Russian Retail Market

1
Russian Retail Market Saturation,
should we be worried?
Mall Club 2005September 22, 2005
WE DELIVER RESULTS
2
Macroeconomics
SOURCE State Statistics Committee, Ministry of
Finance, Morgan Stanley
3
 
A.T Kearney Global Development Index
After two consecutive years atop the A.T. Kearney
Global Retail Development Index, Russia fell to
the second most attractive country in the world
in terms of retail investment. Russias loss of
position was attributed to increased competition
as retailers aggressively expand in all markets.
The continued investment by international
retailers has lowered Russias Market
Saturation rating from 77 in 2004 to 71 in 2005.
4
Top 10 Expansion Targets by European Retailers
5
Presence of Large International Retailers in
Russia, 2005

• Groceries
• Auchan
• Real
• Ramstore
• Ava/Marktkauf
• Spar
• Atac (announced)

• Department Stores
• CA
• Stockmann
• Harvey Nichols (announced)
• Marks Spencer (announced)

• DIY/Home
• IKEA
• OBI
• Leroy Merlin
• Kingfisher (announced)

• Perfumery
• Sephora
• White and Brown
• Mediamarkt (announced)

• Entertainment
• National Amusements

6
Moscow Is Larger and Wealthier Than Higher Rated
Sovereigns
2003 GDP/GCP
2003 GDP/GCP Growth
7
Average Household Income in Moscow
The average nominal wage is approximately three
times higher than the average Russian figure.
The last three years saw a steady growth of
average nominal per capita income in Moscow,
expected to reach over 11,000 in 2005.
Source Moscow Statistics Committee
8
Consumer Spending Distribution, 2004
US Average
Moscow
Food
Savings
Alcoholic
1,7
Other
Leisure
Beverages
11,3
5,0
46,3
Education
6,5
Consumer
Durables
6,9
Housing
Clothing
Expenses
13,3
9,0
Source State Statistics Committee, Noble Gibbons
Source U.S. Bureau of Labor Statistics
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Moscows Modern Shopping Center Stock, 1993-2007
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Modern Stock vs. Capital cities
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Example Poland
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Open Markets

• The turnover of Moscows open markets is
  estimated at 11 billion. However, its share has
  decreased from 30 in 2003 to 26 in 2004. This
  market share is being absorbed by more modern
  retail outlets. During 2000-2003 the total amount
  of open markets decreased from 240 to 135.

13
Kazan First Case of Over-Supply?
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Who Will Be Effected by Oversupply?

• Poorly tenanted, located and/or conceived centers
• Retailers who refuse to change to meet the times
  (including a few western ones)
• Retailers who own real estate (it is not your
  core business, let someone else take the
  risks!!!)

15
How to Hedge your Bets

• Retailers retain flexibility in locations (ie
  lease terms, corporate structuring, asset
  liquidity)
• Landlords participate with retailers in center
  marketing
• Prepare to reposition assets What will work?
• Carefully consider new developments vs. FUTURE
  needs
• Demand rents based on turnover Create
  Partnerships!
• Seek experienced, professional advice