Retailers enchained the trade

Petersburg has traditionally been considered the capital of the retail chains. In Moscow the share of network companies in total retail supply is about 20% (average performance in Russia), while in St. Petersburg this performance is more than 50% of the total retail supply. Market participants believe that it can negatively affect the development of trade.

According to Russian Federal State Statistics Service, St. Petersburg is Russia's only region with share networks which is more than 50%.

Trade tithe

Veronica Lezhneva, Director of Research Department at Colliers International in St. Petersburg, estimates that currently in St. Petersburg eight detached hypermarkets with a total area of 75.000 m2 are under construction, which is about 10% of the current volume of trade development.
"The high concentration of hypermarkets in St. Petersburg has a significant influence on the development of other types of food retailers as it offers its customers a wide range of goods at relatively low prices. The hypermarkets are located in the bedroom suburbs along the major highways (and inside residential areas as well), which leads to the fact that the format of the shop in close proximity to the house is developing much more slowly," Veronica Lezhneva says.
Market participants say that the retail chains’ dominance affects the construction projects in commercial real estate sphere as well.
Roman Evstratov, Managing Partner at Rusland SP, adds: "The retail chains are developing uniform standards of interior decoration and equipment of their premises. Shopping centers, the concept of which implies chain tenants’ allocation, should consider these requirements in the project. In such case the assistance of professional consultants may be needed, as long as they understand the requirements of the chain retailers and develop the concept of shopping centers taking these requirements into account."

Brake for the market

Anastasia Balmochnyh, head of retail space department at JLL in St. Petersburg, sees some risks for the market in the dominance of retailing chains. Retailers’ expansion reduces the total number of operators in the market. This leads to the cloning of shopping complexes concepts, when the set of stores is identical and monotonous. "Surely, such projects are of little interest for both consumers and retailers, since such tenant-mix is not able to generate a significant flow of visitors. As a result, developers of those shopping malls, where the set of tenants is identical to other objects, have to show flexibility in the rental rates formation, which adversely affects the project economics.
In the absence of new chains the existing operators are less interested in expanding, as they have already found their niche and have secured their adequate representation in all areas of the city. This approach becomes especially relevant in the difficult economic conditions that we are seeing now. Chain retailers evaluate the effectiveness of existing and planned stores, optimizing the network by closing inefficient outlets. Situation has a negative impact on the advent of new chains in St. Petersburg.
Those big international operators who have announced their plans to enter the market in 2014-2015 as a result of political and economic uncertainty took a break and are in the process of decision making. This applies not only to St. Petersburg, but also to Moscow. As a result, our city is still waiting when we will have such brands as Debenhams, Banana Republic, Women' Secret and others,"Mrs. Balmochnyh notes.
She believes that the poor quantity of truly high-quality shopping centers is one of the important factors of the advent of new chains. "Despite the fact that retail space density is greater than in Moscow and ranks number two after Ekaterinburg comparing all megacities, still there are not so many shopping malls, sought-after by retailers. Major international brands are usually willing to consider no more than five of the existing shopping centers in St. Petersburg when choosing a shopping mall for their opening stores.
However, they are primarily interested in superregional objects with a rentable area of not less than 55.000-60.000 m2. In addition to this, the key parameters are the object location, the variety and quality of the tenant mix, capable of generating a flow of customers. It is hoped that the new retail facilities, which are going to be launched within the next few years, may become a good platform for well-known chains, long-awaited by our city," Ms. Balmochnyh sums up.
"Finam Management" analysts have the same opinion. They believe that, given the high level of the local market saturation, the potential for further proliferation of shopping facilities is limited. Nevertheless, thanks to the high level of business activity and the significant demand commercial real estate market surely continues to evolve quite rapidly. "However, currently the industry environment is quite complicated. It should be noted that under conditions of economic slowdown, consumer demand remains weak, which puts pressure on the retail and on the consumer sector as a whole. On average in Russian Federation retail sales growth rate in comparable prices in January-May was almost one percent lower comparing to the same period last year – 3.1% vs. 3.9%. For the local market of St. Petersburg due to the higher base even more negative impact is characteristic of. According to the statistics, the retail trade turnover in St. Petersburg in the first half of the year in comparable prices (in commodity weight) has decreased year to year by 0.7%. At the same time it should be noted that the observed slowdown is the result of the overall difficult macroeconomic environment.
Fundamentally the local retail, despite the relatively high level of market saturation and quite tough competitive environment, given its high capitalization remains very attractive from an investment point of view, and in the mid-run surely has considerable potential for growth," Maxim Klyagin, the analyst of the management company “Finam Management” says.

Related industries at risk

Operational business is adversely affected by retail chains dominance. Eugene Jakushin, CEO of the management company “System” notes: "Today we are witnessing a paradox: chains become larger, but the demand for operational services is rapidly declining. This is due to the fact that many retail chains prefer to work with one or two operating companies in all locations. Everything mainly depends on leadership’s vision, but this scheme seems much more comfortable than when different premises are operated by different organizations. In addition, chains often redo everything for themselves, guided by their own standards, and economic considerations. The main requirements for them are inexpensive content and the large attendance of the outlet."