Guiding Lines: The Taming of the Commercial Shrew

Now authorities are engaged in accepting a new bill concerning retail. However this document is rather like an "anti-chain" campaign.

On the one hand, the bill on the state regulation of domestic trade that was entrusted for development by the Ministry of Economic Development and Trade of Russia in 2007 should help the development of small businesses. And on the other, in the opinion of some experts, it will inevitably lead to the end consumer suffering as a result of not getting goods and services at the expected level.

Irina Kanunnikova, director of the Union of Small Chains of Russia, says that the new bill may negatively affect retailers. In particular, one of its positions announced by a representative of the Federal Antimonopoly Service (FAS) at a conference held by The Moscow Times at the end of April.

Namely: if a chain reaches a turnover equal to 15 per cent at the first level of municipal formation (i.e. in a specific city) such retailers are obliged to openly publish agreements with suppliers at the site of the company. "But in fact this concerns the idea of commercial secrets and contradicts federal law dated July 29, 2004 98-FZ "On commercial secrets." My agreements are my competitive advantage," says Kanunnikova, disgruntled. And suppliers might object.

According to Kanunnikova, in the new bill "a top limit of presence" is specified: 35 per cent within the limits of local municipal formation. The FAS allows no further growth. It is considered that, exceeding this limit, a chain occupies a leading position and puts other players in an "unequal position."

"Where’s the limit of state regulation’s approval with the main laws of the economy? In my opinion, we’ve already been here," summarizes Kanunnikova. Other market players agree with her in terms of commercial real estate. Head of the consulting department at Astera Alexander Osipov thinks that the introduction of the new bill may lead to a serious restraint in the growth of regional retailers. The problem is the presence of a "top limit".

If a national chain has reached this limit any merger and acquisition transactions that lead to an increase of this share are inadmissible. (Vedomosti has learnt that an exception will only be made for some "socially significant" players). But local players can come to vacant premises in shopping centers. On the one hand, there isn’t anything wrong with this, says Osipov. But on the other, nobody guarantees that such players will provide quality products at a reasonable price to the end buyer. And the developer carries additional risks: choosing the wrong tenant can lower the attendance of a shopping center by approximately 25 per cent. And such a situation could lead to tenants not being able to afford to pay rental rates in existing shopping centers and will demand a decrease. And then how can a shopping center be successful?

"I think that such state regulation in such situations is not the correct solution," says Igor Chaplinsky, director for development at Magazin Magazinov. The development of chains and the dynamics of rental rates indirectly depend on one another and should occur according to the principles of free competition. And artificial interdictions lead to consumer hunger in the regions, instead of the development of local players.

Such a decision will most likely not lead to a decrease in rental rates (it is impossible to consider just shopping centers) as retail development in Russian cities happens non-uniformly, argues Chaplinsky. In each commercial structure there are more than three national level companies developing in cities with populations of no less than 500,000 inhabitants. The market situation is forcing these companies to actively expand into these cities. And although theoretically the opportunity exists, in practice it is difficult to occupy more than a third of the market, especially in view of the development of local players. As for cities with a population of less than 500,000 people (and especially with less than 300,000) the interest of national-scale players in them is only just planned and consumer needs are mainly satisfied by local players. "The development of the expansion of national-scale companies in these cities will also lead to a pool of interest in each segment, and healthy competition will not allow for more than one third of the market to be occupied," approves Chaplinsky. But there are experts that think the new bill, if accepted, will be good for retail. Although not straight away.

"The position of the FAS is quite logical. It is wrong that the turnover of trade is concentrated in just a few hands,” approves Tatyana Klyuchinskaya, director of the commercial real estate department at Colliers International. Chains, for example in the food segment, are united. Such distributors occupy a large share of the market; they have plenty of premises in shopping centers, which allows them to dictate conditions. This also does not allow small businesses to develop, the expert argues.

The new law, in her opinion, is also directed at allowing small businesses to develop in such areas as retail. Of course in the beginning it will be difficult. Because "nationals" will cover only 35 per cent of markets, the rest will remain for the "small fish" who, in turn, at present do not offer final buyers a product of a high enough level. And in the near future shopping centers risk losing their filled capacity.

However these are the short-term prospects, considers Kluchinskaya. In the long-term it will allow small businesses to work in a more in a civilized way. The concept of the new bill is correct from the point of view of strategy, but wrong from the point of view of tactics, she sums up. The FAS is not alone in its efforts. The UK’s antimonopoly service is also trying to protect buyers from the domination of the four largest supermarket chains: Tesco, Sainsbury’s, Asda and Morrisons.

The commission for competition (СС) of the UK is introducing new rules for the largest supermarkets. In particular, large commercial chains cannot open new shops in areas where they are capable of occupying more than 60 per cent of the market.

In addition they should be located not closer than 10 minutes drive from each other. These measures will help to revive small trade and raise competition, considers the СС. In the last two years the СС has been carrying out investigations into abuse on the free market by monopolists, and today is sure that infringement of the rules of fair trade have compelled many owners of small shops to close their business. To the detriment of the consumer.

Henceforth the interests of small businessmen (sellers and farmers) will be protected, informs the UK’s The Guardian.

The СС is going to establish a new post to control this market segment, which is estimated at $241.35 billion.