Money Growing: To Judge by Appearance

Soviet department stores have evolved into modern shopping centers rather recently, and the majority of buyers by habit go to shopping centers to buy clothes or go to the cinema, instead of to buy food products.

According to GVA Sawyer, the premises of the capital’s shopping centers are distributed by category of tenants as follows: clothes, footwear and accessories occupy 25 per cent of premises, sports and children's goods occupy 8 per cent of premises, food stores occupy 21 per cent, and entertainment centers occupy 13 per cent.

Mini and maxi

The concepts of modern shopping complexes are developed in a way so that the goods presented on their premises attract as many buyers as possible. The main roles are distributed between the anchors - supermarkets and department stores - which, renting larger premises, can offer the broadest assortment of goods and sell them at competitive prices. The shopping galleries are allocated for famous brands. Even though well-known brands are not high-grade anchors, they attract buyers. Traditional anchors of shopping galleries are department stores. "As far as international chains are concerned, Debenhams has rather recently entered the Russian market and already proven in Russia, there is Stockmann," names GVA Sawyer. Such retail chains as C&A, Marks & Spencer, Familiya, Modis, KhTs can also be considered anchors. But there is still nothing special to boast about, Tatyana Klyuchinskaya, deputy director of the department for shopping real estate at Colliers International, considers.

Each chain represents several to hundreds of brands of goods. For example, in Sportmaster it is possible to buy things produced under following brands: Sportlandiya, Columbia, Footterra and O’Neill. The assortment of department store KhTs includes about 100 pr?t-a-porter brands and more than 60 middle-class brands. Kholding-Tsentr (KhTs) owns chains that work in different formats, including department stores and shops, the assortment of goods in which differs.

According to Andrei Dmitriev, deputy director of the consulting department at Penny Lane Realty, there are several operators that act as anchor tenants in shopping centers that specialize in clothing. Among them are Sportmaster (sportswear), Detsky Mir and Banana-mama (children's clothes), and Snezhnaya Korolyova (clothes made from leather and fur).

At Snezhnaya Korolyova you can find Tommy Hilfiger, Calvin Klein, Levis, GAS, Sergio Taccini, Apart, Think Pink, Luhta, Sportalm, etc.

According to Angela Chernova, sales manager at Torgovy Kvartal, Snezhnaya Korolyova is an example of reconcept, which was brought about by the needs of the market. "The trademark which entered the market as a chain of shops of fur and leather has expanded its range, and in addition to outer clothing also offers casual clothing,” she says. Unlike grocery supermarkets or electronic goods and home appliance superstores, which as a rule, in each shopping center there is only one chain, there may be several clothes anchors. For example, in Shuka shopping and entertainment center the anchor tenants are Detsky Mir, clothes department stores C&A and KhTs, and in Gorod shopping and entertainment center the anchors are Banana-mama, Sportmaster and KhTs.

Klyuchinskaya says that the largest international retail chains (Inditex, Marateks, Enrof, Armango) act as anchors when they are presented in the same shopping complex by several brands. For example, Spanish company Inditex Group unites shops under the brands Zara, Zara Home, Oysho, MassimoDutti, Pull Bear, Bershka, Stradivarius and Kiddys Class. Marateks unites Esprit, Cortefield, Pieldo del Hiero, Peacocks, SMYK, Orsay, Bodiqe, River Island and Palmers. Enrof unites Mexx, Calvin Klein, Pinco and Top Shop. Armango unites Mango, Promod and Jennyfer.

Andrei Vasyutkin, head of the shopping and entertainment real estate department at GVA Sawyer, thinks that it is necessary to consider such a concept as anchors for the shopping gallery. They can be clothes, footwear and accessory shops which attract streams of visitors with their size, assortment, and power of brand. Zara, United Colors of Benetton, Mexx, Mango, Bershka, Lady Gentleman, New Yorker, etc, can be considered such anchors, the expert considers. However consultants disagree on whether it is possible to consider operators that represent clothes brands as anchors. According to Elizabet Estrina, head of the consulting department at Praedium, only an operator generating a significant consumer stream can be considered as an anchor tenant. Clothes shops cannot always guarantee the long-term presence of buyers, and such tenants rarely occupy as large premises, for example, as hypermarkets, home appliance stores and operators of the entertainment sector.

In the opinion of Irina Kirsanova, marketing director at Peresvet Invest, everything depends on the specialization of the shopping center and on the presence of other anchor tenants. On average in a shopping center, anchor tenants should rent approximately 40 per cent of the premises, otherwise it will take longer for the premises to break even and the average rental rate will increase. "Knowing this figure, with the help of market research, it is necessary to define the type of anchor tenant and their ratio within the structure of the shopping complex, to choose in favor of a supermarket or hypermarket, or to decide whether it is necessary to place a home appliance store, big book shop or department store or clothes retail chain as the anchor," she summarizes.

To find itself

Practically all retail chains, no matter what price segment they operate in, try to get into regional level shopping centers. A competently developed concept will have trademarks segmented depending on the class of the offered goods so that consumer streams will practically not cross.

The selection of tenants in regional shopping centers is made by another principle: the main condition is the conformity of brands to the positioning of the shopping center. According to Chernova, brands are selected depending on the target audience of the shopping center and what price level it represents.

Therefore the pool of anchors and mini-anchors in regional scale shopping centers and in large malls differs. "If the shopping center is positioned in the "average" or "premium" segment then a discounter chain or youth clothing chain offering a limited assortment of goods at lower prices cannot be an anchor," she emphasizes.

The experience of the capital’s shopping centers shows that if this principle is not adhered to, the operators offering goods at low prices survive, but not other way around. For example, Okhotny Ryad shopping center initially focused on the average and premium segment. But the rotation of tenants and appearance of cheap youth brands led to re-branding, and the shopping and entertainment center became an area also for chains offering inexpensive youth clothes. Another example is Gallereya ZAR shopping complex on Rublevskoye shosse, where it was possible to avoid such a situation and keep tenants representing luxury and premium class brands.

Klyuchinskaya thinks that companies on Inditex and Marateks’ level hardly ever rent premises in shopping centers located in remote, quiet areas or in places with low car traffic. “Shopping centers with better locations, such as Evropeisky, Atrium or Mega brand-malls are interesting to them,” she says.

"Marks & Spencer and C&A department stores are interchangeable and go together only in large projects such as Mega, and at the same time are perfectly supplemented with such operators as Zara, Mexx, Peacocks and Top Shop,” says Yulia Dalnova, director of the department for retail real estate at Knight Frank.

In shopping centers located in quiet areas, the main consumer streams are attracted by department stores Stock Tsentr and Familiya. For example, according to Blackwood, for the Familiya chain, which operates in the low price segment, the main thing is that the rental rate is not high. They can rent premises in conceptual shopping centers (Neptun, Podsolnukhi, Novy Kolizei), and in low quality shopping centers, for example in the discount-center of the Olympisky complex.

Short-cut format

Unlike grocery chains or home appliance store chains that rent 5,000 to 10,000 sq.m, clothes store chains occupy fewer premises. For example, Inditex, Marateks and Enrof rent from 500 to 1,000 sq.m for each shop in a shopping center (Zara and Mexx from 1,000 sq.m.), Banana-mama considers offers on premises from 500 to 3,000 sq.m, and Stock Tsentr and Familiya department stores need not less than 1,000 sq.m.

In a large format shopping center there are only department stores such as Stockmann, renting premises from 5,000 sq.m. Although international chains entering the Russian market in so-called short-cut format has become a tendency. For example, C&A department stores rent premises in Europe measuring 3,000 to 6,000 sq.m, but in Russia only 1,500 sq.m, and Marks & Spencer instead of 3,000-4,000 sq.m is content with 1,500-2,500 sq.m.

But in any case for their development in the capital, according to Vyacheslav Limonov, general director of Novoye Kachestvo, chains choose shopping centers with premises measuring 60,000 to 120,000 sq.m.

In a prominent place

In the majority of shopping centers where there are clothing anchors they are located within the shopping gallery - on the first three floors. But the highest floor has the lowest consumer stream, experts consider. Therefore premium class stores are located on floors lower than shops that sell cheap youth clothes. At the same time, according to Limonov, the second floor is popular. It is important to zone shopping space depending on the planned target use of the premises. For example, in Evropeisky you will not come across clothes anchors on the first level whereas in Меga, it is quite the contrary. The exception, according to Dmitriev, are specialized shops. For example, Sportmaster in Druzhba shopping center is on the top, third floor, and Detsky Mir in the Shuka center rents premises on the third and fourth floors.

The brands of one chain retailer can be located next to each other and on different floors. For example, in Evropeisky Enrof stores Top Shop and Mexx are on the second floor, and Calvin Klein and Pinco, near other jeans shops, are on the third floor. In the same complex Inditex Group has Zara, Pull Bear and Bershka on the third floor.

According to Dmitriev, one of the main requirements of tenants is large window displays. Well-decorated show windows with new collections of clothes work on the image of the operators and attract visitors. A frequent requirement is accommodating clothes stores near to a central entrance and lifts or stairwells, in places where the most people pass.

Sometimes mini-anchors agree on premises in dead-end zones of shopping centers but with the condition that the premises will be large enough for several shops belonging to one chain operator. For example, in the Atrium, Mango and Promod are neighbors.

Air and light!

Dalnova considers that clothes anchors do not have any special requirements regarding engineering systems. Although shopping halls where it is stuffy and there is not enough light, are not the best places for shopping. For example, in Okhotny Ryad a lack of capacities has led to the central air conditioning being insufficient and as a consequence, the only tenants where it is especially stuffy, are shops selling cheap youth clothes.

Evropeisky has not managed the problem of supplying fresh air in the shopping and entertaining center at all and there are zones where it is too hot and stuffy. According to Kirsanova, as a rule, for clothes anchors in shopping centers, premises with electric capacities of 0.12 KW per sq.m are required, i.e. 1,200-1,500 sq.m requires 120-150 KW.

For a comfortable temperature mode (air-conditioning), for every 10 sq.m, an extra 1 KW of electric power is required. Although the expert warns that a more exact calculation depends on the equipment, height of the ceiling and shape of the premises.

The temperature mode for shops that sell leather and fur clothes is also important. In warm premises fur lightens and loses its marketable look, therefore tenants are frequently compelled to turn down premises where there is no guarantee that the temperature in the shop will not rise above 20 degrees. Among other requirements Dmitriev names the presence of an isolated cargo-handling unit - a lift, a loading platform, etc.

The presence of parking is an obligatory condition for shopping centers located beyond the MKAD and a significant distance from the metro. Public transport cannot provide the necessary consumer streams to shopping complexes with a few hundred thousand square meters of premises (Mega Belaya Dacha, second phase – 150,000 sq.m, Rio Grandee – 220,000 sq.m.). Therefore in designing such shopping centers, for every 100 sq.m of shopping premises no less than five car parking spaces are planned.

Clothing companies are prepared to be located in shopping centers where for every 100 sq.m of rented premises there are only 2-2.5 car parking spaces, but in that case the shopping center should be a walkable distance for pedestrians from a metro station (Druzhba shopping center).

Such companies are unpretentious retailers representing youth brands and discount department stores. Buyers will go by both car and bus and by the metro.

Make the circle wider

The wider the choice of brands in a shopping center, the more consumers, and consequently, the more proceeds for each operator, there will be. According to Chernova, clothes anchors are undemanding on their neighbors. A close arrangement of shops of the same range group stimulates additional purchases, according to Kirsanova. For example, on the second floor of Evropeisky there is both Marks & Spencer and shops of retail chains Pull and Bear, Bershka, Zara and Top Shop.

According to experts, Evropeisky is one of the most effective shopping centers in Moscow. Limonov considers that known brands nevertheless prefer to be located together. For example, Calvin Klein and Pinco (Enrof), although they are represented by different trademarks, they mutually supplement each other. In the same way, there is also Mango, Promod and Jennyfer (Armango).

On the contrary, youth clothing store Jennyfer would hardly be a worthy neighbor to Pinco, which is more expensive. The Lady & Gentleman City chain of stores represents collections of popular brands of fashionable European clothes for modern businessmen such as Cerruti 1881, Versace, Alessandro Manzoni, Sternesse Blue, Ferre, Caractere, Marella, Eternal. Therefore neighbors even with trademarks in the average price segment would be considered inadmissible. Although for clothes anchors it is possible to have neighbors of other orientation. "For clothes operators only being close to a food-court or entertainment zone is undesirable,” says Chernova. But a small cafe in a dead-end zone of a shopping center with one level with premium class goods is appropriate.

Different accounts systems

Anchor tenants in shopping centers get more favorable conditions than boutiques. Department stores and full-format clothes retail chains - mini-anchors - can rent from 2,000 to 10,000 sq.m. For example, Stockmann occupies 8,000 sq.m in Smolensky Pasazh. Therefore rental rates for them are some of the lowest.

According to Chernova, average rental rates for clothes anchors are $300-$800 per sq.m a year (not including operational charges and VAT). Dmitriev thinks it is possible to find a premises for even $250-$500 per sq.m a year, and Kluchinskaya notes that in successful shopping centers rental rates for clothes mini-anchors can reach $1,500 per sq.m a year.

Moscow and the regions

According to Fashion Consulting Group, the Russian clothes market in 2007 will reach $35-$37 billion a year, growth of 10-12 per cent in comparison with 2006. Meanwhile, a deficit of quality children’s and adult’s clothes chains is felt. The pace of new formats and operators of clothes considerably lags behind the rates of growth of shopping premises, and the niche of fashion operators still remains open.

"On the market there is an absolutely insignificant quantity of clothes operators," agrees Kirsanova. Basically the development of the clothes market is expected from operators already operating in Russia.

According to Limonov, the plan for the development of known clothes brands assumes the opening of 7-10 stores a year in the premises of the capital’s shopping centers alone.

Today Detsky Mir includes a chain of 40 superstores and stores with a total area of more than 70,000 sq.m. Two new Detsky Mir stores recently opened on Orekhovy bulvar in the Domodedovsky shopping center and on Izmailovskoye shosse in the AST shopping center.

Inditex Group, the owner of one of the largest clothes retail trade chains in Europe (about 2,250 shops in 56 countries), plans to increase its shops in Russia to 50. According to results from 2007 the company already operates in more than 30 shopping centers located in Moscow, St. Petersburg, Kazan, Novosibirsk and Rostov-on-Don.

Marks & Spencer (founded in England in 1884) does not plan to stop either, the chain at the moment is presented in 30 countries where it has opened more than 600 shops.

Among new operators, Swedish company Hennes Mauritz (H&M) has announced its plans to open department stores in Russia. It currently has about 1,300 shops in 24 countries, the first of which opened in 1947. H&M is positioned as low budget and is intended for a wide consumer audience, including youth. It is planned that the first Russian H&M shop will open in the second half of 2008 in Okhotny Ryad.

British department store chain Debenhams has decided to develop in Russia under the Desire by Debenhams format (3,000-5,000 sq.m in Moscow and from 1,000 sq.m in the regions). Debenhams operates more than 130 department stores in the UK and Ireland. By 2010 it plans to open four Debenhams department stores in Moscow and 11 in the regions, in particular in St. Petersburg, Novosibirsk, Krasnoyarsk, Samara, Nizhny Novgorod, Ufa, Kazan, Rostov-on-Don and Krasnodar. Although the chain is actively moving to the regions, it is still more profitable for it to expand in Moscow. "Here consumer ability is higher, and questions of logistics and control are easier to solve," says Kirsanova.

"But not always the desire of an operator to come to a shopping center as an anchor coincides with the concept of development of the premises chosen by the proprietor," Andrei Dmitriev complains.