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Russia retailing to sustain growth, researcher says

Russia's $270 billion retail market probably will keep expanding by as much as 17% a year as the economy's continued growth spurs spending, local research company Fashion Consulting Group said.

Retail sales climbed between 15% and 17% in 2006, Anna Lebsak-Kleimans, president of Fashion Consulting, said February 28 in an interview after a presentation at the Moscow Fashion Expo trade show. About 10% of the total comes from luxury goods, which will increase at the same rate as the entire market, she said. The Russian retail market has swelled as eight years of economic expansion, helped by higher prices for oil, natural gas and metals, fueled spending. Foreign companies including LVMH Moet Hennessy Louis Vuitton SA, the world's biggest luxury-goods maker, and PPR SA, the owner of Gucci Group, have opened stores in the country. „Today our market welcomes everyone,” Lebsak-Kleimans said at the presentation. „International brands like Chanel and Christian Dior are starting direct operations. There is development and expansion into regions,” she said, meaning beyond Moscow and St. Petersburg, Russia's two largest cities. The country's luxury-goods market is the world's most promising after China's, she said in the presentation. Foreign companies often enter Russia through franchise agreements, as Chanel and Christian Dior SA did, before opening directly owned stores.

Gucci opened its first store in Moscow, Europe's largest city by population, in 1997, and Louis Vuitton added outlets in the city in 2002 and 2004. The capital accounts for between 65% and 70% of the national luxury market, Lebsak-Kleimans said. Now retailers are looking to expand beyond the country's biggest cities. Shoemaker Baldinini, a unit of Cavriago, Italy-based Mariella Burani Fashion Group SpA, opened 30 franchised shops in Russian regions in the past two years, Commercial Director Massimo Sarti said at a press conference at the exhibition. The footwear company has operated in Russia for about a decade. Baldinini's Russian sales account for about 70% of total revenue and jumped 45% annually in 2005 and 2006 on average, according to Sarti. „Russian customers now don't want to go abroad,” he said. „They want to buy at home. That's why there is growth potential for all these brands.”

Les Copains started sales in Russia five years ago with two franchise partners and now has 70 in the country and former Soviet states including Ukraine, Belarus and Kazakhstan, Elena Moncigoli, export and retail director for the Bologna, Italy-based clothier, said in an interview at the show. The company, whose revenue totaled €90 million ($119 million) in 2005, makes about 15% of its sales in Russia, around the same as the US, she said. Japan accounts for 20% of revenue, and the rest comes from the clothier's domestic market. „There are a lot of people from provinces who would like to sell our brand in their multi-brand stores,” Moncigoli said, citing a potential buyer at the exhibition from the central Russian city of Samara. „I am absolutely sure our sales will continue rising” in Russia, she said. Crocus Group, the organizer of the semiannual exhibition, runs a luxury shopping mall in Moscow and boutiques for foreign brands. The company plans to open a second mall in the capital and others in St. Petersburg and the southern city of Krasnodar, Commercial Director Emin Agalarov said in an interview.

Stores run by Crocus sell goods under about 150 brands including Calvin Klein and JLo by Jennifer Lopez, and the company is in talks to add more by franchising, according to Agalarov. Crocus will open a JLo boutique in the Azerbaijani capital of Baku this year and also a home-improvement superstore called Tvoi Dom, Russian for „Your House,” he said. Crocus expects sales to rise at least 25% this year from about $500 million in 2006, according to Agalarov. Revenue from luxury goods may increase by about a fifth, the same pace as last year, he said. „These indicators apply not just to us, but to our competitors also,” Agalarov said of the luxury-goods market at the press conference. „These numbers can only keep rising in Moscow and Russia.” Luxury-goods selling space in Moscow may rise to about 1 million square meters (10.8 million square feet) in the next two to three years from between 100,000 and 150,000 square meters now, according to Agalarov. The city has 2 million square meters of total selling space, about half as much per capita as in Europe, he said at the press conference. More shopping malls will open in coming years, rather than standalone boutiques, because of surging rents, Agalarov said. Growth in Russian retail sales has topped 10% every month since February 2005, according to the state Statistics Service. The market's expansion may slow to between 8% and 10% a year by 2010, Fashion Consulting said yesterday in an e-mailed note. (Bloomberg)