Big Brother is Watching

A Smaller Format?

As it seems, far away areas are not yet ready for large popular family-oriented centers. This is partly due to the fact that not all families can afford such commodities, while the developers are mainly focusing on customers who drive their own cars. It is not surprising that Russians with small to middle incomes usually go shopping to small centers that have already replaced old Soviet-style street markets, while the Auchans and Mosmarts are serviced by free and half empty busses.

In accordance with the existing classification, the new family-oriented retail facilities are basically large shopping centers with huge entertainment zones which offer a great choice of activities for the whole family. For instance, the Jam Mall chain, currently being expanded into Russia's regions by the Hermitage Construction & Management Group. The range of goods includes almost everything, starting from children’s goods and home appliances up to the furniture. “In both Russian capital cities family shopping centers are not as popular as in Russia's regions,” comments Roman Sokov, Director of the Consulting Department at Becar Realty Group.

“Location of week-end retail facilities is not at all important (Mega shopping centers are a good example). But the size of entertainment zones is important: they should occupy as much as one-third of the total area and must service all groups of customers. Nowadays there is no entertainment infrastructure in Russia's regions. Especially children's entertainment zones are badly needed,” says Alexander Osipov, Manager of the Consulting Department at ASTERA.

Nadezhda Levchuk, Brand Manager at L-153, considers that family centers must be easily accessible by subway or by car. However, Marina Malakhatko, Commercial Director at DVI Group, says that typical neighborhood family shopping centers in Moscow definitely differ from the ones located in the regions. The major difference is that neighborhood centers, as well as family malls, offer day-to-day shopping for day-to-day customers. “In general, a 20,000 sq m is more than sufficient: 20,000 to 30,000 sq m in Moscow; 5,000 to 15,000 sq m in the regions where population has a relatively small choice of products and services. The 5-th Avenue, for example, is a neighborhood project, while the Schuka shopping chain has a more diversified customer base,” considers Mrs. Malakhatko. Representatives from the Capital Group, in their turn, consider Schuka to be a successful neighborhood family shopping center.

The average area needed for a neighborhood center is estimated at 10,000 to 15,000 sq m, or in some cases about 8,000 sq m. “Availability of 5 to 15 sq m for small retailers along with one-brand supermarket with a total area of 400 to 15,000 sq m (Kvartal-Victoria, Pyaterochka, Magnit, Kopeyka or Monetka, but not Perekriostok, the Seventh Continent, Azbuka Vkusa or Patterson) on the first floor makes it easily accessible from main entrance doors. The remaining tenants of the center are mostly local retailers and individual entrepreneurs, " says Roman Logachev, Real Estate Analyst at S.A.Ricci/King Sturge. These issues are critical for a typical shopping center located in any residential neighborhood of a city with a population of 200,000 to 700,000 people. Typical entertainment chains, which were not initially designed as such, are now facing serious financial difficulties due to a lack of customers (we take an average shopping center of 400 to 1,500 sq m).

Experts from the Russian Research Group indicate that a shopping center should not necessarily service an administrative municipal area, but rather a city district (an area enclosed by artificial or natural barriers). This is believed to be a typical zone of service designated for each shopping center. Some major districts may be serviced by a number of shopping centers. “If we talk about Moscow, we definitely see a total of 94 districts to be ready for large-scale projects,” comments Tatyana Vaschenko, Senior Analyst at RRG. The expert estimates the primary coverage range of a family center at a 10 to 15 minute walk, while the second coverage range is a 10 minutes drive by any transport.” This indicates that in the first zone, a population of 30,000 to 50,000 people can get high quality service at a 10,00 to 15,000 sq m shopping center. According to ASTERA's data, the overall leased area of the said shopping centers is estimated at 5,600 sq m (it varies from 3,000 to 15,000 sq m). An average neighborhood shopping center is estimated to serve a population of 3 to 40,000 people who live within a 5 to 10 minute drive distance.

A Dark Side of the Moon…

The standard format of neighborhood shopping centers makes the whole chain compete with larger so-called 'highway facilities'. Anyway, it won’t prevent developers from building regional megamalls to consider a number of small family-oriented rivals in their coverage area. The population’s purchasing power has been growing slower than the real market offer. “Local family centers must have everything that customers are looking for downtown and beyond the MKAD: “Don’t look beyond the MKAD, get into L-153!” Nadezhda Levchuk mentions this slogan of a marketing campaign as an example. An affordable foodstuff market also plays a significant role: the L-153 shopping has its Auchan while the Oblaka has the Nash Hypermarket. For the time being the family center TEN is represented in Russia by the two projects: L-153 in Maryino and the Oblaka in Zyablikovo. The major role in attracting young women and children belongs to Bananamama children's stores. Both shopping centers organize various shows, children’s festivals, contests with prizes and lotteries. “Most customers don’t want to spend their free time on shopping only,” further explains Alexandra Dyakova, Brand Manager at the Oblaka shopping center. “We do our best to make a family spend up to 4-5 hours in our shopping center without having to worry about the traffic problem in Moscow.” According to Mrs. Levchuk, it is very important to offer customers a wide range of services: banking services, cleaners, beauty parlors, cellular boutiques, solariums and children’s goods. “Our playrooms are free of charge, and we also have a fitness center, cinemas and a good choice of restaurants in our shopping center,” sums up Nadezhda Levchuk.

We can also see other good examples as well. For instance, in Moscow’s Mitino neighborhood, a new Ladia shopping center was recently opened (total area of 26,000 sq m) not far from a Mega Khimki (270,000 sq m). And this is what residents of this neighborhood are writing on the allmitino.ru website: “It’s very handy, there’s a new cinema, various cafes to satisfy any tastes, there is a place to sit around, very decent clothing and shoe stores, a big store for children, food products […] There is no need to travel throughout Moscow to find clothing or to find a place to have a rest. Now you can just hang around at the Ladia all day long, and the young people are active and not wasting their time! […] Things are just as good as in MEGA,” and so on. It goes without saying that 80% of local residents go shopping at Ladia, even though some of them complain about the quality of bathrooms and cinemas (although the average prices are 50 rubles cheaper if compared with larger ones), a poor service at photo centers, a paid parking (from 3:00 PM), never-ending lines at the Perekriostok and traffic jams on the alternate route to Mitinskaya Street at the intersection with Dubravnaya.” But where can you see a local service reaching the level of the GUM or of the Golden Babylon?”

Home Recipes

Experts have been expressing quite conflicting opinions as to what’s the winning recipe for a successful neighborhood family oriented shopping center. "On one hand, small family centers look like smaller clones of downtown megamalls," reminds us Dmitry Zolin, Managing Partner at London Consulting & Management Company (LCMC). “The major difference is that local population has got a hyper-market instead of a super-market, as well as a smaller entertainment center.”

Experts consider that a neighborhood family center doesn’t need anything more than a children’s room, a food court with two or three operators and a small game zone (operators;– Game Zona, Creazy Park, Igromax, Star Galaxy). “People like open air zones that are integrated in the overall facility, as we can see in the Stolitsa shopping center in Solntsevo with Star Galaxy. The game zone there is designed as an open area next to the food court, which is good for children and their parents,” says Mr. Zolin. The anchor cinema, Zolin considers as a “unique solution which is, however, interesting when viewed as a sales generator.” An entertainment area with slides, labyrinths or carrousels usually occupies 1,000 to 2,000 sq m. The funding usually represents $1 to $3 million which recoups in 3 to 5 years. “Igromax offers various capacity and area formats,” comments Alexander Osipov. “As a neighborhood shopping center there is the MINI format (200 to 250 sq m), with a wide range of newly released arcades: sporting simulators, video games, air hockey, possibly an area with prizing games, a store where one can buy cups and awards, a children’s labyrinth, a rock-climbing wall and a nanny service."

"It is hard to allocate an entertainment component within a limited area, but it’s still possible. In Russia no one really knows how to do this,” considers Alexey Vanchugov, General Director at Mall Marketing.

When estimating a real market demand for such centers per capita or per sq m, representatives of LCMC report that “in order to establish the required number of shopping centers for every specific Russian city, one has to account the average income of the population, which is somewhat difficult.” “The choice of merchandise for a neighborhood shopping center is the same as for a family mall but in this case the range of goods is quite limited,” resumes Alexey Vanchugov. “Small family centers need to have at least one anchor tenant, generally a hypermarket (50% of the gross leasable area) in order to serve the area of no more than 5 to 7 km.

“Customers prefer large shopping and entertainment centers. The same is offered in the regions, but of a lower quality,” the analyst says. Developers of the “home” projects have already put into operation two of such facilities in the Russian capital: Mall Gallery in Otradnoye and Brateevo. These shopping centers have a standard pool of tenants comprised of food products, affordable clothing, merchandise for children and adolescents, home appliances, cosmetics and perfume, home furnishings, sporting goods, pet shops, cellular boutiques, souvenirs and needlework. A wider center may add an entertainment or fitness center, beauty parlor, laundry, book store, drugstore, ateliers and all kinds of repair shops. Mr. Vanchugov considers that large shopping centers should have a supermarket as an anchor. He also recommends a discounter but strongly dissuades from offering fashion boutiques and specialty items (for instance, musical instruments). “It is not essential to have a children’s play zone as parents never stay long,” adds the expert. One should not however forget that the galleries in family centers are a very good place for children’s pit stops and campaigns. For instance, a clown can show his tricks to children, make-up artists entertain ladies, a chef shows how to make sushi and so on. We believe that all of these are additional attractions that encourages customer’s fidelity."

Capital Group has been actively implementing its family center’s standards. More specifically, the holding is developing a medium size neighborhood family shopping center as a part of the Avenue 77 International Financial Corporation in Severnoye Chertanovo. The building is almost completed, and the concept includes multi-faceted stores for children and entertainment similar to Atriland in the Atrium. It will also offer a children’s educational center (sort of creative schools). “During the day, in a specially identified area, there will be educational activities, in cafes festive undertakings and possibly even educational programs in the cinema,” says Natalia Sekretareva, Head of the Commercial Real Estate Leasing Department at Capital Group. “All this adds to the everyday dynamics of the center: in the morning for mothers and their children, and in the evening for the whole family. The major issue is to find operators to run such activities.”

RRG also has a neighborhood family shopping center of its own called Parus (13,500 sq m), located in Podolsk with a population of 70,000 people. Within a five minute drive from the center, its construction will be completed by the end of 2009, and the major tenants have already been contracted. The Perekriostok supermarket is to be located on the first floor of the center, while M.Video, sport shops and clothing boutiques will be on the second flor. The third floor’s concept is made up of a family entertainment center: a children’s center with a cafeteria, a children’s store and a food court.

An ideal height of a neighborhood family shopping center is 2 to 3 storeys with well-structured entrance doors. “Plain and simple building with one or two floors of circling galleries is the ideal configuration,” moderates the developer’s ambitions Alexey Vanchugov. “In many cases developers implement expensive trimmings,” continues Mr. Logachev. “For instance, a shopping center in Voronezh had to remove its ceramic granite because the identified anchor had other decorative and logistical requirements. And a glass facade is not always necessary…” According to him, suburban neighborhoods have a great purchasing potential, but some professional retailers would like to see shopping centers within a visual range from the highway. This is especially important from the point of view of private and public transportation traffic. In addition, regional developers jump from one extreme to another: one project is made up of inexpensive materials while another is the total opposite (we found such examples in Voronezh, Ulyanovsk and other Russian cities).

According to Tatyana Vaschenko, the best way is to have a rectangular building (if a land plot makes it possible), three storeys with one major entrance or a round atrium. Such features as good ventilation, large parking lot, comfortable ramps, elevators and escalators (not stairs!), rooms for mothers and children and a medical clinic, are essential. Evidently, the building should have a good sound system and an information desk.

The goods turnover in family mini-malls is quite high – their owners prefer not to deal with brokers and consultants and usually lease areas on their own. The result is a never-ending rotation of individual traders, since the target audience of the operators is made up of bargain hunters. A standard pool of tenants in neighborhood family centers of LCMC is more quality-oriented. The anchor is usually a supermarket and a clothing shop (as well as children’s and family clothing stores). Galleries also have shoe operators, clothing, stores for impulse goods, cosmetics and perfume, sports goods, consumer services; a food court, entertainment area and a children’s room. Another attraction can be a home appliances store. For instance, the Stolitsa shopping center in Brateevo, has upgraded its reputation thanks to the Comfort Era. A classic household goods store can do the trick. “If a concept has been properly developed, these centers can use 92% to 96% of their capacity, and their turnover is an obvious advantage,” resumes Dmitry Zolin.

Regional family centers usually do not provide public catering nor entertainment areas (except for arcade machines), but this is not a substantial drawback, as spending time in a cafe is not a part of a local culture. According to DVI Group's analysis, some centers in European countries are family fast-food oriented. The average daily attendance makes 10,000 people, with some variations from one region to another. “Entertainment and foodstuff should not be provided, except for some sort of fast food outlet,” indicates Marina Malakhatko. “Neighborhood facilities need to focus on people's everyday problems, not just week-end family outings.” However, a car wash is an ideal (although sometimes loss-making) tenant for a neighborhood shopping center.

From a marketing point of view, a developer must fully examine the existing consumer trends (including average income figures and traffic flows). The range of goods is a key instrument of market competition. It is totally useless to attract a client base from the other side of town into a neighborhood family-oriented facility. On the other hand, it is quite possible to establish a good customer base focusing on local residents. Hence, in order to market small family facilities, professionals recommend concentrating on loyalty programs and BTL campaigns (direct mailing, sampling, cross-promotion, event-marketing, etc.). “When a customer purchases a certain amount of goods, please give him a discount card… Don’t be greedy, it’s not worth saving on promotional materials!” advises Mr. Vanchugov. Peculiarities of small local projects, in fact, are heavily dependent on high marketing requirements if compared with larger shopping facilities. This lowers the capitalization but customers will always keep buying.