Money growing: Flower Beds in Shopping Centers


DIY (Do It Yourself) format hypermarkets that offer goods for arranging a house and garden to European level appeared in the capital rather recently. According to Konstantin Korolev, head of the consulting department at Becar Commercial Property Moscow, there are already some DIY chains currently operating, with them having 1 to 20 shops, and the total area of all shops measuring almost 300,000 sq.m. According to Vladimir Voronin, president of financial-construction corporation Leader, German chain AVA was among the first foreign companies to enter the market when in February 2003 it opened a Marktkauf hypermarket in Kotelniky, located outside of Moscow. The shopping center is situated on a 10-hectare territory, and its area totals 29,000 sq.m.

What, when, where?

Shops that sold goods for the house were present before, but the assortment of gardening goods in them was much more limited than in the international chains.

The largest Russian hypermarket working under European technology, is the Tvoi Dom shopping center located on the 24th km of the MKAD, by the Kashirskoye shosse intersection. Crocus Group opened it in February 1998. The initial area of the complex was 16,000 sq.m, but it now measures 66,000 sq.m after its completion. Following that, in September 2000, 40 km from the first store, on the 66th km of the MKAD by the Volokolamskoye shosse intersection on the territory of Crocus-City, a second Tvoi Dom store was opened measuring 40,000 sq.m.

In November 2003, German retailer Obi entered the Russian market, offering goods under four categories - Construction, Habitation, Garden and Technics. "Obi is a shop that has DIY goods integrated with a garden center," Romano Quinzi, general director of Obi Russia, says. "The format is absolutely successful in Moscow, in Russia and across all of Europe." There are currently 11 Obi stores in Russia, three of which are in Moscow (on the territory of Mega at Tyoply Stan and at Mega-Khimki) and at a retail park on Varshavskoye shosse.

In August 2004, French hypermarket Leroy Merlin opened. Since then the company has opened three shops in Russia, all in the vicinity of Moscow (at Khimki, Krasnogorsk and Mytishchi). Leroy Merlin has a wide selection of goods from five main categories: home, construction, garden, sanitary engineering and finishing materials. Leroy Merlin provides more than 300 kinds of services, for example the development of renovation projects, drawing up estimates, ordering and delivering goods, post-sale services and also installation services. Shoppers can go and watch special lessons on how to use goods and visit specialized book departments, Aydar Galeyev, director of the consulting and research department at Miele - Commercial Real Estate, says.

On June 7, 2007, Israeli chain Castorama opened its first hypermarket. The shopping center opened on the Novoryazanskoye shosse, in a building of the trade complex that belonged to Marktkauf (this trade mark has left the Russian market and has sold its shares), which was already known to consumers as a place to buy goods for the home and renovating and decorating. In Russia there are four Castorama hypermarkets in the capital and one in Samara and another two in St. Petersburg. Castorama offers about 35,000 goods for the house, dacha and garden, including building and decorative-finishing materials, lighting and electrical goods, floor coverings and tiles, heating equipment, sanitary engineering and water supply, kitchens, tools and hardware and joiner's products. In the shopping center there is also a wide choice of flowers and plants for the house and garden. In particular, plants and bulbs and flower rhizomes, vegetable and flower seeds, grass seed, soil, fertilizers, products to protect plants, pots, plant accessories, decor for the garden, and also garden technical equipment, tools and implements.

All the named hypermarkets have a wide focus. "For comparison, Western DIY stores have a narrower specialization, there are separate stores for household goods and for the garden," Marty Wilan, development director at Astera Oncor, says. "The most famous European format hypermarkets are Jardiland, which has more than 120 garden centers in France, Spain and Portugal, Plantagen, with 62 centers in Norway, Sweden and Finland, Truffaut with 52 centers in France and England and Untratuin, with more than 60 garden centers in the Netherlands and Belgium, etc. In Russia, garden centers of a similar format are only planned to be built.

Nikolai Volchkov, general director of Torgoviye Kvartal, explains the rather late appearance of European chains that sell goods for the home, renovation and garden on the Russian market due to the greater risks as such profile goods are not essential to living like food products. "One more deterrent is the presence of lots of construction and gardening markets," he adds. There is still a wider range of goods there for the dacha.

"The main advantages of hypermarkets are the wide selection of goods, the low prices, the warranty service, and the fixed cost of the delivery of the goods," says Irina Kirsanova, head of the marketing and consulting department at Astera Oncor. She thinks that such stores are worthy competition for specialized markets.

In the opinion of experts, DIY stores are more exacting on the quality of the service they provide the client. "Unlike markets the visitors to DIY stores are private individuals or builders who need a guarantee for the equipment, simplicity of service and convenient delivery," says Korolev.

To find a place and a neighbor

Michael Gets, vice president for strategic development at Blackwood, says that DIY hypermarkets should be located in the suburbs of a city, or up to 10 km from a city. The area of the land plot should not be less than 3 hectares. For example, for the development of the Castorama hypermarket chain the land plots measure 3-6 hectares. According to Galeyev, it is not easy to find such space in Moscow. "The main problem is low supply and high demand for larger land plots (4 hectares) in Moscow," agrees Quinzi. "The result is high prices for land."

Voronin notes that the need for large sites, besides for the actual hypermarkets building is for necessary additional areas for parking with a minimum of 500 spaces, for warehousing the goods, and for access roads for super-size transport vehicles.

Voronin thinks that depending on the scale of a hypermarket for it to successfully function it is necessary to calculate the average annual and minimum daily number of visitors. It is also necessary to solve the problem of the transportation access of buyers. The hypermarket should be located on a strategic city highway, and proximity to the metro is an advantage. If the metro is not nearby, it is necessary to supply free-of-charge buses and mini-buses. " Convenient entrances and exits from a highway should also not be neglected," he says. For example, Mega hypermarkets have their own buses from metro stations, which promote an inflow of buyers.

In the opinion of experts, the best way to make sure a DIY hypermarket has visitors is for it to be located within the limits of a large shopping center or in immediate proximity to them. "There are no restrictions on the distribution of operators in the neighborhood, though it should be understood that sellers of elite clothes near a DIY store will hardly provide profit for the first," Galeyev says.

"Both in the West, and in Russia the practice of locating DIY hypermarkets near to grocery hypermarkets has been well proven, a shining example is the neighboring Auchan and IKEA stores to the Mega shopping center," Antonina Lairova, senior analyst at Prime City Properties, says. "If a buyer has come to buy groceries there is a high probability they will also go to a shop that sells products for the home, the formats of the shops do not compete, and create additional consumer flows for each other."

In locating a DIY store within the structure of a shopping center visitors can not only get goods for the house, but also go to the cinema, go shopping, and buy grocery products. According to Lairova, although some DIY hypermarkets have places to eat, it is obvious that in the food court of a shopping center the choice will be much wider. All these factors increase the comfort of stay in the store, and it is exactly this aspect the target group of DIY store consumers is sensitive to.

Korolev, in turn says that a location neighboring home appliance and furniture stores as the most favorable for DIY stores, any other neighbors will not provide extra streams of visitors," he emphasizes.

"Placement of DIY hypermarkets in a separately standing building, especially close to shops that sell household products or similar, for example IKEA, is unconditionally an advantage, and will attract additional buyers due to the successful neighborhood," Galeyev summarizes.

Development together and separately

According to Korolev, the concept of DIY stores can be divided into several formats. The first are supermarkets of finishing materials or goods for the garden and vegetable garden, and the second are hypermarkets with a wide-ranging focus. Depending on the format it is separated into trading areas. To open a small supermarket the total area of the premises should be 1,500-2,500 sq.m, and for a hypermarket areas from 5,000 sq.m and above are required. "The format of the floor space should be open space," Michael Gets adds.

Unlike specialized supermarkets, where it is ok to have premises in any big shopping center, a big hypermarket can only use premises adapted to the specifics of the shop. The main problem in placing a DIY hypermarket in a shopping center, in the opinion of Olga Yasko, head of the analytics department at Colliers International, is the coordination and observance of the numerous requirements for such shops. For example, the grid of columns in the constructed building should be not less than 12 х 12 m, the height of the ceilings at least 4.5-5.5 m, the parameters of loading on overlappings should be 450-500 kg per sq.m, etc.

According to Korolev it is possible to place DIY stores on the first or ground floor of shopping centers. It is necessary to consider many factors connected with the logistics of a hypermarket. The main being the delivery and unloading of large-sized cargoes, chemicals and fragile goods, the simplicity of moving buyers with goods from the exit of the hypermarket to their parking place, the proximity of exits to parking as it is not permitted for the buyer to carry heavily loaded trolleys, for example, with cement or lengthy materials through the aisles of a supermarket. Locating a DIY store on the 2nd or higher floors is only admissible if there are goods lifts or if there is zone for large-sized goods in a separate place. For example, from the underside of a building near unloading zones, directly from the warehouse.

Separately standing buildings are more convenient for DIY hypermarkets in every respect. As Voronin has explained, the basic advantage of placing a DIY hypermarket in a separate building is the opportunity to design and construct a building simply for that purpose. In such cases it is possible to calculate the necessary area and define the most convenient variants of layout. According to Galeyev, the project should be developed taking into consideration that the area of the 1st floor of the building should be not less than 5,000 sq.m, and the total area, according to Kirsanova, should be 8,000-12,000 sq.m.

At Obi they consider that for the correct calculation and presentation of goods the trading area should be no less than 10,000 sq.m. In connection with this the trading areas of many Obi stores have essentially been increased. Now the area of new Obi stores that are opening measure 12,000-16,000 sq.m. The requirement for stores that belong to the Leroy Merlin chain is from 9,000 sq.m and for Castorama hypermarkets is almost 11,500 sq.m.

The optimum height of ceilings in trading halls should be 6-8 m due to the necessity of installing many shelved racks. From the point of view of engineering equipment, international DIY chains have many demands concerning the space, therefore developers enter into an agreement with a specific operator at the design stage and consider its requirements as much as possible. "If the placement of a store in an unspecified building with any parameters is unacceptable for foreign operators it may still be possible for some Russian retailers," Lairova says.

As many hypermarkets sell indoor plants and flowers, there should be good light exposure in the trading hall, "Goods intended for renovation and for the garden, at times demand special conditions of storage and the corresponding equipment should be necessarily stipulated," Gets says.

DIY hypermarkets are equipped with climate-control systems. The temperature in the administrative premises should be at a level of +21-23 degrees Celsius, in the trading hall - around +18-20 degrees Celsius, and in the warehouse - +15-17 degrees Celsius. "For hypermarkets like Obi where there is a department for gardening products, air streams should be divided for different zones," Korolev says. "Raised humidity is necessary for plants, and wood materials should not come into contact with moisture from the air above State Standards.

Kirsanova considers that specialized DIY hypermarkets have a target audience who visit these shops with precise and definite purposes. In this case that they are located in separately standing buildings or on areas rented in shopping centers, has no special value. "Approximately 85 per cent of buyers go to these shops purposefully if DIY hypermarkets are located in a complex of buildings, for example Obi. The share of impulsive, not planned purchases can increase, but visitors of Mega which decide to glance in Obi and buy something necessary, as a rule, make small-sized purchases," she emphasizes.

Minimum Rates

For operators of DIY stores need significant areas, therefore they can act only as anchor tenants. "DIY stores provides rather low rental returns for proprietors of shopping centers, and do not hurry to invite themselves as such tenants," Gets says. "Therefore operators are compelled to create trading areas for themselves independently." For example, Crocus Group has constructed trading areas for its Tvoi Dom hypermarkets. When placing the first hypermarket of the Castorama chain on Novoryazanskoye shosse a building previously used by a trading operator of a similar profile was bought.

But experts say that renting space in shopping centers has its own advantages: you don't have to spend your own money on capital investments and turnover is quicker. "Rental rates for an anchor of such profile for an area of 8,000-10,000 sq.m will be $200-250 per sq.m excluding VAT and municipal payments," says Kirsanova. Gets considers that if the anchor tenant is a DIY hypermarket, premises can be rented for $150-200 per sq.m per year excluding VAT and operational charges and Yasko puts the rental rate at $100-$130 per sq.m per year.

For the pleasure of gardeners

Currently the commodity market for house and garden goods is swiftly developing, and totals billions of dollars each year. According to Evrogarden, the turnover of just the garden center market totals $2-3 billion. The majority of large western and Russian operators are announcing plans of further expanding their business and opening new hypermarkets. Voronin notes that this is due to perfected legal mechanisms, growth in the well being of the population and development of the out-of-town real estate market. "However, despite the seeming simplicity, the construction, equipping and management of a DIY hypermarket - is very important and complex work, demanding significant investment and the attraction of highly skilled experts," he emphasizes.

According to Miele - Commercial real estate, there are currently various premises at the design and construction stage where the tenant will be a DIY hypermarket. Among them, according to plans Zolotoi Vavylon III will be completed in 2008 on the intersection between Ryabinovaya and Vereiskaya streets, Kashirsky Mall on the 24th km of the MKAD, near to the Tvoi Dom complex (2009), Rio Grande on Dmitrovskoye shosse (2007), and Big-Box on the 6th km of Novorizhskoye shosse (2007), etc. According to Yasko, Russian chains have announced significant plans for development in regional cities and those don't yet have hypermarkets in moscow: Metrika, StroiArsenal, etc.

Quinzi notes that according to the three-year plan for development of the company up until 2010 in Moscow and the Moscow area there will be about 12-15 Obi stores. Within this year a fourth store in the southeast of Moscow will open. Two more shops in the north and West of Moscow are at the stage of construction. Their openings are planned for summer 2008 "We plan to start building work at a further two sites by the end of 2007 and open the stores at the end of next year, we are also developing and discussing other sites," he says.

Home Center, an Israeli chain of shops of goods for the home and will open its first hypermarket measuring 12,000 sq.m in Moscow in 2009. The shopping complex on Kaluzhskoye shosse is being built by Israeli group Fishman Holdings that owns Home Center.

At the end of May this year in St. Petersburg, and at the beginning of July in Moscow presentations of a new project by Evrogarden - a chain of European garden centers under the name Zelenaya Strana took place. The garden center will provide goods for gardening and caring for plants, and the landscape design of out-of-town and garden plots. Zelenaya Strana in the press release of the company refers to as the basic competitive advantage of a network partnership with the largest

In the press release of the company it refers to its main competitive advantage as being its partnership with the largest Dutch chain of garden centers Intratuin BV. Zelenaya Strana plans to offer buyers lower prices than at markets, together with higher quality goods and professional service. In its hypermarkets it will be possible to buy indoor and garden plants, cut flowers, soil and fertilizers, pots and containers for plants, goods for the garden, including tools, equipment for cultivating shoots and garden lighting. It will have garden architecture including fences, traditional and humoress statues, pergolas, summer verandas, etc.

Evrogarden has informed that the cost of opening an independently constructed shopping center is around $20 million. The opening of garden centers on rented areas costs more than $6 million. In 2008 and 2009 Evrogarden plans to open six centers: three in St. Petersburg and three in Moscow. The garden centers will be created under four main categories: mega - total area 14,000 sq.m, standard - total area 8,000-10,000 sq.m, city - 6,000-8,000 sq.m and mini - 4,000-6,000 sq.m. The total amount of investments in the projects in the first phase will be $120 million for the period 2006-2009, in the second phase will be $100 million to 2010, and the third stage will be $230 million to 2012. Recovery of the outlay of the project is 6-8 years, with an expected profitability of 10-15 per cent. The first Zelenaya Strana garden center will appear in West Moscow. The garden center will be the anchor tenant of a new mall.

In Korolev's opinion, interest from international chains in the Russian DIY market is growing. "The number of hypermarkets necessary to satisfy demand, is about 10 stores which, in my opinion, will be realized within the next 3-4 years," Galeyev reflects. Lairova thinks that expansion of international chains will affect Russian players. "In the near future they should sustain serious competition. Probably, it will be necessary to search for a niche. In particular, future prospects are for DIY stores to specialize in textiles, sanitary engineering, wallpaper, garden products, etc.," she says.