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JLL introduces a ranking of the most attractive Russian cities for retailers

Moscow, 19 November, 2015 – Especially for the international exhibition of commercial real estate MAPIC, taking place in France, JLL has prepared the Destination Russia report. In this report we have analyzed more than 250 international and domestic retailers’ presence in the main cities of Russia . We also look closely at the growth potential, penetration of modern retail formats and demand across each market and score each against the backdrop of overall international and domestic retailer presence.

The main conclusions are:

• In terms of the number of all retail chains, it is not surprising that Russia’s three most developed cities Moscow, St. Petersburg, and Yekaterinburg top the list.

• The outstanding leader in luxury retailer presence is Moscow compared to its Russian peers, followed by St. Petersburg, Yekaterinburg, Nizhny Novgorod, Samara, and Rostov-on-Don.

• Only eight of the analyzed retailer chains have achieved 100% market coverage across key Russian markets.

• Only such international brands as adidas and Yves Rocher have 100% retail coverage of the largest Russian cities analyzed in this report.

• Italy, driven by luxury brand expansion, is the largest exporter of cross border retailers across Russian key cities.

   It is not surprising that Moscow has ranked the first on JLL Russia Retailer Presence Index, thanks to its high level of income, rising population, quality modern shopping centres and actively developing street retail supply. It should be mentioned that Moscow has also the third largest presence of international brands in Europe being the prioritized destination in Russia for retailers planning to enter Russian market. After entering the Moscow market, retailers typically selectively expand deeper into other markets.

   The highest index scores are in St. Petersburg, Yekaterinburg, Krasnodar, Novosibirsk, and Rostov-on-Don, which are in top-5 cities of JLL rating. St. Petersburg is the second most popular destination for retailers with 80% of all analyzed retail chains present there. About 65% of brands have a presence in the Yekaterinburg retail market and half of all operators are in Krasnodar, Novosibirsk, and Rostov-on-Don. Among the top-10 cities of JLL Russia Retailer Presence rating are also Samara, Ufa, Kazan, Nizhny Novgorod, and Tyumen.

   “Unlike Europe, Russia has the ‘mall’ market model where the majority of retail income is generated in shopping centres. Due to this, the openings of new shopping centres in the region could be a key driver for new brands looking to enter the market,” - Maria Shpakova, Retail Research Analyst, JLL, Russia & CIS, explains. – “As the highest developers’ activity was observed in the cities with the large population and largest incomes, we see our Russia Retailer Presence Index as higher on the markets with healthy level of these indicators.” 

   The top-3 cities in JLL Russia Luxury Retailer Presence are also Moscow, St. Petersburg, and Yekaterinburg. In terms of luxury brand presence, Moscow has much higher Index score than any other Russian city. There is a huge gap even between Moscow and St. Petersburg. Almost all analyzed luxury brands (98%) present in the Moscow market while only about 50% of the analyzed brands operating in the St. Petersburg. About 35% of the analyzed upmarket brands cover Yekaterinburg - the third most popular destination in Russia for luxury operators.

   Apart from the main luxury destinations as Moscow, St. Petersburg and Yekaterinburg are, the penetration of the segment in the regions of Russia is extremely low. Basically the multi-brand form is the main format of representing of the luxury brands across Russian cities. The majority of international retailers usually seek partners in most potential and healthy Russian markets in order to provide their products through the local distributors, that allowing them to test markets and brands without the more serious commitment of a separate store.

Italy is the largest exporter of cross border retailers into Russia

   The top countries-exporters of foreign retailers into Russia is led by Italy with 23% of total international retailer presence in the Russian market driven by luxury brands such as Max Mara, Dolce&Gabbana, Valentino, and Moschino. According to JLL, Max Mara is the top ranked according to our luxury retailer analysis, with the largest coverage in Russia with nearly 57% of all cities. However a significant presence across the key Russian cities was built up mainly by mainstream Italian brands such as Calzedonia, and United Colors of Benetton (both with over 90% coverage across the 35 analyzed markets).

   The USA has ranked the second in this list (20%), with well-known food & beverage operators such as SUBWAY, KFC, and McDonald’s, leading the retailer presence ratings. In addition, the USA is the largest exporter of premium brands into Russia. France takes third place by export of international retail chains in Russia, accounting for 15% of all present foreign operators and driven by a great number of luxury retailing (Cartier, Christian Dior, and Louis Vuitton). The top three exporter countries are followed by the UK, Germany, and Spain. The UK, in fourth place on the list, accounts for just over 11% of the market, driven in particular by its mass market and luxury operator strength. 

   In terms of newcomers’ activity, according to JLL, the most active in the period between Q1 2011 and Q3 2015 were European retailers with 61% share, including Italy (18% of total number), France (10%) and UK (9%). American retailers comprised 24% of the total number of new entrants in the Russian market since 2011. Looking forward, we anticipate a growing number of Asian retail concepts that will be interested in the Russian market in the long term. 

   A larger number of Russian cities analyzed in this report are covered by retailers of Russian origin, including Gloria Jeans (Fashion), Carlo Pazolini (Footwear), Sportmaster (Sporting goods), L’etoile (Cosmetics), kari (Footwear) and Eldorado (W&B) with 100% coverage of analyzed markets. It should be mentioned that most retailers are related to mainstream segment. As a rule, the low cost Russian brands have high level of penetration into Russian cities that is why the majority of the analyzed Russian brands have more than 70% coverage of the market.

   When the number of cities covered by international retailers is looked at, German retailer of sport fashion adidas and French cosmetics and beauty brand Yves Rocher have 100% coverage of analyzed markets. These retail chains are represented by at least one store in all 35 cities.

   Danish footwear operator ECCO has shared the second place with sport brand Reebok and hosiery and beachwear brand Calzedonia which all operate almost in all key retail markets of Russia. Another brand of Calzedonia Group – Intimissimi – is also in JLL Top 10 International Retailers on the Russian market and has ranked fourth in this rating. In the third position are United Colors of Benetton, Reserved, and Subway.

   The top international brand ranking in Russia is absolutely dominated by mainstream segment. The only premium operator Swarovski and ESCADA achieved more than 60% key Russian markets coverage. Premium retailers’ key focus is on Moscow and St. Petersburg.

   Elena Zadorozhnaya, Head of Retail Tenant Representation, JLL, Russia & CIS, comments: “Conclusions reflect the activity of retail operators in the Russian market over the past years, whereas the dominant trend in the current environment is the course of optimization, rather than development. In particular, retailers are focused on the reviewing lease terms for existing stores, consolidation or even closing them, and the current activity can affect the position of individual cities in the ranking. It should be mentioned that almost 70% of newcomers that entered the market for the last 12 months opened just a single store, mainly in Moscow. At the same time, nowadays the Russian market provides opportunities for those retailers who do not stop their development in Russia, such as selection of premises for flagship stores in key existing shopping centres previously were inaccessible. We do see the gradual restructuring of the Russian retail market under the influence of external factors and its adaptation to the new realities.”