Money-Growing: Hamster Goes Shopping

Over the past years pet shops have increased their presence in the capital and widened the range of supplies and accessories available to pet lovers. The Cats & Dogs chain alone launched 19 shops across the city in 2005.

Natalia Zharenova, head of commercial real estate at Russky Dom Nedvizhimosti (Russian Realty House), has reported that the demand for retail space generated by pet shops grows annually by 20-30%. Pet shop operators are gradually securing foothold in all parts of the city.

Kitty’s Lunch

In a market economy an increase in the number of pet shops is explained by reasons of economic nature. “A usual rate of return on a pet shop is 20 to 30%, which is comparable to returns on other retail projects,” says Konstantin Kovalyov, managing partner at Blackwood. “Pet food supplies account for up to 50% of sales; accessories and pet care products (shampoos, cat box fillers, combs, leads and collars) make up 30%, while veterinary medications and pet health supplies account for 20%.”

Irina Kuznetsova, general director at the Vega company, says that the most active buyers at pet shops are cat owners, followed by dog owners, bird and fish lovers. At the same time most experts agree that the pet goods market is least developed of all retail segments. “Retail chains account for not more than 20 percent of the market. Others are independent operators,” says Vladimir Zhuravlyov, head of commercial real estate and investment department at NAI Global. “So far there are no major retail chains in the segment. The leaders -- Cats & Dogs, 38 Popugayev (38 Parrots), Beethoven and Dinozavrik chains -- run 5 to 26 stores, whereas in total Moscow has approximately 400 pet goods stores.”

Cats & Dogs operates 26 shops across Moscow, Viktoria Zaitseva, real estate expert at Cats & Dogs, has reported. Most outlets are situated in western, southwestern and northwestern parts of the city. For example, the chain runs outlets at Quadro shopping center on Kutuzovsky Prospekt, at Pyataya Avenu (5th Avenue) retail center on Marshal Biryuzov Street, Solnechny Rai on Borovskoye Shosse, Europark on Rublyovskoye Shosse, in Auchan hypermarkets at the 84th and 66th km of the Moscow outer ring road (MKAD) and at some other addresses. By the end of the year the company plans to expand its chain to 35 stores, Zaitseva says. Cats & Dogs offers a wide range of dry and canned foods for cats and dogs from foreign manufacturers, foods enriched with medications, hair care products and accessories, such as small houses, coaches, bowls, leads and collars, food for birds, rodents, reptiles, pet care books and aquarium supplies, etc…

The 38 Popugayev chain operates shops at Global City shopping center on Kirovogradskaya Street, Mega at the intersection of Kaluzhskoye Shosse and MKAD and on Osennyaya Street in Krylatskoye. The shops sell foods, cages, accessories, small rodents and fish. Similar merchandise is available at pet goods supermarkets of the Beethoven chain on Leninsky Prospekt, Miklukho-Maklai, Lyublinskaya and Prishvin streets.

Unlike chain operators, specializing chiefly in pet goods, their smaller rivals attract buyers with “living things” offered for sale. A shop on Staromynka Street in Sokolniki sells fish, birds and amphibians. One of Moscow’s oldest pet shops on Arbat always has a wide choice of rare dwarf dog breed and exotic cats, while a pet shop on Abelmanovskaya Street in Taganka District, sells exotic pets, such as chameleons, geckos, large parrots and spiders. A shop launched by the Dinozavrik chain last year on Polkovaya Street in Mariina Roshcha offers a wide choice of foods, grooming products and medications, as well as birds, rodents and exotic pets.

Diversity of Species

Pet shops fall into a number of categories. Irina Babicheva, public relations manager at United Realty Group, says there are three groups of pet shops. The first group comprises tiny shops selling dry and canned foods for dogs and cats and accessories, operating in basement facilities or within small outlets of a different profile. “Such spots may be situated in supermarket checkout area and measure 20 to 40sqm,” adds Irina Zadorozhko, head of the agency at the Magazin Magazinov realty.

The second group includes specialized shops with a separate entrance, measuring 100sqm and over, with pet care salons and vet drug stores operating next to them. Finally, there are pet shops and pet goods departments within shopping and leisure centers or hypermarkets. Yanis Zhukov, deputy head of marketing at RIGroup, notes that given its special format, a pet shop may serve as a mini anchor of sorts. A pet shop on the premises may tell positively on the general concept of the mall. “A smart move is to display pets in the storefront, which helps attract buyers into the shop and improve the interior,” he says.

Vladimir Zhuravlyov has praised a positive experience of pet shops launched in shopping centers Mega Tyoply Stan, Mega Khimki, Global City, Auchan Mytishchi, Perektryostok in Otradnoye and at other addresses. In his opinion, a pet shop may be viewed rather as an image component of a retail center. Konstantin Andrianov, head of retail centers department at the St. Petersburg-based Becar Commercial Property, says that his company has already had experience of working with pet shops at shopping centers in St. Petersburg.

The first pet shop to appear in a shopping center in St. Petersburg opened at Becar’s initiative. “We were selecting tenants for Vladimirsky Passazh retail center, launched in 2005,” says Andrianov. Originally, we had planned to open a pharmacy in a 200-square-meter room but its operations failed to meet the standards, so we decided to let space to the pet shop Leopold – an outlet of a well-known chain of shops selling pets and pet goods. At the moment, there were no other pet shops in that area. With bright storefronts and a wide choice of goods and pets, the store soon became popular with the shoppers.” Other brokers, too, have been successful with pet shops at retail centers in St. Petersburg.

Rules of Retail

Pet shops are to meet a certain set of requirements. Officials at the Russian Consumer Rights Protection Inspectorate (Rospotrebnadzor) have explained that on the whole many of those rules are the same as those applicable to grocery stores. Under effective legislation a pet shop owner has to obtain permission at a local branch of Rospotrebnadzor. The key requirement is lack of objections on the part of residents of the apartment house where the shop is to be located or tenants occupying neighboring properties in the building. Special requirements apply to shops that sell pets. Such shops must have a separate entrance and have combined extract and input ventilation, water supply and a sewage outlet.

A breach of provisions or recommendations may result in grave problems and closure of the pet shop, Konstantin Andrianov says. The expert cites an example of a St Petersburg pet shop, launched in the basement of a retail center, where space was also rented by a supermarket, a florist’s and a bank branch. Seeking to economize the owner failed to cover ceilings with finish and after the shop opened smells emanating from there began to fill neighboring stores. Then, one of the tenants summoned Rospotrebnadzor inspectors. The shop was not closed only because at that moment the owner’s application was still being examined by Rospotrebnadzor, and the shop met all other requirements, Konstantin Andrianov says. The owner was fined and ordered to eliminate defects and put in a more powerful exhaust fan.

Stores selling pets are required to obtain certificates from veterinary authorities and regularly renew those. “To sell exotic pets the retailer must have papers confirming that they have been imported legally,” Natalia Zharnova adds. Pet shops usually employ veterinary doctors or sign an agreement with a local vet hospital, which is responsible, among other things, for disposal of dead pets. Anticipating the trouble, most pet shops are not keen on selling pets, limiting their range of goods to foods and accessories.

Finding a Place

Given the soaring demand for retail space in Moscow, finding a suitable property for a pet shop is extremely difficult. Viktoria Zaitseva says that in the beginning Cats & Dogs faced great problems because mall owners were reluctant to let retail space for the purpose. Most landlords were biased against such shops, associating them with Soviet-era stores filled with specific odors. “That is why we had to persuade them, invite them to the outlets already in operation in other retail centers, and finally, the situation changed,” she says.

In search of properties, the chain enlisted support of Colliers International, Styles & Riabokobylko, and Jones Lang LaSalle, as large shopping centers where Cats & Dogs was seeking space usually hire major property consulting companies as their leasing agents. Nowadays, most shopping centers welcome pet shops on their premises, as their presence helps more fully satisfy the demands of shoppers seeking to buy everything they need at the same place, the expert says.

Irina Kuznetsova has reported that the owners of Mir Uvlecheniy spent six months before they found a suitable property. The store shares a 600-square-meter built-in annex at 31/1 Bratislavskaya Steet with a 190-square-meter Kakadu pet salon. The owner, seeking to open a good self-service store, faced difficulty in finding a property of appropriate size. The choice of smaller properties is wider, and finding one is easier. Natalia Zharenova has reported that several years ago she received such an application. A small property of 75sqm, in the basement floor of a house near the Kantermirovskaya metro station was found fairly quickly. But it transpired that the property had no sewage outlet. The tenant, interested in the offer nevertheless, undertook to solve the problem himself. “When renovation works began on the site local residents voiced concerned fearing that the new shop would be selling alcohol round the clock,” she says. “But when they learned that the plan was to open a pet shop they were relieved and nowadays most of them patronize the store.” The shop has two halls – for pet foods and aquarium supplies.

Vladimir Zhuravlyov noted that tenants’ requirements depend on the format of their shops. Pet shops whose owners plan to sell not only supplies and accessories but also pets, such as rodents, birds, amphibians, cats and dogs, need properties of 200 to 300sqm with a separate entrance. Nearly 30 percent of all applications are filed by retailers seeking such properties. Natalia Zharenova notes that tenants want properties without draughts; aquariums need protection from sunshine. That automatically excludes properties in buildings with large storefront glazing.

Tenants who plan shops selling only pet goods, dry and canned foods and accessories, usually look for small properties measuring 50 to 100sqm, either annexes or units in shopping centers. Their only requirement is a large storefront providing maximum daylight, other experts say. “One of the key requirements is that the shop should not be situated next to a caf? or a grocery store,” Konstantin Kovalyov adds.

Viktoria Zaitseva explains that shops operating in shopping centers usually become popular quicker but this does not necessarily mean that they are more successful then pet goods stores in detached buildings or annexes. Much depends on location and success of the retail center.

Most pet goods retailers prefer properties next to supermarkets in large residential areas or along the main thoroughfares, such as Leninsky and Kutuzovsky avenues. Vladimir Zhuravlyov notes that retailers are especially interested in units at retail centers operating in commuter areas between the Third Ring Road and MKAD. “Such properties are positioned as family-oriented leisure facilities, which makes pet shops more likely to succeed,” he says.

Rental Payments Burden

High rents impede the development of pet shops. “Quite often, even chain operators cannot afford space at modern shopping centers and opt for first floor properties in residential buildings instead,” says Vladimir Zhuravlyov. Viktoria Zaitseva agrees that the pricing policy of landlords is the main problem retailers are facing. Natalia Zharenova explains that the line of business of a tenant does not affect the size of rent. Rents are the same for pet shops and clothes stores, she says.

Yanis Zhukov says rental rates depend on the class of the mall and the placement of the unit within the complex. According to Irina Zadorozhko, a place near a supermarket checkout, measuring up to 40sqm, is let at the rate of $1,300 to $1,500 per 1sqm per year, VAT, utility payments and maintenance costs included. A shop operating in a unit situated in a conceptual shopping mall may be charged up to $2,000 per 1sqm per year. Konstantin Kovalyov has confirmed that rental rates for pet shops are the same as for other retail outlets in shopping arcades of the mall. But sometimes pet shops pay up to $3,000 per 1sqm, if they are situated on bustling city streets (e.g. a pet shop on Arbat).

Shops measuring less than 100sqm in shopping centers pay up to $1,000 per 1sqm; a shop of 200 to 300sqm, with a separate entrance may be charged as much as $600 to $800 per 1sqm. But vacant properties available for rent at $500 per 1sqm are rare on the market, Irina Kuznetsova adds. Most retailers seek to offset the burden of rental payments by expanding range of goods and services they offer. Many have plans to expand operations outside the capital. Viktoria Zaitseva does not rule out that Cats & Dogs will launch operations in St. Petersburg. Brokers receive applications from large chains and small retailers.

As Muscovites’ incomes grow they are able to spend more on their beloved pets, and experts expect the number of pet goods shops to grow in the future. Tatiana Borisova, retail real estate consultant at Jones Lang LaSalle, anticipates the development of shops offering a wide range of goods by a variety of brands. “A kind of supermarkets for our best friends,” she says.