. As it was stated by Alexander Golobov, regional development manager
of CENTERPOINT, the two stores will cover a retail space each of around 180
square meters. Maratex, franchise partner for Russia and Ukraine for RIVER
ISLAND, will join the other three brands at GALLERY and will open a store under
this brand on a floor space of 800 square meters. In addition to such brands the
following have concluded lease contracts for GALLERY shopping mall: ESPRIT;
LADY & GENTLEMAN (multi-brand); NEW LOOK; BENETTON; SNOW QUEEN (multi-
brand); MANGO; TATUUM; MOTIVI; TERRANOVA; CALLIOPE; LACOSTE among
others. The price level environment at GALLERY follows the trend in Russia
focusing on "democratic" to upper medium positioned clothing.
According to RBC Daily, over the past 8 months IKEA did not open any new
commercial and entertainment centers under its brand MEGA MALL, due to
bureaucratic interference imposed on IKEA by regional administrations. At this
moment IKEA keeps struggling with the local bureaucracy of Voronezh to obtain
approval for the start of construction of its MEGA MALL project in Voronezh. A
spokesman of IKEA said that the company does not expect the permit until the
end of 2011 due to problem of "internal nature". IKEA faces similar problems for
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the opening of its MEGA MALLS in Samara and Ufa, where constructions are
almost finished but approvals for specific security and technical installations get
delayed since months by the competent authorities of both cities. As it also
became known, IKEA faces problems to agree with building contractors on the
terms of construction for the fourth MEGA MALL in Moscow, close to the Mytishi
subway station.
British clothing retailer MARKS & SPENCER signed a lease contract with Jones
Lang LaSalle, exclusive brokers for the new upcoming shopping and entertainment
center GAGARINSKY, being under construction on Vavilova Street in Moscow. The
store will comprise 1.310 square meters of a total retail reserved area of 70.000
square meters. According to Jones Lang LaSalle anchor tenants of the new
complex are AUCHAN on 24.000 square meters, SPORTMASTER on 5.300 square
meters, DETSKIY MIR; LADY & GENTELMAN; MANGO; ETAM; ACCESSORIZE;
INTIMISSIMI; CALZEDONIA; ADIDAS; REEBOK; LEVI'S; LEE; WRANGLER;
CROCUS FASHION; NICE CONNECTION; GLORIA JEANS and many other medium
priced brands. Investor in GAGARINSKY is a joint venture between French Auchan
and a Moscow based Machine Tool Plant named Ordzhomikidze, which is quite an
unusal alliance for Russia.
JSC REGION DEVELOPMENT opened its third shopping and entertainment complex
under the name of JUNE in Cherepovets, one of the largest towns in the North-
West region of Russia. This city has a population of 311,869. The center is the
first venue of its kind in Cherepovets. The grand total of the centre comprises
46.000 square meters providing a retail area of 30.000 square meters. Anchor
tenants are LENTA, the Russian grocery hypermarket chain (5.800 m²), seven
cinemas on 2.800 square meters and M.VIDEO, a large Russian retail chain of
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electronics and household appliances on 2.700 square meters. The balance of the
retail space is held by clothing, footwear and sports gear multiples of Russian and
international brands together with cafes and fast food restaurants. JUNE brings
more than 1.000 new jobs to the city of Cherepovets. According to Amiran Z.
Muftozoev, Director General of the developer JSC REGION, this company operates
two more shopping and entertainment centres under the name of JUNE in St.
Petersburg on a gross lease area of 62.000 square meters as well as in
Krasnoyarsk, Siberia, on 75.000 square meters.
According to Jones Lang LaSalle this real estate broker has taken exclusive lease
promotion rights for a new shopping and entertainment center coming up in
Krasnodar in the South-West of Russia under the name of OZ-MALL. The first part
of the venue is opening in autumn of 2010, the second is to open in March 2011.
OZ-MALL belongs to the largest projects of its kind all across Europe. The total
land area comprises 46 hectares with a gross lease space of 165.000 square
meters. Anchor tenants moving in autumn of this year are German OBI, the DIY-
chain, KIKA, O'Key, the Russian grocery chain and French DECATHLON, the
sports' retailer. Developer of the center is AIM PROPERTY DEVELOPMENT which
plans to continue investing in large scale shopping and entertainment centers in
Russia.
As it was reported by RBC Daily, God Nisan and Zarah Iliev, owners of the most
frequented shopping mall EVROPEYSKY in Moscow, have taken a majority control
stake of the Russian investment and industrial group EURASIA. The largest
development project of this group is construction of a multifunctional shopping
and entertainment complex under Paveletskaya Square in Moscow. The total area
of the complex comprises an approximate 120.000 square meters incorporating a
retail area of 35.000 square meters. Begin of construction of the project was
delayed several times but with the new investors the City Government of Moscow
expects construction to take off shortly.
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the end of August 2010 the developer reported a lease contract overage of 80 per
cent of the disposable retail area.
At the end of this year St. Petersburg will reach the second highest level of square
meters provided by shopping centers in the whole of Europe. This was reported by
the Russian news agency Infoline. Whereas at present the total area of shopping
centers in St. Petersburg comprised 1,302 mn. square meters, the openings of the
new shopping and entertainment centers GALLERY, SUMMER and STOCKMANN
NEVSKY CENTER will add some 500.000 square meters providing a total of 1,8 mn
square meters. Moscow holds 2,648 mn square meters and the capital will soon
reach 3 mn square meters, the largest accumulation in Europe. St. Petersburg is
to surpass cities like Stockholm (1,344 mn square meters) or Berlin (1,466 mn
square meters). The top ten in Europe further includes Milan, Barcelona, Warsaw,
London, Rome and Prague.
Stuttgart/ Düsseldorf/Moscow
September 29, 2010
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