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Kazan Emerges as Cost-Effective Test Ground in Russian Retail Sector

Usurping Moscow and St Petersburg, Kazan is now the first port of call for many new to the Russian market.

Photo: Kazan’s Mega Mall: A prime place to road-test retail viability in the Russian market. (Shutterstock.com/VadimBa)
Kazan's Mega Mall: A prime place to road-test retail viability in the Russian market.
Photo: Kazan’s Mega Mall: A prime place to road-test retail viability in the Russian market. (Shutterstock.com/VadimBa)
Kazan's Mega Mall: A prime place to road-test retail viability in the Russian market.

Traditionally, any business looking to test the water in Russia's retail sector has gravitated towards either Moscow or St Petersburg, mega-cities with multi-million populations and residents with a reputation as big spenders. Of late, however, another city has emerged as a rival to the country's Big Two – Kazan, the capital of Tatarstan, a semi-autonomous region of western Russia.

Among the businesses that have already been drawn by Kazan's allure is Uniqlo, with the Japanese designer casual wear company having earmarked the city as the site of its fifth Russian outlet outside of Moscow or St Petersburg, with those two cities already home to 15 and four stores, respectively. Once established, the company will find itself nestling alongside a number of other global brands that have beaten a path to Kazan, most notably H&M and Zara, both of which were among the first to see the city's appeal.

In addition to these international brands, many lesser-known overseas companies, as well as the majority of Russia's domestic retailers, also have a presence in Kazan. Their migration to this little-known city has, in part, been facilitated by its growing number of retail sites, with the Mega Mall – which claims to be Russia's largest shopping centre – heading the list.

Part of Kazan's appeal can be attributed to its geographical advantages. Set just 600km from Moscow, it enjoys excellent road and rail links with the capital, while more leisurely cargo can proceed along the Volga, Europe's mightiest river, which flows through both cities. It also has a number of other positive attributes – while its standard of living is comparable to that of St Petersburg, its retail rental rates are far lower, burnishing its credentials as a cost-effective testing ground for brands and products new to Russia.

Although its population is divided roughly evenly into (Christian) Russians and (Muslim) Tatars, the city – and the wider region – has to date been spared any incidences of ethnic conflict. In fact, the most recent report of such tensions date back to 1552, when Ivan the Terrible, the first Tsar of All the Russias, laid siege to Kazan, seeing it as a vital staging post for the future expansion of his empire.

Today, the source of much of the city's affluence is its abundant natural resources, with its substantial oil and natural-gas reserves having nurtured the growth of its thriving machinery and chemical production sectors. Indeed, its stability and prosperity have long made it the Middle Volga region's primary commercial and recreational hub, seeing it attract a regular flow of would-be shoppers, partygoers and businesspeople from many of the area's other large conurbations, most notably Nizhny Novgorod, Penza, Cheboksary and Ufa.

In addition to these local visitors, the city has also increasingly seen itself on the itinerary of overseas tourists. In 2015, the last year for which records are currently available, it attracted 2.1 million tourists, a 20% year-on-year surge. On top of the existing appeal of its historic sites and its well-developed hospitality sector, it is also expected to get a tourism windfall from its status as one of the host cities of the 2018 FIFA World Cup.

Overall, then, any business considering an initial venture into the Russian retail sector would be well advised to consider the cost-effective appeal of Kazan. There are also particular opportunities for companies familiar with the principles of the Islamic finance and banking system, with the local authorities keen to work with third parties able to operate in compliance with the requirements stipulated by existing halal-oriented investors from the Middle East, Malaysia and Singapore.

For those looking to get better informed, the Tatarstan Chamber of Commerce and Industries runs an annual series of seminars entitled Doing Business with China. These are free to attend, with any Hong Kong or mainland visitor welcome to speak at any of the events and present particular business opportunities. While many of the locals now speak English, a grasp of Russian, however, would certainly boost any company's business prospects in the wider Tatarstan region.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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