RETAIL SERVICES

GLOBAL CITIES RETAIL GUIDE

CUSHMAN & WAKEFIELD

CUSHMAN & WAKEFIELD 2012/2013

russia

Global Cities Retail guide

russia Overview

Photo / koraxdc on Flickr

Russia (officially known as both Russia and the Russian Federation) links Europe with Asia and also borders the North American continent.

It is the largest country in the world and is also the eighth most populous nation with over 143 million people. It has vast natural resources, a highly educated workforce and a largely untapped retail market. There are some twelve cities with over a million in population. After many years of consumers having virtually no choice, Russia has fast become a nation of fashion followers. It offers a large and expanding market for retail goods and services, with increasingly high consumption, rising income and the emergence of consumer lending.

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russia Economic Overview

economic summary

economic breakdown

ECONOMIC INDICATORS*

2009

2010

2011F

2012F

2013F

Population

143.0 million (2012)

GDP growth

- 7.9

4.3

4.3

2.3

4.5

GDP

US$ 2,376 billion (2011)

Private consumption

- 4.8

3.0

6.4

2.3

4.5

Public sector balance

9.6% of GDP (2011)

Wage rates (nominal)

7.8

12.4

12.3

8.8

10.4

Parliament

Presidential Federal Republic

Industrial production

8.4

7.5

6.3

7.0

6.3

Head of State

Vladimir Putin

Investment

-15.7

6.0

6.2

2.2

6.4

Election date

March 2018

Unemployment rate (%)

8.4

7.5

6.3

7.0

6.3

Inflation

8.8

8.8

6.1

6.2

5.7

Rouble/US$ (average)

31.8

30.4

29.4

30.6

30.2

retail sales growth: % change on previous year

Rouble/£ (average)

45.3

41.2

41.9

39.7

39.6

russia

2009

2010

2011

2012F

2013F

3-month interest rate (MosPrime avg), (%)

13.7

4.3

5.1

5.5

5.0

Retail Volume

-4.8%

6.4%

7.2%

9.5%

7.1%

Retail Value

5.1%

12.6%

15.8%

13.5%

12.7%

Note: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: RenCap-NES Macro Monitor, 19 March 2012

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russia Largest cities largest cities (2011) CITY

POPULATION

Moscow

11,551,900

St Petersburg

4,868,500

Novosibirsk

1,475,100

Yekaterinburg

1,386,500

Nizhniy Novgorod

1,261,500

Samara

1,166,800

Omsk

1,154,000

Kazan

1,145,400

Chelyabinsk

1,131,200

Rostov-on-Don

1,091,500

Ufa

1,074,900

Volgograd

1,020,900

Krasnoyarsk

996,700

Perm

996,100

Voronezh

979,900

Saratov

837,400

Krasnodar

834,100

Tolyatti

719,500

Source: Goskomstat

Photo / akk_rus on Flickr CUSHMAN & WAKEFIELD

Global Cities Retail guide

russia Retail Scene MAJOR DOMESTIC FOOD RETAILERS X5 Retail Group, Sedmoy Kontinent, Dixi, O’Key, Lenta, Magnit, Monetka, Vester

MAJOR DOMESTIC NON-FOOD RETAILERS O’stin, Oggi, Carlo Pazolini, Zolla, Lady & Gentleman, Snezhnaya Koroleva, Eldorado, M’Video, Tekhnosila, Svyaznoy, Sportmaster, Metrika, Superstroy, Domocenter

INTERNATIONAL RETAILERS IN RUSSIA (A SELECTION) Prada, Gucci, Chanel, CK, Hermes, Zara, GAP, Next, Banana Republic, American Eagle, Marks & Spencer, Mango, Uniqlo, New Yorker, Reiss, H&M, Calzedonia, Samsung, Adidas, Nike, Puma, Auchan, Stockmann, Metro Group, MediaMarkt, IKEA, Castorama, OBI, Leroy Merlin, Kesko

FOOD & BEVERAGE OPERATORS McDonald’s, Burger King, KFC, Starbucks, TGI Fridays, Wendy’s, Dunkin’ Donuts, Subway, Costa Coffee, Il Patio, Planeta Sushi, Sbarro, Coffee House, Shokoladnitsa

TYPICAL HOURS SHOPPING CENTERS

STREET RETAIL

SUPERMARKETS

10/11:00 – 22/23:00

10/11:00 – 21/23:00

8/9:00 – 23/00:00

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Global Cities Retail guide

russia Retail Scene While modern retail only appeared in Russia 10 years ago, shopping has become a cultural pastime for many. Over the last two decades, the country has gone through a major cultural change, leaving behind many old habits and traditions. As a result, consumer behavior is still forming, thus retailers do not only enjoy a rise in income but also face structural changes in consumer habits. The market is still very much in its infancy.

Data as of April 2012

Retail turnover during the financial crisis decreased, however now it shows significant growth. The share of nonfood goods in retail turnover is nearly 53%. Income levels growing with low income tax (13%). There is a fast growing middle class (incomes of at least $15,000 per year) and a high share of household spend goes to the retail sector (70-80% in Russia vs. 40-50% in Western Europe). There is high purchasing power in the major cities, with the average Muscovite spending over $10,000 per year on retail. The total existing quality shopping centre stock in Russia totalled over 13.6 million sq m GLA as at 1 April 2012 or 95 sq.m per 1,000 inhabitants, well below the European average of 247 sq m. There are new “world class” malls emerging. Most successful shopping malls have 100% occupancy with retailer waiting lists. The majority of quality projects are located in large cities, though during recent years the activity of developers has also grown in cities with populations less than 500,000 people. There is a dearth of buildings constructed for modern day street retail, (usually under residential, poor shop depth, utility issues) and limited number of streets suitable for international brands. The high street market is unsophisticated and non-transparent, although signs of improvement are being seen. The climate restricts footfall. Though in many cities with populations less than 500,000 people street retail still dominates due to the lack of alternative opportunities. New retail formats are arriving, for instance big box, which is an actively developing format, mainly in the hypermarket and DIY segments. The market is yet to see the retail park format, however developers are considering due to the strong demand from big box operators. The first factory outlet projects in Russia are due to open in 2012 with three scheduled in Moscow. Developers are planning further projects due to retailer demand for this new format. E-commerce is actively developing – in 2011 nearly 6.1 million people purchased via the internet, (16.5% growth in comparison with the previous year). According to experts forecasts, retail turnover in this segment will grow in 2012 by 36% in comparison with 2011. It is possible to enter the Russian market direct, though the most common route is via franchise. One challenge faced by brands, other than real estate, is finding and selecting a local partner. There are numerous groups with multiple international brands and varying experience and capability to choose from. Big box retailers such as IKEA, OBI, and Auchan enter direct. Large gallery retailers such as H&M, Inditex, Uniqlo and Mango generally have direct operations. A recent trend shows that brands, especially in the luxury market are breaking away from their local partners, examples include Chanel, Prada, Hermes and Swatch Group. The majority of retailers entering the Russian property market will lease property. Occupational leases are transparent and provide retailers secure tenure, however are considered to be more oriented toward the landlord.

new entrants to the market American Eagle Outfitters Desigual Reiss DKNY Banana Republic

Tally Weijl Debenhams Hamleys Mui Mui Debenhams

Imaginarium Victoria’s Secret

Russia has 58% of key brands, 51% of these are found in Moscow, placing it 11th in Europe for brand representation (CACI).

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russia Key Features of Lease Structure KEY FEATURES OF LEASE STRUCTURE Lease Terms

Standard lease terms are between 3-5 years with some up to 10 -15 years for anchors. Break options are not common in the market.

Rental Payment

Rents are typically payable monthly in advance. Turnover / percentage rents are increasingly seen in shopping centres and common in specialist sectors such as factory outlets and airports. Rental rates in quality retail centres are generally calculated in USD, EUR or commercial units are used. Commercial units are becoming more popular due to exchange rate volatility. In less quality shopping centres rental rates are calculated in RUR. The rent deposit required in quality shopping centres is typically 3 months rent equivalent (bank guarantees are an alternative, but not common).

Rent Review

Annual indexation is typically between 3-10% or at a level of USD / EU CPI. The practice of premium / key money payments is seldom seen in Russia. Rent reviews are rare on the market.

Service Charges, Repairs and Insurance

A service charge is usually payable in multi-tenanted buildings and covers management fees, security, cleaning, landscaping, internal maintenance of common parts, external maintenance and insurance, servicing of elevators, water, heating, air conditioning, management fees and property taxes. It includes internal maintenance and insurance of rented accommodation, as well as utility charges and VAT. Tenants are mainly responsible for internal repairs, landlords – for common areas (cosmetic repairs generally). Service charge is payable by tenants at either an “open book” basis or more common as a fixed cost. Utilities payments are charged on consumption. Building insurance is normally charged back to the tenant via service charge.

Property Taxes and other costs

On rents and service charges VAT is payable (currently 18%). Local property taxes are not paid separately, they are generally included in the service charges.

Disposal of a Lease

Sub-letting is usually possible under the terms of the lease, subject to landlord’s approval. Assignment rights are not common.

Valuation Methods

Shops are valued on an ‘overall’ basis.

Legislation

Relations with tenants are regulated by contracts, which should answer general statements of the civil law, no special legislative acts are issued.

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No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2012 Cushman & Wakefield, Inc. All rights reserved. CUSHMAN & WAKEFIELD