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international brands in Russia

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32 INTERNATIONAL BRANDS IN RUSSIA

There are several reasons to investigate the patterns and geography of the international brands’ expansion:

1.Companies’ readiness to develop international brands in Russia closely correlates with the maturity of the local retail property market. Global brands usually come to a city aboard a conceptually coherent mall, so the number of brands present is an indicator of the city market’s condition.

2.Numerous stores opening and a lack of new malls in cities may indicate untapped potential for developers.

3.Qualitative analysis of store-opening dynamics in Russian cities allows us to evaluate possible expansion trends of chains both geographically (regions and Federal Districts) and in terms of the size of consumer markets (cities with population exceeding one million and less populated areas).

This paper outlines the results of MAGAZIN MAGAZINOV’s study of international brands’ expansion on the Russian market. We have analyzed the activity of over 400 retail chains in the country’s 36 largest cities from July 2012 to July 2013. This report also includes analysis of international brands’ expansion in the country, monitored over the last three years. All stores and points of sales have been classified as either stores within malls or as street retail.

Stores at substandard shopping centers have been included in the mall category.

Many brands work in the regions as franchises/subfranchises or unofficially. Our method, taking account only of official points of sales, has necessarily left out some smaller stores, e.g. subfranchises.

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BRANDSDISTRIBUTION BY CITY

BRANDS DISTRIBUTION BY REGION

MARKET LEADERSHIP

RETAIL SECTORS AND PRICE SEGMENTS — OVERVIEW

STREET RETAILVS SHOPPING CENTERS

CASE-STUDY:YEKATERINBURG

CASE-STUDY: VLADIVOSTOK

TERMS &DEFINITIONS


Moscow remains the most attractive city for brands entering the Russian market and for those willing to expand their presence.

CITYBRANDS PRESENT

(2013)

SHARE OF THE TOTAL NUMBER

OF INTERNATIONAL BRANDS IN RUSSIA

(2013)



(2011)

2013 2012 2011RATING CHANGE OVER 3 YEARS

Moscow 400 94% 97% 1 1 1 0

St. Petersburg 232 54% 56% 2 2 2 0

Yekaterinburg 169 40% 41% 3 3 3 0

Krasnodar 141 33% 30% 4 4 5 1

Rostov-on-Don 136 32% 30% 5 5 4 -1

Nizhny Novgorod 120 28% 24% 6 7 7 1

Novosibirsk 114 27% 23% 7 6 8 1

Samara 110 26% 21% 8 8 9 1

Kazan 107 25% 25% 9 9 6 -3

Ufa 96 22% 13% 10 10 14 4

Voronezh 93 22% 17% 11 11 10 -1

Krasnoyarsk 88 21% 14% 12 13 12 0

Omsk 85 20% 16% 13 12 11 -2

Chelyabinsk 74 17% 14% 14 14 13 -1

Perm 71 17% 16% 15 15 11 -4

Ryazan 61 14% 6% 16 16 23 7

Volgograd 60 14% 11% 17 17 16 -1

Orenburg 60 14% 9% 17 19 19 2

BRANDS DISTRIBUTION BY CITY

About 40% of Russia’s stores and foodservice points under international brands are in Moscow. St. Petersburg ranks second with 14%.

CITYBRANDS PRESENT

(2013)



(2013)



(2011)

2013 2012 2011RATING CHANGE OVER 3 YEARS

Tyumen 59 14% 12% 18 18 15 -3

Saratov 54 13% 9% 19 19 17 -2

Irkutsk 49 11% 7% 20 22 20 0

Tolyatti 47 11% 9% 21 20 19 -2

Izhevsk 45 11% 6% 22 21 23 1

Vladivostok 45 11% 9% 22 22 18 -4

Barnaul 42 10% 4% 23 24 26 3

Penza 42 10% 3% 23 26 27 4

Tula 42 10% 0% 23 27 - -

Khabarovsk 39 9% 7% 24 23 21 -3

Astrakhan 38 9% 3% 25 27 29 4

Yaroslavl 37 9% 5% 26 25 25 -1

Ulyanovsk 34 8% 3% 27 28 28 1

Lipetsk 28 7% 4% 28 30 26 -2

Kemerovo 27 6% 5% 29 31 24 -5

Тomsk 27 6% 6% 29 29 22 -7

Novokuznetsk 25 6% 4% 30 31 26 -4

Naberezhnye Chelny 20 5% 3% 31 32 29 -2

The table shows a clear pattern: cities not receiving new high-quality malls continually lose their ratings. Perm, Vladivostok, Khabarovsk, Tyumen, Kemerovo, Тomsk, Novokuznetsk are following suit and, in the opinion of MAGAZIN MAGAZINOV, should be the next expansion targets. These cities’ retail real estate markets offer few commercial properties of high quality. Retail meets little competition while the local standard of living is considerable by Russian standards.

International brands have noticeably changed their attitude towards cities in the Russian Far East. Until recently they were not considered for immediate expansion. Difficult logistics, remoteness from Moscow and St. Petersburg (traditional entry ports for non-food imports) and the time zone difference were in the way of building effective networks.

Most of the brands on the regional market were represented by partners working under the franchise model. The situation is changing, and international brands are ready to actively develop their own chains in the Far East. Vladivostok and Khabarovsk are considered as two most attractive cities with the population of more than 500 thousand people.

The city with the least penetration of retailers is Naberezhnye Chelny, same as last year. In 2014 no high-quality malls are planned for commissioning, so the situation is likely to remain unchanged in the short term.

Chains’ reps confirm the abovementioned cities are their expansion’s targets. Perm with the population of more than 1 million is an attractive choice for chains of every segment. All of the large retailers interviewed by MAGAZIN MAGAZINOV confirm they are ready to open immediately at the several top-standard malls soon to be commissioned in Perm.

Table 1


The same tendency can be observed in malls commissioning — developers are beginning to shift from the cities with population exceeding 1 million to smaller centers.

One important tendency in the study period was a relative spread of international brands in cities with population between 500 thousand and 1 million. They have surpassed Moscow, St. Petersburg and cities with over 1 million inhabitants in the total number of stores.

BRANDS DISTRIBUTION BY REGION

DEVELOPERS’ ACTIVITY BY CITY TYPE

Share of all openings, H2 2011 - H1 2012

37%Moscow

Cities with population between 500 thousand and 1 million

Cities with population over 1 million

St. Petersburg 15%25%

24%

33%8%

26%32%

Share of all openings, H2 2012 - H1 2013

INTERNATIONAL RETAILERS’ ACTIVITY BY CITY TYPE

Total supply

Commissioning in 2013

Other cities 7%23%

Moscow29%

19%


28%

17%

St. Petersburg 14%16%


14%15%

Cities with population between 300 and 500 thousand

9%12%

The Volga Federal District had the largest number of international openings in 2013 and 2012 among all Federal Districts, excluding Moscow and St. Petersburg, even though no high-quality malls were opened in the District’s cities.

The reason for this is that retailers, once they have made a successful entry to a new region, try to expand quickly on the local market, opening a second store and more as quickly as possible.

FEDERAL DISTRICT

SHARE OF THE TOTAL NUMBER OF STORES

OPENED IN 2012–2013

SHARE OF THE TOTAL NUMBER OF STORES

OPENED IN 2011–2012

Volga 27% 37%

Siberian 22% 18%

Southern 20% 16%

Central 15% 13%

Urals 13% 12%

Far Eastern 4% 3%

Moscow



St. Petersburg

Graphics 1

Graphics 2

Table 2

Graphics 3


MARKET LEADERSHIP

The number of stores increased by 15% compared to the previous year. Samsung, Triumph and Guess have been the most active in entering new markets.

American fast food chains make up the rest of the top five.Samsung’s monobrand electronics stores are the obvious leader by the number of new stores (10%).

POSITION BRANDNUMBER OF NEW CITIES ENTERED

1 Samsung 28

2 Triumph 17

3 Guess 13

4 Adidas kids 12

5 Calvin Klein Jeans 11

The period analyzed witnessed the opening of 1075 international-brand stores and foodservice points.

SHARE OF THE TOTALNUMBER OF OPENINGS

BRAND SECTOR COUNTRY

10% Samsung South Korea

8% K.F.C. USA

6% SubWay USA

5% McDonalds USA

4% Burger King USA

Table 3

Table 4


Nearly half of the newcomers are clothing brands (44%), followed by foodservice (26%) and accessories (19%). 48% of the new brands are in the middle price segment, 19% — in the upper middle segment, 15% — in the premium segment.

Almost all of the brands opened in Moscow — a traditional starting point. Network, Mado, Alcozer & J. (St. Petersburg) and Sand (Krasnodar) are the only exceptions.

In the second half of 2012 and the first half of 2013 27 new international retail chains have come to the Russian market. The best-known brands include Takko Fashion, Herve Leger, REDValentino and The North Face.

MAGAZIN MAGAZINOV for its research purposes divides non-food retail into 9 main sectors.

RETAIL SECTORS AND PRICE SEGMENTS: OVERVIEW

TOP 5 INTERNATIONAL BRANDS BY NUMBER OF WORKING STORES

More than half (around 60%) of all chains in Russia are in the clothing sector. Retailers in the accessories sector come second (15%); footwear brands rank third (over 7%). The same distribution has been observed in the previous years.

The situation is somewhat different in terms of the number of stores working at the end of the first half of 2013. As the diagram shows, clothing brands are still in the lead, with 53% of all stores, but foodservice is next with 1400 new stores in large cities (17% of all openings). Some of these stores are brands’ own, others are franchises. Accessories retailers rank third (9%).

Global diner chains like McDonalds or KFC are veterans of the Russian market. They are actively expanding and introducing franchise systems. Together three foodservice leaders manage 886 stores in 36 largest cities. The top three clothing brands have opened half as many sales points in the same cities — 440.

As the diagram shows, clothing brands are still in the lead.

Sector/Position

Clothing Foodservice Accessories Footwear Children’sproducts

Cosmetics

1 Adidas Subway Diva Ecco Lego Yves Rocher

2 Calzedonia McDonalds Accessorize Salamander Mothercare L’Occitane

3 Reebok KFC Pandora Crocs Imaginarium Lush

4 Colin’s Baskin Robbins Swarovski Geox Smyk The Body Shop

5 Mango Sbarro Samsonite Camper ELC MAC

Number of brands

2%3%3%5%6%7%

15%59%

53%

17%9%

6%6%

4%3%3%

Number of stores

Table 5

Graphics 4

Graphics 5

Table 6

№ BRAND SECTORCOUNTRY OF ORIGIN

OPENED IN WHAT CITY

LOCATION

1 Boardriders France Moscow Mega Belaya Dacha

2 Boggi Italy Moscow Moscow Gallery

3 Brooks Brothers USA Moscow GUM

4 Herve Leger France Moscow Kuznetsky Most St.

5 Network Turkey St. Petersburg Galeria

6 REDValentino Italy Moscow GUM

7 Sand Italy Krasnodar City Center mall

8 SFIZIO Italy Moscow Afimall City

9 Takko Fashion Germany MoscowGolden Babylon mall

in Mira Avenue

10 The North Face USA Moscow Mega Belaya Dacha

11 Vera Wang Bride USA Moscow Kuznetsky Most St.

12 Volcom USA Moscow Moscow Flacon factory

13 Debauve & Gallais France Moscow 1st Tverskaya-Yamskaya St.

14 Lavazza Espression Italy Moscow Mira Avenue

15 Johnny Rockets USA MoscowKapitoliy mall on

Vernadskogo Avenue

16 Mado Turkey St. Petersburg Nevsky Avenue

17 Marugame Seimen Japan Moscow Pyatnitskaya St.

18 Moe’s USA Moscow Pyatnitskaya St.

19 Smoothie Factory USA Moscow Aeroport Gallery

20 Alcozer & J. Italy St. Petersburg Zhukovskogo St.

21 APM Monaco France Moscow Raikin Plaza mall

22Cosmopolitan Fine

Jewellery & Accessories Australia Moscow

Kapitoliy mall on Vernadskogo Avenue

23 Mango Touch Spain Sochi MoreMall

24 Trollbeads Denmark Moscow Atrium mall

25 Mellow Yellow France Moscow Moscow Gallery mall

26 Kilian France Moscow Crocus City Mall

27 Missoni Home Italy MoscowThe center of modern design

and innovations MOD


The foodservice sector, in our opinion, is one of the most promising expansion areas for international brands and can be extensively developed.

20% of all international brands’ openings in 2013 were in this sector. The clothing sector has grown the most during the study period (45% of the openings were clothing brands). In the clothing sector Triumph has opened the most stores (4% of openings), with Adidas kids (3%) and Guess (2%) following. Most brands present in Russia are in the middle segment (around 40%). Premium and upper middle segments each have 20%. The economy segment is far behind with 6%.

Large European chains selling inexpensive clothes and footwear are slow to enter the Russian market, since no name products make up a large portion of it. Nevertheless, the first official store of the German Takko Fashion brand did open in Moscow in 2013 to sell affordable clothes.

BY-SECTOR DISTRIBUTIONOF OPENINGS IN RUSSIA

Stores opened during the year

5%5%6%

8%12%

20%45%

Total number of stores by the middle of 2013

53%17%

9%6%6%6%

4%

INTERNATIONAL BRAND SEGMENTATION BY PRICE

15%20%19%

40%6%

Luxury

MiddleEconomy

Upper middlePremium

STREET RETAILVS SHOPPING CENTERS

Currently the ratio of street retail to shopping centers in 36 Russian cities analyzed is 1:4.

Foodservice, DIY and electronics are equally inclined to malls and street retail. The situation was similar in the previous periods.

Economy, middle and upper middle stores by and large prefer malls. Luxury and premium brands develop well both in street retail and at malls.

If we are to compare distribution in particular cities, Irkutsk is the capital of street retail. 56% of all stores of international brands there use the street retail model. Vladivostok (52%), Novokuznetsk (44%) and Kemerovo (43%) also have many street stores. These cities have few satisfactory commercial properties to rent — supply is limited or simply fails to meet the brands’ technical requirements.

The higher the brand’s price segment, the larger the number of its stores in street retail. Vice versa, the lower the price segment, the larger the number of stores in shopping centers.

An international brand’s enthusiasm for street retail depends on its sector. 70–80% of stores in the clothing, footwear, accessories, cosmetics, department store and children’s products sectors work at malls.

Аnalysis of opening dynamics shows that street retail has been developing most of all in cities with no new high-quality malls — Vladivostok (75% openings as street retail), Khabarovsk (75%), Omsk (73%), Irkutsk (64%) and Kemerovo (64%).

Graphics 6

Graphics 7

Graphics 8


CASE-STUDY

YEKATERINBURG

Yekaterinburg is the leader among regional cities in the number of represented international brands. For some years now it has been close behind the capitals by brand presence. There are currently 169 international brands working in the city — 40% of the total number in Russia. Due to its macroeconomic indexes and a highly-developed retail property market, Yekaterinburg is the focus of attention for both new brands and those already operating in the city.

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AVERAGE RENTAL RATE RANGEFOR 150-200 SQ.M

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FOOTFALL (PERSON/DAY)

Working days

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6, 000 16, 000

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Luxury GalleryGallery on Radischeva Street

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Last year international brands opened 42 stores in Yekaterinburg, which made up a 15% increase in comparison with the previous period. As a result, Yekaterinburg rose from the 7th to the 4th position in the ranking of cities by the rate of increase in the number of stores.

The city also witnessed a substantial increase in the number of international brands. According to this criteria, Yekaterinburg rose from the 16th to the 2nd position. During the period analyzed 19 new international brands entered the city, including such premium brands as Nespresso, Stefano Ricci, Brunello Cucinelli, Ralph Lauren, Trussardi, Guess, Armani Collezioni and others.

Yekaterinburg’s retail property market is highly developed compared to other regional markets. The city, due to its capital status and macroeconomic indexes sees active development of retail property, which boosts the development of retail chains. Yekaterinburg retail property market provides about 315 sq.m GLA in high-quality shopping centers for 1000 people, not including a number of substandard retail objects. Currently there are 4 shopping center schemes under development, GLA of the two of them is more than 60 000 sq.m, which means that these schemes are large-scale. Competition on the city’s retail property market is likely to become even more severe.

We do not anticipate a significant decrease in new chains’ interest towards the city, but they will focus mostly on the existing high-quality shopping centers.

The level of street retail segment development in Yekaterinburg falls behind the level of shopping centers’ development. Only 18% of all stores in the city function in the street retail format, while the majority (82%) of all stores operate at the existing shopping malls. However, Yekaterinburg’s street retail can be viewed as developed in comparison with the majority of other Russian cities. City’s most developed high streets include Lenina Street, Vynera Street, Malysheva Street, Radischeva Street, Sacco and Vanzetti Street. Shopping corridors are clearly classified by price segments. This particularly relates to Radischeva Street and Sacco and Vanzetti Street with a huge proportion of premium price segment brands.

Opening1 phase – December 20122 phase – November 2013

GBA 130, 000 sq.m

GLA 67, 000 sq.m

Trade levels 1

Number of stores 150

Parking 2, 000 car spaces

Anchor tenants HoffDecathlonHappylonKaro-Film

CASE-STUDY: RADUGA PARK SHOPPING AND ENTERTAINMENT CENTER94, Repina Street

CASE-STUDY:

RADISCHEVA STREET


PROSTO SHOPPING AND ENTERTAINMENT CENTER

This is the largest city in the Russian Far East and currently 24th by presence of international brands overall and 12th among cities with population between 500 thousand and 1 million. 45 international brands are present here, only 11% of the total number of such brands in Russia.

10 retailers have come to the city market since July 2012. This means a 30% increase in penetration by international brands over the study period. Such brands as Guess, Ralph Lauren, Reserved, Pinko, New Yorker, Pandora are among the newcomers.

Logistics is the main factor that hinders brands’ development in the region. Even though the region is close to the manufacturing plants of many international clothing retailers, the existing logistics chains of large companies not accommodate delivery directly from China or Southeast Asia.

Official statistics confirm the region’s poor retail development. On average retail chains account for 19.6% of commercial turnover in Russia, 19.3% in Moscow (data for 2012). In Primorsky Krai the figure is only 7.6%, one of the lowest among federal subjects of Russia.

That said, the Far East is a potential entry point for Japanese and South Korean brands headed for the western part of Russia. Such entries have been made, e.g. natural chocolate ROYCE’. This brand from Japanese Sapporo (founded in 1983) now trades in 12 countries, and its first Russian stores were in Vladivostok.

It is important to note that international retailers develop in the city mostly under the street retail model (52% of stores). Vladivostok is second only to Irkutsk in the number of street retail stores. Similarly, during the period analyzed street retail made up 75% of the openings. This is the highest proportion in all of Russia. In the previous period (2011/2012) most openings were also in street retail.

This does not point to especially attractive street retail properties, but to a lack of modern malls. Many large international brands are ready to take business to Vladivostok directly, but developers cannot yet offer them tenant space at sizable, well-conceived complexes. Three malls are under construction at the moment, and their combined GLA of 120 thousand square meters will be 70% more than the area of all shopping centers previously built.

99, Prospekt 100 let Vladivostoku

Opening 2015

GBA 127, 500 sq.m

GLA 50, 000 sq.m

Retail levels 5

Number of units more than 150 units

Parking 1, 500 car spaces

Anchor tenants SupermarketHousehold appliances and electronicsSporting goodsProducts for childrenShopping galleryCinemaEntertainment center

FIRST PROFFESIONAL SHOPPING CENTER IN THE CITY

TERMS &DEFINITIONS

International retail chains

Russian and foreign companies who have officially opened a store or a service center in Russia under a global brand (present in at least two countries).

Period July 2012 – June 2013

Sample size Over 400 brands

Price segments

Luxury/Premium — first-tier fashion houses/ second-tier fashion houses

Upper middle — average basket size between RUB 7 and 13 thousand

Middle — average basket size between RUB 3 and 7 thousand

Economy — average basket size under RUB 3 thousand

Data for 36 largest Russian cities has been used for the study, all of them with at least half a million of inhabitants. These cities remain the most attractive for international brands.

All stores and points of sales have been classified as either stores within malls or as street retail.

Stores at substandard shopping centers have been included in the mall category. Many brands work in the regions as franchises or subfranchises or unofficially. Our method, taking account only of official points of sales, has necessarily left out some of the smaller stores, e.g. subfranchises.

Clothing men’s, women’s, family clothes (including underwear, outer garments, jeans, sports wear);

Footwear stores that sell footwear mostly under one brand;

Accessories accessories, watches, gifts and jewelry;

DIY DIY, construction, interior decoration;

Children’s goods brands selling only children’s clothes, footwear and other things of that nature, toys;

Department stores that offer a broad variety of most non-food articles under various brands, work under concession and rent contracts;

Foodservice diners and restaurants;

Electronics electronic devices and household appliances, computer stores, sellers of mobile devices;

Cosmetics perfume and cosmetics.

RETAIL SECTORS STUDY AREA

LOCATION

CASE-STUDY A CITY WITH A VERY HIGH POTENTIAL VLADIVOSTOK


40/2 Prechistenka street, Moscow 119034 Russia

+7 (495) 790 00 [email protected]

www.magazinmagazinov.ru

SERVICES FOR RETAILERS

Research and Consulting

Andrey Vasyutkin Head of the Department [email protected]

Geomarketing

Alexey Nikiforov Head of the Department [email protected]

Retail Expansion Support

Mikhail Podrugin Head of the Department [email protected]

PR Department

Julia Mosolova Head of the [email protected]

international brands in russia - magazin …...10 international brands in russia 11 nearly half of...

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