Market Know-how: Electronic anchors

Renting an area for a home appliance and electronics superstore is not an easy task. The standards and special requirements for a premises demanded by retailers, allow chains to develop only in newly built premises, which there isn’t enough of in the capital.

Home appliances and electronics are in demand by Muscovites, and therefore more often chains, engaged in their realization, gain good places in shopping centers in the capital. According to Olga Yasko, the head of the analytics department at Colliers International, in half of the good quality shopping centers in Moscow, home appliance and electronic superstores act as the anchor tenants. The total area of these shops makes up almost 70,000 sq.m.

For example, the Mir store chain is located in Crocus-City on the junction between Volokalamskoye shosse and the MKAD and Tvoi Dom on the intersection of Kashirskoye shosse and the MKAD. Eldorado store chain is located in, Cheremushki (56 Profsoyuznaya Ulitsa), Ramstor (27 Menzhinskaya Ulitsa), 12 Mesyatsyev (3 Pyatnitskoye shosse), and Gorbushkin Dvor (7 Bagrationovsky prospect). Large store chain Tekhnosila can be found in XL (2nd km of Yaroslavskoye shosse), Mega (on the intersection of Kaluzhskoye shosse and the 41st km of the MKAD), Evropark (62 Rublyovskoye shosse), Nash Gipermarket (10/2 Bibiryevskaya Ulitsa), Grozd (103 Volokolamskoye shosse). M. Video’s shops are located in Moscmart (47th km of the MKAD, Perovsky (33 Svobodny prospect), Rio (1 Bolshaya Cheremushkinskaya Ulitsa), Retail-Park (97 Varshavskoye shosse), Vei-Park (71st km of the MKAD).

According to Becar Commercial Property Moscow, the leading positions in the market are held by four chains: Eldorado (about 25 per cent of the market), M.Video (approximately 11 per cent), Tekhnosila (8 per cent), and Mir (about 6 per cent). According to ADG Group, Eldorado now has about 25-30 per cent share of the market with an annual turnover in 2006 of $4.4 billion, M.Video has 10-15 per cent ($1.6 billion) and Tekhnosila has a considerably smaller share of about 5-8 per cent with a turnover of $1 billion.

The number of shops operating under the Eldorado trademark in Russia and Ukraine totals more than 1,000. The Tekhnosila chain has 121 shops in 77 cities of Russia, with 24 of them operating in Moscow and the Moscow region, and the Mir chain includes 61 shops throughout Russia, including 18 in Moscow.

As Evgeny Bakrin, a commercial real estate expert at Vesco Realty, notes, M.Video and Tekhnosila, which are more oriented at the average consumer segment, are more widely represented as the anchor tenants in shopping centers. “In total sellers of home appliances have about 18 percent of rented premises in shopping centers, second only to grocery retail, “ he says.

In the opinion of Vyacheslav Limonov, general director of real estate agency Noviye Kachestvo, the home appliances market in Russia is promising by way of increasing competition among large retailers and interest of foreign companies in the given segment. Proof of this is the entrance of German company Media Markt to the capital's market in December 2006. Media Markt is part of Metro Group - the third largest trading company in Europe and the fifth largest in the world. At the end of 2006 the chain had 449 mega markets, operating in 14 European countries, added the department of consulting at Torgovy Kvartal.

The company, under its superstore chain, has concluded one of the largest deals, having rented 8,000 sq.m in the Ramstor Kapitoly shopping center. In March of this year Media Markt opened a store with an area covering 7,250 sq.m in Rostov-on-Don in the Gorizont shopping center, says Natalia Burtsev, the top manager of projects in the department of trading and regional real estate at Penny Lane Realty. Media Markt has also entered the St. Petersburg market. It currently has a store in the largest shopping mall within the city's boundaries, constructed in 2007 by French developer Vinci Construction on a territory of 25 hectares.

The main tendency recently has been the expansion of home appliance store chains not only to regional cities with a population of at least one million, but also to cities with a population of 500,000 people, consulting manager at Becar Commercial Property Moscow Konstantin Korolyov says.

According to Sergei Lobkarev, head of commercial real estate at MIAN Real Estate Agency, among the largest regional deals announced is the opening of two stores by M.Video in Khanti-mansiisk and St. Petersburg with trading areas measuring 3,800 sq.m. Tekhnosila has also announced the opening of 3,000-sq.m stores in St. Petersburg and Yekaterinburg, a similar move they made in the Southern federal district. In particular, in Krasnodar, Tekhnosila has closed down a 1,500-sq.m store, immediately afterwards renting a 4,000 sq.m store in a shopping center currently under construction.

Alexei Mogil, director of the department of trading and regional real estate at Penny Lane Realty, thinks that development of home appliance store chains in shopping centers follows the general trends of the development of shopping centers in Moscow Russia as a whole. One of the most recent tendencies has been the integration of formats up to 100,000 or 200,000 sq.m, in particular the Mega projects, etc. Last year in Moscow only, seven shopping centers with an area of more than 100,000 sq.m were announced "In order for home appliances stores to keep up with new formats, they must also increase their areas," he explains.

According to Galeyev, companies are experimenting in different segments, in the search for ways of pulling out ahead under competitive conditions. One such step is the opening of new formats.

Project "Eto" by Eldorado has been aimed at covering a more premium audience," says Dmitry Sazanchikov, director of marketing and regional development at GVA Sawyer, as an example. According to Andrei Sidorin, director of the Moscow branch of Eldorado, in 2006 in Moscow three "Eto" superstores were opened in Moscow - in the Moskva, Gorod and L-153 shopping centers. The area of each shop exceeds 4,500 sq.m.

Finding a place

Alexei Ostroborodov, commercial director for an Inter-regional development company, notes that in connection with the constantly changing deadlines for high quality shopping centers being put into operation, a deficit on the market is kept. The level of vacant areas in shopping centers in Moscow is still low at no more than 2 per cent. On the main shopping streets of Moscow this figure stands at about 7 per cent. Shopping centers under construction at a stage of building and assembly works are 60-80 per cent filled with tenants," he emphasizes.

Natalia Davydenko, head of the department for broker services at Astera Oncor Moscow, notes that the situation on the commercial real estate market in Moscow is such that practically all household electronic store chains apply for any area that comes on the market. "We actively participate in tenders of large trading premises," says Nadezhda Senyuk, director of public relations at Tekhnosila. We are currently participating in 18 tenders. The only problem is that all the premises are opening in the quite far future - the end of 2008-2011.

However Bakrin talks about the opposite: new shopping centers are constantly opening in the capital, while there are few large operators, capable of acting as anchor tenants. Therefore the owner of a shopping center is interested in an anchor tenant with a recognized brand more than the tenant itself is interested in the shopping center, says Edward Apsit, general director of Facilicom. "The anchor tenant has the right to choose and stipulate conditions," he argues.

Natalia Davydenko thinks that "the majority of developers now develop the concept of future shopping and shopping and entertainment centers, having the opportunity to consider all the requirements of anchors prior to starting the construction of the premises."

According to Burtseva, the ideal variant is when with anchors sign a preliminary rental agreement during the designing or start of construction: this helps to avoid further alterations and, as a consequence, superfluous expenses.

Bakrin thinks that tenants counting on the long-term future of shopping centers, have the right to privileges, and their requirements are an obligatory condition in the designing and construction of shopping centers. The demands of tenants make up three components: the location, the building and communications, summarizes Sazanchikov.

According to Lobkarev, for tenants representing the home appliances market, a high throughfare of traffic and pedestrians is required. The shopping center should either be at the entrance to, or on a road leading directly to a densely populated residential area. The premises necessarily should be directly visible from main highways.

So, for example, the main requirements for Mir are: that the premises should be on the front row of buildings on a main highway, on the right side for movement from the center; the shopping center should be on a busy crossroads, close to a metro station. M.Video is ready to consider offers on the crossroads of big highways, near to transport links. It is important that it is easy to get to by public and private transport.

According to Burtseva, for many tenants, an important condition is a one-volumetric trading area, with a small number of columns, without major partitions. Among Mir's requirements when selecting a premises it is preferable, but not obligatory to be located on the first floor. "If the offered area is on the 2nd floor it is necessary that there be cargo and passenger lifts and escalators," adds Lobkarev. "The height of a premises should be not less than 4 meters and there should be enough light and air," says Sidorin.

The shape of the premises should be rectangular, and there are restrictions on the width of the area. For example, Media Markt's requirements are a minimum of 36 m. There should be a warehouse with an entrance to the trading area and a zone for unloading goods, and also a landing-platform for unloading super size goods.

Parking must also meet obligatory conditions. For example, parking should be for no less than 80 cars (only for M.Video's customers) and should be directly in front of the store. Retailers realize that the purchase of many large-sized goods and them carried away is inconceivable without an entrance for cars. The absence of parking or insufficient spaces is a serious reason for buyers not to come and make purchases."

"The most popular format is shops with an area of 800-1,000 sq.m, says Limonov. But toughening competition is forcing the move to a larger format measuring 2,000-6,000 sq.m. For example, M.Video tries to select premises that have a total area no less than 2,300 sq.m, with a trading area of 1,800 sq.m, and warehouse and office areas of approximately 500 sq.m. Mir is interested in premises with a total area of no less than 1,600 sq.m (its optimum is 1,600-2,200 sq.m), with a trading area of no less than 1,300 sq.m (its optimum is 1,300-1,800 sq.m. "For some years already Eldorado has opened superstores measuring no less than 2,000 sq.m," says Sidorin. "Potentially interesting premises for co-investors or for long-term rental for us are premises from 2,000 to 6,000 sq.m and more," says Senyuk.

Yasko confirms that the format of home appliance and electronics stores has become noticeably consolidated. Operators in the given segment have recently rented premises in large shopping centers on average measuring 4,000-5,000 sq.m. "For the first time this tendency began to be traced after news about the entrance of Media Markt on the Russian market," she says.

"Furthermore, according to Burtseva, the presence of modern communications is important. For home appliance and electronics stores that are anchor tenants, the capacity of the electric system needs to be adjusted - not less than 200-350 kw. This is explained by the necessity to simultaneously connect the numerous appliances on display in the trading area. "In comparison: banks require from 20 kw, and cafes - from 40 kw," says Davydenko.

"Also several telephone lines and allocated Internet lines are necessary. Uninterrupted water supply, a well functioning water drain, firefighting systems, smoke detectors, a security-fire signal system, ventilation, and centralized air-conditioning are also required.

For example, adjusting the capacity of power supplies for M.Video - not less than 350 kw, no less than 300 kw at a time. And four telephone lines at least are required. Not less than six direct numbers (50 per cent high-quality channels) is a condition for Tekhnosila.

"The shopping center should have a powerful power supply system - the light mountings of Eldorado superstores correspond to European standards, which creates serious loading on the electric system, says Sidorin. "The intensity of lighting in our shops should be not less than 900-1,000 Lux." Under Tekhnosila's requirements light intensity should be not less than 700 Lux at height of 1 meter.

Among the other requirements are, for example, the desire of M.Video to have one spacious central entrance to the trading area, with a width of no less than 6 meters. The front of the buildings should be convenient for advertising. There should be a separate frieze with the possibility for a signboard and outdoor advertising measuring not less than 22 х 3 meters.

For the Mir chain an important condition is the possibility for advertising on the facade measuring 100 sq.m. Tekhnosila demands that a sign or roof installation is sufficient to identify the shop's size, and also for navigation in the case that the shop is located within the shopping center.

Expensive goods in shopping centers require serious security. In addition anchor tenants get their own security service. "The security of the trading area should be provided from within your own security structure," confirms Senyuk.

Jeffrey Ox, president of Astera Oncor, notes that the western tenants of trading areas are more demanding than Russian firms as they do not know the Russian market so well and require more detailed estimations before making a decision. “Some large firms did not dare to go on the Petersburg market, until yet receive detailed analysis of the practicability of design decisions,” he says.

Astera Oncor has acted as the exclusive broker of the project of accommodating electronics store Media Markt in St. Petersburg and by experience is convinced that to satisfy the demands of western chains under conditions of an area deficiency is by no means easy. Evgeniya Vasileva, head of the department of marketing and consulting at Astera Oncor St. Petersburg, explains that western chains use a more methodical approach, and precise criteria in choosing a location: for example, a certain remoteness from significant infrastructural city points, a busy location, etc. The customer estimates a place exclusively using registered corporate standards.

Large trading chains are also interested in premises located in separately standing buildings (or part of a building), or extended premises. Long-term rent is more preferable (not less than five years with state registration of the contract). According to Davydenko, about three years ago household electronic store chains started to actively use the buildings of former factories and administrative-industrial premises. For example, in Kaluzhskaya, M.Video is located on the first floor of a former scientific research institute.

Choosing neighbors

Bakrin thinks that anchor tenants should correspond to the format of shopping centers and its target audience. For home appliance store chains, desirable neighbors are furniture stores. In fact a buyer choosing a kitchen, can also pick up home appliances.

In Apsit's opinion, if there is an anchor in the shopping center that focuses on poorer consumers (Eldorado), then to sell expensive clothes in this shopping center is risky.

It is important that in the shopping center there are no competitors to the anchor tenant. At times even a small shop can attract buyers - just because of the size. Small purchases (for example, a battery or headphones) is more convenient and quicker to do in a small shop, and the difference in price is not felt. Although the expert agrees that shops such as M.Video, Eldorado and Mir can be located locally in the neighborhood. "These operators have different price categories; they are directed at people with different consumer ability.

Elza Rozental, vice-president of Torgovy Kvartal, notes that an interesting example of a shopping center is City-Center in Kazan where there are now three home appliance and electrical stores. "It is possible, in due course that such practice may become more widespread," she says. Anchors can practically adjoin all categories retailers. Being a self-sufficient trading unit, they generate greater streams of visitors and under certain conditions can get on successfully even near competitors," says Yulia Obylinskaya, the manager for external communications at Torgovy Kvartal agrees.

Galeyev thinks that a home appliance store located in immediate proximity to a grocery supermarket is desirable. An example of such a union is the Zolotoi Vavilon shopping center where M.Video is on the same territory as Perekryostok. And Lobkarev names as possible kind neighbors sports and cosmetics shops, and also fast-food restaurants. "To name brands we are talking about McDonald's, Sportmaster, Arbat Prestige, Snezhnaya Korolyova," he specifies

Korolyov allows home appliance and electrical stores to be located next to stores that sell building materials, and also interior design shops where visitors come in search of things for their house and dacha. Burtseva thinks that it is ok to have clothes shops next to shoe shops.

Undesirable neighbors, according to Lobkarev, are one-profile small operators selling, for example, computers, audio/video goods, printing materials or media goods. Although to be neighbors with anchors, is more profitable for small shops, agrees Sazanchikov.

The burden of rent

According to Bakrin, anchors in shopping centers pay rent under preferential rates. "Sometimes half of that for other tenants," says Apsit. First of all this is because of the size of the rented area (a maximum of 20-25 per cent of the area). "Allocating a large territory to anchor tenants is unprofitable, it essentially reduces the average rate of the shopping center," says Bakrin.

According to Galeyev, rental rates for the anchors representing home appliances and electronic stores are $600-800 per sq.m without VAT and operational charges for an area measuring 1,000-2,000 sq.m, and $500-600 per sq.m a year for an area from 3,000 sq.m and more. "However, for some tenants the rate can be calculated according to the turnover of the company and can reach 6-8 per cent of its profit," he says.

In Krolyov's opinion, the rental rate for an area of 2,000-3,000 sq.m is $250-350 per sq.m without VAT and operating costs (triple net). "Rental rates for home appliance stores are about same as for grocery supermarkets," he says. "There is also a scheme of payment based on a percentage of turnover or a combination of a minimal rate, for example $65 per sq.m per year and some percent of the turnover of the tenant," adds Bakrin.

Sidorin thinks that rental rates for anchor tenants selling home appliances and electronics, nevertheless are overestimated. Now it is difficult for anchors to find premises and pay for their maintenance. "Nevertheless, we have to deal with this situation for now.".

There will be more

Practically all home appliance and electronic store chains, opertaing in the capital, plan to expand to other areas of the city. "In the next two years we will develop in Moscow both the Eto and Eldorado chains," says Sidorin. "This year an Eto superstore will be opened on Varshavskoye shosse. By the end of 2008 the opening of eight Eto and Eldorado shops to open. But the exact addresses the company has not named, referring to the fact that the shopping center has been delayed, if we tell you the opening date, it may be postponed again." Alongside quantitative development, qualitative development will also be carried out: old Eldorado shops will be modernized, and become more convenient and modern.

This year Tekhnosila is opening superstores in Domodedovsky shopping center on Orekhov Bulvar (the area of shop is 2,300 sq.m, in Moskovsky shopping center on Litovsky Bulvar (3,200 sq.m), a shopping center on Andropova ulitsa (2600 sq.m). The Tekhnosila chain will open in the shopping-office complex Challenger Plaza on the crossroads of Kashirskoye shosse and the MKAD. Metro Group in the near future will announce the entrance of the Saturn chain onto the market, says Sazanchikov.