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Why Retailers are Abandoning Moscow in Favour of St Petersburg…

Russia's 'greenhouse' city is currently stealing brands and retail concepts away from the country's capital…

Photo: The Passage Department Store: Part of St Petersburg’s robust retail landscape.
The Passage Department Store: Part of St Petersburg's robust retail landscape.
Photo: The Passage Department Store: Part of St Petersburg’s robust retail landscape.
The Passage Department Store: Part of St Petersburg's robust retail landscape.

When new brands or retail concepts come to Russia, they often give Moscow a miss. Instead, ever more frequently, they look to St Petersburg, the country's second largest city, set some 400 miles to the northwest of the capital.

Back in the 1990's, St Petersburg was the city that a number of international retailers – notably the UK-based Littlewoods group and Seppälä, the Finnish retail chain – chose for their first foray into Russia. Indeed, the first western-style department store to open in post-Soviet Russia – Stockmann, operated by Seppälä's parent company – opted for St Petersburg in preference to Moscow.

St Petersburg differs from the capital in a number of key ways. Its residents, for instance, have very different preferences when it comes to clothing. In fact, overall, they tend to favour more minimalistic styles, while having a penchant for less lavish spending than their Moscow cousins.

It is the very differences, however, that explain the city's appeal for aspirant retailers. In many ways, St Petersburg is far more similar to one of the many large Russian provincial cities than it is to the capital. Frequently, brands that solely have experience of Moscow have unreasonable expectations of the market throughout the rest of the country.

It is for this reason that St Petersburg has come to be seen as a "greenhouse city", a test bed for the wider Russian market. Its appeal in this regard has been enhanced by the fact that costs are also lower in the city, particularly with regard to rents and PR and advertising fees.

St Petersburg also has advantages over Moscow in terms of its retail premises per capita ratio. At 394 square metres per 1,000 people, this ratio is very similar to that of most West European capitals, while also being slightly lower than that of Prague, Budapest or Warsaw. This goes some way towards explaining why there are still new shopping malls being developed in St Petersburg, despite the ongoing economic crisis afflicting much of the rest of Russia.

One of the city's largest shopping centres, the Port Nakhodka Mall, has just completed work on its 10,800 square metre second phase. Similarly, SRV Group, a Finnish developer, is poised to open the 78,000 square metre Okhta Mall, while Russia's FortGroup has completely renovated the highly-popular South Pole Mall.

Seemingly unaffected by the wider economic crisis, some 65% of the outlets in the Okhta Mall had been leased long before its opening date, while the overall vacancy rate for retail premises in St Petersburg dropped to just 8% last month. Indeed, a number of the city's most successful and popular shopping malls actually have a 0% vacancy rate, including the Gallery, MEGA Dybenko, the Nevsky Centre and Europolis. At present, all these malls have a lengthy waiting list for would-be occupants.

In light of this, then, it is no surprise that so many new brands and retailers see St Petersburg as the cornerstone of their Russian operations. Kiabi, for instance, the French clothing brand, has recently returned to St Petersburg, renting some 2,000 square metres in the Okhta Mall, after having abandoned the city for Moscow in 2008.

The same mall has also been chosen by Terranova, the Italian young fashion brand, as the site of its soon-to-be-launched flagship outlet. Finland's REIMA, meanwhile, has launched its first mono-brand store at the St Petersburg Capitol Mall. Typically, much of the new and returning retail action in and around the city is focussed around fast fashion brands targeting young consumers.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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