BUSINESS HABITAT: Homeless Legends

Department stores, even those with billion-dollar sales, cannot afford a foray into a new market with huge levels of spending on freeholds or tenancies at the landmark properties on Tverskaya or Arbat.

Still, it would not be true to say that foreign department store operators do not covet central locations, especially properties occupied by once popular Soviet-era shops that historically attracted consumers looking for specific goods.

For example, the British chain Debenhams, established about two centuries ago, is currently engaged in talks with the Detsky Mir department store about a tenancy agreement at the landmark shopping center on Lubyanka Square. At the same time, Detsky Mir is also negotiating similar deals with several other chains from Europe and the U.S.

There are other examples, as well. When in the summer of 2003 Spain’s Zara announced its arrival in Russia, Finland’s Stockman claimed that the chain was interested only in locations along the streets of Tverskaya, Novy Arbat, Kutuzovsky Prospekt and other key retail thoroughfares.

Admittedly, before Zara eventually secured a tenancy on Tverskaya – on the premises of the former GUM-Podarki shop – it had opened outlets in the Mega shopping malls in Khimki outside Moscow and in Tyoply Stan, on the southern outskirts of the city.

Stockman, too, managed to break into the city center. In 1998 the chain opened an outlet on Smolenskaya Square, while British Home Stores failed to take root on Arbat. BHS’s first outlet there closed in 1999, the second in 2005.

The number of foreign stores seeking homes along Moscow’s central retail streets grows each year. The Netherlands’ C&A, Britain’s M&S, and Sweden’s Hennes & Mauritz are on the list of world famous retail giants who have either already launched operations in Russia or are considering doing so.

It transpires that M&S, for one, will open its first Moscow store on Michurinsky Prospekt in the Festival Mall situated quite a distance from the city center. The recently built Festival Mall is still failing to attract sufficient customer flows and many retailers admit they are not interested in a tenancy there. C&A opened its first store outside Moscow, at Khimki’s Mega.

Department store operators put their choice of the outskirts down to the lack of central locations that can meet their quality and price requirements. Most companies new to the market are afraid of buying costly properties in central Moscow.

In the case of department stores entering the market through their Russian franchisees, the latter are even more cautious when it comes to investing in real estate properties. They take their time exploring the market, studying customer response first and only then venturing to launch a flagship store in the city center.

Elsewhere in Europe, however, it is highly unlikely that Zara would have started by opening its first store in the countryside while trying to break into a new market.