Retail Map Russia

Date 13-04-2015

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Retail map Russia

The Retail Map is a tool to make Danish companies aware of the big potential in Russia. 15 cities in Russia

have over a million inhabitants. The level of education is still rising and the Russian middleclass is growing.

This means that there is great potential to expand or establish ones business in other cities than Moscow

and St. Petersburg. This is something a company should consider.

The purpose of this retail map and this presentation is to make you aware of the different options available

in Russia. The aim is not to point out what to do and what not to do. The information in the presentation is

just indicators to give you an overview of some of the possibilities in Russia.

RETAIL MAP RUSSIA ___________________________________________________________________________________ 3

RECENT CHANGES IN THE RUSSIAN RETAIL SECTOR _________________________________________________________________ 3

LARGE CITIES IN RUSSIA __________________________________________________________________________________ 4

STORES IN RUSSIA ______________________________________________________________________________________ 6

SHOPPING MALLS IN RUSSIA _______________________________________________________________________________ 7

COSTS OF A RETAIL BUSINESS _______________________________________________________________________________ 9

SHORT DESCRIPTION OF THE CITIES __________________________________________________________________________ 11

Recent changes in the Russian retail sector

Before 2014 the Russian retail market looked very promising. Thanks to relative political stability and strong

oil and gas prices, Russia’s retail turnover became five times bigger 2011 comparing to 2001. In 2015 it

became clear that the Russian retail sector and the overall economy are struggling because of the Western

and self-imposed sanctions as well as a decline of national currency and low oil prices. However, there are

still lots of opportunities for Danish companies in Russia. Alone in 2014 - 65 new shopping centers opened

and the total stock of quality retail space in Russia reached almost 23 million m2.

Due to the geopolitical environment and the economic situation, some international retail operators have

left the Russian market, others still consider the market attractive and have chosen to expand or enter. The

current situation presents some new opportunities for investment in Russia. The retail space is typically

cheaper than before, competition is reduced, and there is room for expansion. This is something a Danish

company should take into consideration.

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Large cities in Russia

Economic, as well as demographic indicators for Russia is often associated with some uncertainty. The

actual numbers of inhabitants in the cities are expected to be higher than the official numbers, because

many people live a shadow existence – they are not registered, are not paying any taxes and are therefore

hidden from the official statistics. Hence, the data used in the map and presentation only indicate

conditions in the country. The figures used in this presentation have been obtained through official sources,

but these sources also have some complications; e.g. it is assumed that up to 60% of the Russian economy is

grey or black. A grey economy is when part of the income is not declared.

Table 1: Income and number of inhabitants of Russia's largest cities

Ranking by number

of inhabitants

City Population (in

millions) (2014/2015)

Income per. month

in the rub. (2013)

1 Moscow 12.2 54.869 city /

23.738 region

2 St. Petersburg 5.2 31.407 city /

26.166 region

3 Novosibirsk 1.6 22.597

4 Yekaterinburg 1.4 31.013

5 Nizhny Novgorod 1.3 24.502

6 Samara 1.2 26.864

7 Omsk 1.2 21.363

8 Kazan 1.2 26.161

9 Chelyabinsk 1.2 21.888

10 Rostov-on-Don 1.1 20.994

11 Ufa 1.1 23.892

12 Volgograd 1.0 17.589

13 Perm 1.0 26.054

14 Krasnoyarsk 1.0 24.921

15 Voronezh 1.0 22.056

The Russian Federation 146.3 25.928

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The figures in the table indicate the number of inhabitants in the cities and not the region surrounding the

city. It can be assumed that people, who live outside the cities, go to the larger cities to buy retail goods.

Therefore one can assume that the potential customer volume is larger than shown in the table.

Russia is urbanizing and people are moving from the countryside to the cities for better education and job

opportunities. This means that the population in the cities is expected to rise in the coming years.

The right side of the table shows the monthly average income for the regions where the city is located.

Further, as is shown in the table for Moscow and St. Petersburg, there are differences between incomes in

the cities and the surrounding regions. This trend is general and the income is considerably higher in the

cities. It is important to understand that the regions vary in size, but most of them are bigger than Denmark.

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Stores in Russia

Establishing a company on the Russian market can be challenging. Linguistic and cultural barriers can for a

Danish company be hard to handle, and can prevent companies from seeking out the opportunity.

However, European goods have a good reputation in Russia and it is possible to make profit in Russia.

Table 2 shows a selection of retail companies, and the extent to which they are represented in Russia. The

major cities are often geared to international trade, and have many more brands on the market. This is to

illustrate how some companies have chosen to expand in Russia.

Table 2: Number of stores spread over the 15 largest cities

City\Store

(number)*

IKEA Ecco H&M Zara INWM Pandora MEGA-

Mall

Moscow 3 74 13 24 2 24 3

St. Petersburg 2 32 5 8 6 21 2

Novosibirsk 1 4 3 4 1

Yekaterinburg 1 3 6 2 1 8 1

Nizhny

Novgorod

1 6 2 2 6 1

Samara 1 6 3 3 2 5 1

Omsk 1 4 1 1

Kazan 1 3 3 2 1 5 1

Chelyabinsk 5 1 1 4

Rostov-on-Don 1 3 2 3 5 1

Ufa 1 4 2 3 3 1

Volgograd 1 5 2 2 2 3

Perm 2 1 1 3

Krasnoyarsk 2 1 1 2

Voronezh 1 2 1 2 4

* Source: Corporate websites, manual search 2015

In Russia there is a tendency that foreign companies give the smaller cities lower priority than Moscow and

Saint Petersburg, despite the fact that the population of many of the smaller cities is over a million and the

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income is relatively close to the major cities. The costs of marketing, wages and store rent are typically lower

in smaller towns – this is illustrated with average costs of billboard space in table 3. Also, the competition

tends to be less fierce than in Moscow and St. Petersburg.

Eastern Russia is noteworthy because of the great amount of natural resources found here. The resources

create a high income for certain segments which means that there are a lot of potential customers. However,

there are also difficulties associated with the Eastern Russian cities. For example there can be some

infrastructural, cultural and linguistic difficulties that need to be taken into consideration. The Eastern cities’

business culture is further away from the European, which can pose unique challenges to Danish

companies. The English language is also less prevalent in the Eastern cities than in the Western.

Shopping malls in Russia

It is important to keep in mind that Russians use shopping centers in a different way than Europeans.

Russians use shopping malls to hang out. They can spend a whole day in a shopping center together with

family or friends. The shopping malls are created as a funfair where children can play, you can relax in a

cafe, or you can shop in the stores. Most shopping malls have food courts where the whole family can eat,

and some opportunities for entertainment, such as cinema or ice rinks.

Despite the current geopolitical and economic environment, the supply of retail space in Russia remains

positive and 2.3 million m2 of retail space was completed in 2014. Shopping mall space is in high demand

and the vacancy rate is only 6% in Moscow and 5% in St. Petersburg respectively. There was a very

ambitious plan to open another 4 million m2 of retail space in 2015. This is very unlikely to be achieved due

to the current situation in Russia, but new retail space will be completed in 2015.

Three examples of shopping malls in Russia

Europeisky

Europeisky shopping mall is located in the center of

Moscow and has 8 floors with more than 500 stores

divided among the over 180,000 m2 available. The mall

offers quality restaurants and bars, saunas and health

treatments and many European brand shops. You can

find everything you desire and much more. There are

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around 100 cafes and restaurants, an ice rink, a cinema, a supermarket and parking for 1200 cars.

Europeisky has more than 3.5 million visitors per month and is one of the favorite malls among Danish

companies. Danish companies, who already are established on the Russian market, find that the shops

started up in Europeisky quickly becomes the most profitable stores they have after a few months.

MEGA-Malls

MEGA-Malls are part of the IKEA Group and manage a chain of major shopping malls throughout Russia.

The MEGA-malls are placed next to IKEA stores and usually also Aushan and OBI – the stores

supplement each other very well and people have the opportunity to buy almost everything in one place.

The chain of MEGA-Malls includes 14 shopping centers across Russia. Each MEGA-Mall features an

average of 200 stores. The chain has around 270 million visitors a year.

Aviapark

On November 28th, 2014 Aviapark the largest shopping mall in Europa opened. Located in the Northern

part of Moscow, Aviapark is expected to be visited by 40 million people during the first year and even more

in following years. The mall has more than 225.000 m2 of leasable m2 available and over 500 stores to meet

your every demand. The center also features a winter garden, a movie theater with 17 screens, a huge

aquarium, and more than 80 restaurants. Parking is available for 5000 cars and the metro is within walking

distance.

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Galeria

Galeria is one of the biggest shopping centers in St. Petersburg and its ideal location next to the Moskovsky

railway station and less than 5 minutes’ walk from Nevsky Prospect make it very popular. The center

features around 300 stores spread across the 200.000 m2 available. Like most Russian malls you can find

other kinds of entertainment besides shopping; the center offers a ten-screen cinema, a bowling alley, a

children’s play area and a huge food court. The center hosts underground parking for 1200 cars and a large

supermarket.

Costs of a retail business

The cost of establishing and running a retail business differs from region to region in Russia. Due to fierce

competition, the costs are typically higher in Moscow and St. Petersburg than in the other cities. Also,

tourism (both local and foreign) can affect costs – cities located in large regions, typically experience local

tourism.

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For comparison of the cost of the 15 cities, billboard prices are chosen as an indicator of the level of costs

of running a retail business. Table 3 shows the average cost in rubles per month for a billboard of 3m x 6m

in the 15 cities. It is important to mention that the retail map only is a snapshot, where the figures are used

as indicators to provide a general overview of possible differences in prices and costs.

Table 3: Billboard costs for comparing costs

City Average cost for

Billboard / Costs in

RUB per month

(April 2014)

Moskva 116.247

Skt. Petersborg 47.080

Novosibirsk 33.240

Jekaterinburg 18.790

Nizhny Novgorod 39.070

Samara 17.420

Omsk 89.840

Kazan 33.390

Chelyabinsk 17.610

Rostov-on-Don 27.160

Ufa 21.610

Volgograd 16.370

Perm 16.430

Krasnoyarsk 23.670

Voronezh 17.820

All data are in RUB for one month's rent of a 3m x 6m billboard.

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Short description of the cities

Moscow

Moscow is Russia's capital and commercial center. Moscow has about 12.2 million inhabitants, but has also

a large region around it, inhabited by several million people. Retail has a strong momentum in the city and

Moscow has 5.5 million of m2 of retail space. Moscow can be compared to every other big capital in

Europe.

St. Petersburg

St. Petersburg is the second largest city in Russia. It was the capital of Russia from 1732 – 1918 and has

around 5.2 million inhabitants. Because of the historical and cultural heritage it is the most popular tourist

destination Russia. The city is often described as the most westernized city of Russia and as its cultural

capital. St. Petersburg is a huge industrial center and its production includes everything from tanks to beer

and sculptures.

Novosibirsk

Novosibirsk has 1.6 million inhabitants and is the largest city in the eastern part of Russia. Novosibirsk is an

industrial city and its primary industries are agriculture, electricity, gas- and water supplies, fuel mining,

metal extraction, and processing. During the 20th century the city experienced rapid growth and

industrialization.

Yekaterinburg

Yekaterinburg has 1.4 million inhabitants and is on the border of Europe and Asia – about 1600 km east of

Moscow. The main industry is centralized around machine manufacturing, metal processing and mining of

ferrous and non-ferrous metals.

Nizhny Novgorod

Among the major cities in Russia, Nizhny Novgorod is the one closest to Moscow. Besides the more basic

industries, the city has a large concentration of firms engaged in R&D, IT and a large engineering industry.

The city’s population is around 1.3 million.

Samara

The former closed city of Samara is located on the Volga River. With a population of 1.2 million, it is one of

the leading industrial centers in the Volga region. Because of the location Samara is a popular tourist

destination. The industry is centralized around various space services and machinery.

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Omsk

Omsk is the second largest city east of the Ural Mountains with 1.2 million inhabitants. It is a major river

port and production includes agricultural machinery and railway equipment.

Kazan

The newly renovated city of 1.2 million inhabitants is one of the largest industrial and financial centers of

Russia. The city’s industry is centralized around mechanical engineering, chemical, light, and food

production.

Chelyabinsk

The industry of Chelyabinsk is centralized around ferrous and non-ferrous metal production. The size of

the metal industry is unequalled in Russia. It is located east of Ural south of Yekaterinburg and has 1.2

inhabitants.

Rostov-on-Don

Rostov-on-Don is a trading port city of five seas; the Black Sea, the Sea of Azov, the Caspian Sea, the White

Sea, and the Baltic Sea. The Don River is a major shipping lane connecting Southwestern Russian with the

north. The city with 1.1 million inhabitants is sometimes referred to as the “gateway to Caucasus”. The

agricultural region around Rostov-on-Don produces one-third of Russia´s vegetable oil from sunflowers.

Ufa

With 1.1 million inhabitants, Ufa is the greenest city in Russia with a population above a million.

Ufa’s industry is centralized around oil refining, chemistry and mechanics such as aircraft engines.

Volgograd

Volgograd has about 1 million inhabitants. The city's industry consists of oil refineries, shipyards, aluminum

plant, tractor factory and steel plant. Volgograd is also an important hub for rail and river transportation.

Perm

Even though Perm is the smallest of the big cities in the Urals with around 1 million inhabitants – it has the

largest industrial output ahead of Yekaterinburg, Chelyabinsk and Ufa. The city has serval large industries

which include electric power engineering, oil and gas refining, machine building, and chemicals.

Krasnoyarsk

Krasnoyarsk is the most eastern city with a population above a million. The region is rich in raw materials

and is one of Russia’s largest producers of aluminum.

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Voronezh

Voronezh is the latest city to reach 1 million inhabitants in Russia. The industry includes aircraft production

and pharmaceutics. With the help of the Investment Fund of Russia implementations of big projects have

begun in the recent years.

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