Asia Retail

Time for realism. The future of retail trade
and development in 2009.

Kira and Ruben Kanayan


© Kira and Ruben Kanayan

The financial crisis has mainly affected two business sectors: retail trade and commercial real estate development. It immediately became clear there were going to be serious changes in retail trade in Russia. People say that the epoch of easy money has come to an end, or to be more precise the time of hasty and thoughtless decisions, risky projects, extensive rapid growth and euphoria. The moment has come to think about and prepare for a new stage in development. We are going to look at what is currently worrying many retailers, developers and owners of commercial real estate: How to act in the future and what are the possible scenarios for the market in the coming year.



Commercial real estate and development – while the “Titanic” is still afloat

At the beginning of October many people connected with development in Moscow and St Petersburg anxiously watched: Will the cranes on the flagship building sites stop or will the lights on the night construction sites be turned off. The mood among developers in the provinces where the projects are not so large scale or impressive could be described as guarded expectation. What had happened and was there any need to fear the drop in consumer demand and commerce in general? For a number of managers and experts the situation came suddenly and several forecast this turn of events: Too many projects for shops and shopping centres with obvious faults used to be able to “survive” because of their unique situation or simply against a background of the general buying boom. And too many were quickly built and opened at a good time however at the expense of quality. Several companies simply did not find the time to think about quality in their projects – why if everything sold anyway? The rapid increase of chain stores created an impression of general advancement and often concrete negative indexes were perceived as a misunderstanding or temporary difficulties. How could it be, demand is growing, everything is growing…

Without a doubt favourable lending conditions assisted business development, but at the same time it created a certain illusion of freedom. Bank activity increased, they were branches in prime positions in the high streets and in good places in the shopping centres. Goods which could be bought on credit were advertised absolutely everywhere. Billboards played to consumers’ emotions (“Want your man to like you, take out a loan and buy a car!”) and promised to realize corporate clients’ boldest ideas. However what does credit mean in a psychological sense? It is the feeling that money has simply been given. A true event in an electrical appliances shop: A customer met his relative who was buying two fridges and was signing the sorrowfully notorious “0%” credit. “Why two?” the man said amazed. In reply the lady looked at him like as if he were a half-wit: “They are free, no need to pay any money just sign the document. You should buy while they are giving them away…”. In exactly the same way many developers would have been much more realistic if they had been funding their projects with their own money and not with loans. In this case it appears obviously risky (or strange), for example to build a 100 000 square metre shopping centre without carrying out any market research, to deal with conception in the concluding stage of the building work or trust the architectural project to a company, which previously had only planned private country houses. And all these happened… 

Development like any growing business was very attractive. Except for the large companies and specialists, who were there at the very start of the business, many people appeared who did not know what a shopping centre or multi-functional complex was (what they should be like and how they should be planned and function), but understood they were very profitable. Retail trade also attracted many people, but was different from commercial real estate because the test of time was much quicker: Customers are the judge of shops and faults become apparent in a quarter maximum half a year. An increase in saturation point showed how great the competition was in many branches of the retail trade. And commercial real estate projects developed at a time when there was an acute deficit of commercial space and a lack of experience – only slightly more than 5 years has passed since the first modern shopping centres opened in Russia and in a number of towns 1- 3 years. It is not a secret that several projects presented themselves in the direct sense of “castles in the sky”, their aim being to obtain profit by selling the land or simply to obtain credit. There were similar cases in Kazakhstan, where construction until 2008 had been developing at a rapid rate. Literally every month new development companies (small and medium size) appeared and the number of proposed projects simply stunned. Banks carried away by future profits sometimes economized on time and money and did not carry out careful audits of the projects: Sometimes it was possible to obtain credit through contacts or even from bank employees in the credit department motivated by personal gain. The first symptoms of it being more difficult to obtain credit for retail trade and shopping centres appeared in 2007 when the question of the liquidity of retail companies arose. Now the pertinent questions for developers are choosing priorities, cutting back on costs and survival in general.

First of all the reality should make them have a more critical approach to projects. The size of the space, the shopping centre’s function and its architecture should be more linked to the demands and specific context of the market in a particular town. A hotel block or business centre in a multi-functional complex should be checked to see if there is demand, thriving business, tourism and corporate tourism. A block of elite flats should be checked to see if it really corresponds to what is required from elite flats (an ecological location, picturesque views from the windows, safety, a good area without cheap housing nearby or noisy factories). Then the problem does not arise of trying to fill or give a new profile to a space or changing a project at the building stage (it is very difficult to make a multi-screen cinema out of a car salesroom or accommodate a modern fitness centre with a swimming pool in a space destined for a food court…these also happened). Making projects more realistic does not mean that less attention should be paid to modern architecture and technology. Of course when planning it is necessary to look ahead and what today may seem like futuristic buildings in the towns of Penza, Tambov and Surgut – may tomorrow be the expected norm. The projects themselves often define the way a town or area is developing. For example there is a very good future in building business centres and large technical shops in the outskirts or suburbs of Moscow and St Petersburg. It even helps solve the problem of too many people and traffic jams in the megalopolises.

The second task in the near future is the correct choice of trade outlet and developing an accurate conception in a concrete environment. We constantly observe that there is practically no room for error and there are fewer and fewer good sites. A specific feature of the shopping centre market in Russia and Ukraine is that “bad quality” centres according to modern standards or centres which cannot be extended or reconstructed have been built on the best sites in many towns. In recent years the size of a shopping centre is one of the most important factors: The larger the trading space the more interesting the project. That is why in many towns especially in Russia it was important to built large format shopping centres (regional size, large district and district) and with their appearance the shopping centre market underwent essential changes. For example in Volgograd because of the planned large shopping centres at the beginning of 2009 the increase in trade space will be 77% that is the amount of space will almost double. In another city with a population of a million Novosibersk, if all the projects which are being built, planned and conceived are completed, the amount of commercial space in shopping centres will increase by 2.1 times. In towns with a population of 200 thousand and over large shopping centres are also being planned and built. Accordingly there is very severe competition in this area. Projects for any large centres (hypermarkets, regional and district shopping centres) come under the category “high risk – high profit”. On vacant land there was no need to think about the risks and the giants were guaranteed success and high profit (with the exception of a number of centres built with gaping basic errors). On account of the large profits developers ignored the format of micro district and local shopping centres, spending their time on the large scale projects. In our books and articles we talked a lot about local shopping centre projects being the most stable since they were “protected” by their area and were situated near their customers. However this niche and the good sites might have already been occupied – not by developers, but the national and regional chain stores. Often the role which is played by local convenience stores in the United States is performed by chain supermarkets or discount stores with a small row of tenant shops near the cash-desks. Exactly the same happened several years ago when electrical appliance chains created large supermarkets and hypermarkets and missed the opportunity of creating small size shops selling digital goods. Small chain stores specializing in digital equipment rapidly expanded and as a result a significant share of the sales from digital and portable technology transferred to shops in convenient locations along the way”. And this is a very profitable group, where the constant development of technology and even fashion (such as with mobile telephones) stimulates demand and constantly makes customers update their models.

We can see how intense competition is in shopping centres by looking at the format of neighbourhood shopping centres. These contain a typical range of tenant shops and are dependent on their neighbourhood for business. However if there are 2,3,4,5…identical neighbourhood shopping centres in one neighbourhood could they be filled? In 2008 several shopping centre owners experienced this problem. For example in Izhevsk all the large shopping centre projects are within a 15-minute drive and in Kostrom and Voldjsk they are a 5-10 minute drive away. In Volgograd because of its specific city plan the majority of projects are concentrated in a G-shaped area in the geographical centre, which is also possible to drive around in 15 minutes. On the left bank in Novosibersk the situation is very unique: Several district size shopping centres are on one site (The Karl Marx Square) and its neighbouring sites. It is obvious that standard solutions with typical tenant shops and commercial space would be risky if not even ruinous. Success could only be achieved by developing specialist areas. This would mean a synergetic effect could be achieved making a trade zone on a city scale.

The financial crisis has narrowed down opportunities for development, but demand has not disappeared. The situation as regards the building of commercial properties is still promising in many Russian towns and there is potential for opening new trade outlets. Experts hold different opinions on how much space a market can sustain and they often compare the situation in the provinces with Europe and Moscow. However when they look at the capital they often forget the two main principles for calculating saturation point: The amount of trade space and the population. Moscow is a unique phenomenon. The centre of Moscow’s urban agglomeration in terms of population is the largest city in Russia and Europe. The official population of Moscow in 2007 was 10.45 million people. Unofficial statistics for example obtained from an analysis of data on illegal migration or the use of mobile telephones in the city show the figure to be in the order of 15 – 16 million people. There have also been estimates that there are 20 million people every day in Moscow at the same time if you take into account the tourists, people in transit and workers from other areas. All this determines a steady demand, high customer number indexes and potential for an increase in commercial space. The current saturation point for space in shopping centres in Moscow (why is this not a paradox) is 1.5-2 times less than in several towns with a population of 1 million, 500 thousand and 300 thousand people. For comparison we show you several saturation point indexes for trade space in 2008 and a forecast for the near future.

City

Population, per thousand people

Saturation point for trade space in shopping centres (square metre per 1000 people) in August 2008

Saturation point by 2011 including shopping centres being built and projects which have over 50% likelihood of being finished

Saturation point by 2011 including all proposed projects

Noversibersk

1391.9

488/427

830/679

1025/872

Volgograd

1017.4

254/172

743/478

963/636

Idjevsk

632.1

285/216

497/394

622/486

Tyumen

592.0

482/364

578/437

789/606

Smolensk

317.7

68/55

316/231

684/505

Petrozavodsk

266.3

127/102

520/416

707/596

Source – Research carried out by “Union Standard Consulting” (Moscow) and “The Instrat Group” (Novosibersk).

Comments:

  • In one part of the reports and surveys of the market the estimate was produced according to the index of overall space and in others according to the GLA index which is why there are two figures shown in the table.
  • The size of the existing shopping centres and proposed projects was obtained from open sources (mass media, press releases and companies’ sites).

The estimates for saturation point in the future shown in the table were made in August 2008 and the picture may now change. However the figures clearly illustrate that before building it is necessary to seriously consider if a city can sustain the amount of space in its shopping centres. It is now clear if you take into account the high street shops and separately situated shops (from pavilion shops to hypermarkets and DIY) there will be more than one square metre of trade outlet per person in the cities. In the future very much depends on the second factor in the formula – the increase in the population’s income. In multi-functional complexes housing is the more stable function and the more vulnerable areas are those connected with an increase in prosperity or business activity – for example business centres, hotels and amusements.

What will happen to the rents?

Whether or not there will be a reduction in rents is a big question. We examine why. On the one hand the cost of rents and sale of commercial space is very high and in a number of outlets it has been clear for a long time that the price does not correspond to the “quality” of the space. However the real estate market still remains a seller’s market and property owners dictate the conditions. Many remember the time when there was an acute deficit of space and tenants had no choice and agreed to a thirteen month rental year, rented passages and areas with tables in different parts for a food court, extra payment for everything except the walls (marketing, advertisements and everything else) and no long term rental contracts. If a tenant started to stand up for his rights he was simply shown the door or reminded there was a queue of people waiting to rent his space. At first in the provinces the owners’ appetites could not be fully satisfied because of the limited means of local businessmen however the national chains arrived and occupied the space pushing up the rental prices. Rents steadily increased and took up a larger share of the expenses of retail businesses. The retailers solved this problem “simply”. They passed the expenses onto the customer and increased their prices. For a while the customers in the large cities agreed to pay for the “rent demands” of the property owners and in general agreed to buy goods at a high price. However several people had already begun to compare our prices to prices on the same goods abroad. For example fashionable items from well known brands could be twice as cheap abroad as in Moscow. A new “Suburu” car in the United States was two times cheaper. We heard one account that said if you sold a one bedroom flat in a cheap block of flats in Moscow it would be possible to buy: An inexpensive villa on the coast of Spain, a more expensive villa in Croatia or Montenegro and a very big and expensive one in Honduras. The “ideal” tenant for the high rents were fashion clothes shops where the mark-up could be 600% or more because of cheap materials and the fact that the collections were made in countries with cheap labour. The main expenses for these chains were the promotion of their brands and rent.

Above we examined the saturation point index. If it reaches 1000 square metres per 1000 people, that means that the average Russian family has to sustain 3.1 square metres of commercial real estate (3.1 people is the average number in a Russian family). We will solve the problem with concrete figures. For example in Tyumen in the first half of 2008 the average monthly salary for one person working in a large or medium size business was 23 080 roubles. In the best scenario two people in a family work which makes 46 160 roubles. The average rent in trade centres for this period was 1 701 roubles a month per square metre (1 701 x 3.1 = 5 273 roubles a month). Correspondingly every month 5 273 roubles out of the budget of a statistically average Tyumen family should go to pay for the shops’ rent, which makes up 11.42% of the family’s income. Another simple mathematical problem. Question: what can an increase in trade space without a reduction in rent lead to? Answer: a. the standard of living coming down, b. vacancies appearing in commercial space. Wolves can be full and sheep safe only if there is economic growth, whose rate exceeds the increase in commercial space.

One can say that credit has created a bewitched circle: Taking into account the interest on loans, developers counted on high profitability and the project paying for itself and this led to an increase in rents, which raised expenses for the retailer and provoked price rises. Next: Customers agreed to pay those prices for the goods however they often used credit to purchase the items. The other way round the process could go like a collapsing house of cards: The customers are not prepared to buy at such prices and cannot make the purchases from their available funds and the retailer cannot pay his rent. What would happen – would the shopping centre go on working with over half its space empty?

The expectations of the majority of tenants and buyers are connected with a fall in prices and it is very hard to restrain a dam artificially. We wrote about how demand for housing had in part moved from Moscow to nearby areas (“Trade Management”, No 4 2008) and this process continues to gather strength. In 2007 the volume of commercial space introduced in the Moscow region exceeded Moscow’s index by 1.5 times and according to data from official sources in the period January – September 2008 there was 3.6 million square metres of housing built in areas near Moscow. Out of this about 1.5 million square metres of the housing was in high rise buildings which was a 103.6% increase on 2007. The demand for commercial real estate differs from the housing market in that for the present it has nowhere to go until an adequate number of modern centres have been built. It is possible to live near Moscow, in Croatia or Honduras, but business has to be done in Russia. Also there are many interested parties in the real estate market and they are determined to maintain the rent prices at any cost. The problem is that a lowering of prices and rents could provoke a domino effect, similar to the effect of the mortgage crisis in the United States on the whole world. In September in the three weeks before the so called “black” Mondays and Wednesdays Russian developers already had unofficial information about the drop in real estate deals in Europe and a number of properties for sale at significantly lower prices. In Russia the buyers and sellers are waiting.  For example the office space and elite housing market has clearly appeared to not react to the market, has not lowered its rents and does not intend to (although in private conversations you can hear fears that the crisis will provoke a catastrophic drop in rents of half or more). In a regular elite block of flats “the three last flats” are being sold for the third year running and office space is waiting to be rented. In September 2008 several estate agencies raised their commission on transactions by 1.5-2% but did not lower the selling prices. One can say that a postponing of demand can be observed in Russia. The situation is favourable for new developers to enter the market, who are in a position to offer essential space at realistic prices. For example possibly cooperative shopping centres will appear which will be jointly built by several chain operators to protect their own interests. And several commercial properties will simply change hands.

Less is more

On the whole the situation on the commercial real estate market can be characterized as a crisis of money out of thin air and the opportunities are only for high-quality projects, which are in demand as before. We remember the words of the American President Franklin Delano Roosevelt, who managed to overcome the Great Depression at the end of the twenties and thirties in the USA: “We do not need to fear anything, except our own fear”. Today cuts have been made in several businesses and construction sites and some projects have been stopped from fear of the crisis. The events of 2008 have indeed had very serious consequences on the economies of many countries and the situation is fundamentally different from 1998, when the crisis mainly affected Russia. It is the first time in the memory of today’s generation that a  crisis has really touched the whole world and affected the main branches of the economy: Finance, the construction and car industry and retail trade.

Here we identify the main versions of the reasons for the crisis:

  1. Risky loans from the banks. All people involved in the market had to pay for the notoriously irrecoverable loans given on very favourable terms.
  2. Top managers of large companies who abused their power and manipulated the accounts for their own financial gain.
  3. The creation of the original money “clots”: Banks intentionally holding onto money allotted by the governments of different countries from state budgets, national and stabilizing funds. First they increase the panic and muddle on the market and then they buy up real estate and production capacity at low prices. From an objective point of view it is worth noting that in a wave of panic the interested parties are those who want the prices to come down.
  4. A crisis in the quality of real estate projects and the obviously overpriced cost of construction. The notorious bribes, large amount of stealing and money made on the side on construction sites turns out to be not just a Russian disease.

However the current crisis is not connected with a serious war, mass destruction or death of people, there have not been any epidemics or grandiose catastrophes. The traditional finance system has been paralysed, but the factories and industrial plants, the bridges and main roads are in place as before. And the needs of billions of people all around the globe have not disappeared and consumers like before are thinking how to turn the consequences of the crisis to their own and their families’ advantage.

The boom in consumerism which has captured Russia in the last several years was not only provoked by an increase in consumer credit. Retail trade was called upon to meet people’s needs and buyers from Russia, China, India and many other countries of the world have had a taste of the good life. That is why it is impossible to go backwards: The desire to dress well, eat well, treat your loved ones, go on holiday, have a good time and travel, relax with one’s friends, have a career, buy a house and paint it will grow. The desire to impress one’s colleagues and neighbours, live a well rounded life, read books, watch films and play sport will remain. People want to live better and will find ways to do it. And when there is demand, there will always be opportunities for retail trade. The most dangerous thing for retail trade is the phenomenon of thriftiness, when people do not want to spend their money preferring to save it. The task of commerce is to turn customers’ attention to the goods and make them spend their money. In this case the economy begins to improve and the whole of society becomes richer as a result.

The governments of many countries have given state support to the banking system and if the “money clots” do not appear then very soon the question of investment will again be high on the agenda. One of the ways of investing funds is in technology and innovation in order to make use of the temporary respite and prepare for a move ahead. Let us remember that the 1998 crisis helped develop national brands and goods and gave rise to the modern retail trade. Until the banks recover, construction work may slow down, but it will not stop altogether. That is why those who are not making plans for new high-quality shops and shopping centres are running the risk of landing overboard. It is essential to do the research and draw up plans now in order to be ahead of the game, especially dealing with commercial space. One of the estimate factors for a commercial building is the option of setting it up in stages. It is important to bear this in mind. Another aspect is the way in which building costs are coming down. This could essentially change the situation for space in commercial centres. In construction everywhere in the world there is the temptation to push prices up, especially for unique and individual buildings which have no rivals. A review of the plans should be looked at from this point of view: Is it expensive exteriors and interiors which create a high standard shopping centre one or can this effect be achieved by the unique modern architecture or structure technology of the shopping centre or multi-functional complex. And this of course would mean a reduction in money spent on materials and the building work itself. Opportunities for clients have improved: Because some developers were not up to standard there is reduced demand for architecture and building services and the best architectural companies have become available, which previously you had to book long in advance. The current situation is a competence test for all suppliers of materials and services to the commercial real estate market. As they say “Less is more”…

 The future of retail trade development

In development the crisis will most likely lead to a departure of the non-professionals and amateurs of easy gain, leaving the serious players in the market, who intend to create the buildings and even cities of tomorrow. However state support affects the results of natural selection in the construction industry and retail trade. At the moment it is not clear which retailers and to what degree the state and financial structures will help and whether this help will play a role in the competitive fight. This most of all concerns the large chains. However there is a more urgent task for the medium size and small chains – to stand their ground. And for that they need to put aside their large scale plans, make best use of their resources and cut back on expenses and unsuccessful lines of business.

For the past one and a half years the number of projects in our company connected with finding the best format for chain shops has markedly increased. High rents to a certain degree have influenced the development of retail business and made people think about the best size for commercial space and where it should be situated. This has particularly affected the non food chains, which account for a large number of commercial shops (everything for the home and presents, home entertainment, digital technology, fashion items, shoes, accessories, perfumes and cosmetics). For example in Moscow the rate for selling non-food items in a successful shopping centre or central shopping mall begins at 1100 dollars a square metre a year and goes up to 5000 – 6000 dollars. Such conditions lead to very clear questions: Is there any surplus space and how to make the best use of the existing space and lay-out to get the maximum return from every metre. We must estimate the value of the different areas which are not being used for displaying goods – for example, a play area, a maintenance area, a service centre, a place for demonstrations and testing goods and special displays – and find how to turn them from beautiful “gems” on the shop floor into real working space which could influence sales.

Very many chains linked their plans to the development of shopping centres, but unfortunately in Russia and Ukraine there were many disappointments. The shopping centre itself cannot give a shop advantages if it is built with mistakes (in conception and lay-out) and it is only possible to work well in good shopping centres or at least in shopping centres on very good sites. Research on how chain shops work has shown that there are two equally profitable strategies. The first is to put the shops in places where there are many people passing by and therefore a large number of customers and higher proceeds but very high rent. And the second is working in bigger and cheaper areas, the number of people and turnover are lower but the profit is the same because the costs are lower. For example these sites could be in a block in a commuter district on the outskirts or in the suburbs. The best size for the space could differ by 2-4 times in the first and second example. The assortment of goods in the second should be different and include new goods’ groups with a very large choice in each category.  In large cities in Russia the high competition and limited good places in shopping centres and high street shops has made the chains look at the smaller cities in the region and develop suitable formats for cities with a population of 100, 50 and 30 thousand people. It is quite possible that the decline in bank lending for business development could lead to a change in attitude to commercial space – in a strategic plan for a change in format and further development of business in more outlying areas.

The problems for chains, whose shops are now being forced to close, did not begin in September-October 2008 but much earlier. Someone simply could not cope with the mass expansion or did not solve the problems of developing brands, the assortment of goods, personnel and competitive choice in time. Plans from loans were at times not well thought-out and in a number of cases the planned expansion was not aimed at increasing the company’s profit, but to increase the influence (and income) of a certain manager. In Kyrgyzstan there was a case when a local chain was quickly organized and “packaged” for sale: They increased the number of shops for no good reason, painted them in the company style and introduced the basic retail technology. Some chains which opened many new shops did not pay close attention to the criteria needed in choosing a location which resulted in several shops being opened at random. They worked a bit, had a look see and closed…

We list the main criteria for opening new shops:

  1. The city’s requirements
  2. The influence of the competition on the market
  3. The shop’s site (area, environment, number of customers in an average commercial area nearby, pedestrian and car traffic)
  4. The requirements of the shopping centres and multi-functional complexes (general space, type of shopping centre, the tenants, the conception and positioning, the amount of customers). The best places and situation in the shopping centre plan and the neighbours.
  5. The commercial space (the size, the hall’s configuration, the decoration, communications, capacity and logistics)
  6. The rent terms (documentation, the rate, additional payments and the opportunity to place advertisements on the front of the building)

What events in retail can be expected in the near future? Most likely many chains will not give up their development plans, but these plans will become more realistic. Unprofitable and unsuccessful lines of business will be stopped. The crisis could provide a good opportunity to limit the influence of foreign retail chains, but for that very effective, clever and aggressive PR is needed. The regional chains could work more with local producers to keep money in the area. Short-sighted behaviour during the crisis is to concentrate on one’s own problems and not think about the opportunities. All retailers have to remember that the basic task in business is to tempt the customers with their goods, to make them earn money so they can spend it, further production work and economic growth in general. Even fashion is no more than something thought up to regularly renew demand on light industry goods (with a bit of creativity). Research by NIELSEN in 2007 showed that around a fourth of consumers in the world, fearing a global recession were in no rush to spend their spare funds. In Russia customers had only just got a taste of spending, that is why good work in the retail industry might be able to improve the situation. The psychology of the Russian buyer is that shops and shopping centres are a special place of support and hope and the customer should get a boost of optimism and not a shock from inaccessible prices like for example in January 1992 and October 1998.

Of course it is more difficult for those who are selling goods which are not essential but have a high mark-up (luxury items, accessories, fashion items and fashionable underwear). In the service industry it is realistic to expect that people will go less to the more expensive restaurants and entertainments. Consumers will become more demanding as regards “price and quality” and when talking about quality we do not just mean the physical characteristic but also getting pleasure from something. For example the atmosphere in a themed restaurant, the size of the portions and the ingredients in a café or food court, the time allowed for skating at an ice-rink or the length of an amusement ride and the size of the studios or swimming pool in a fitness centre. A significant example is the situation in the cinema business. In the first half of 2008 in Russia for the first time the income from the sale of DVDs was higher than the income from the cinema industry. This is also connected with an understanding of “price and quality”, since conditions for home watching are constantly improving and prices on good quality home entertainment are coming down but the price for a visit to the cinema is still high.

The two main valuables of a shop are the customers and the personnel and this is the right time to think about how to improve working with them. When there was huge demand it was not critical to think about service levels and to fight for customers. For example one of the most “non client friendly” retail trade businesses were the car salesrooms where they were selling average priced and expensive imported cars. Now one could use the temporary respite to think about standards, reconstructions and re-conceptions, how to make the best use of the assortment of goods and lay-out, the quality in projects, the design of new shops and about everything which could improve what is on offer to the customers. As part of this one must be prepared for a possible fall in profit (absolute indexes and growth rate) and determine the lines of business which were a “burden” for the company and finally get rid of them but not rush into cutting back on expenses for promising lines of business without due thought.

The labour market provides good opportunities and some effort should be directed at working intensively with personnel. Let us remember that at the time of the Great Depression the USSR carried out a successful modernization of their economy and established heavy industry by taking advantage of the favourable conditions and hiring qualified technical specialists. And a huge number of competent specialists and new ideas appeared in Russia after 1998, when the period of recession was used for self-development and professional growth of managers. If a retail company manages to maintain a stable salary and good employees, it will be attractive to personnel and in the future work very effectively. Free time, linked to the mass opening of new shops, could be used to improve employees’ qualifications in areas where there is an acute need for specialists: For example, shop managers and in-house technologists in supermarkets. Correspondingly a company could prepare itself for a new period of development and competitive fight.

One can say that negative emotional feelings towards any large development project are a temporary phenomenon. However control over the quality of projects (marketing, architecture and the quality of the building work) will be much more serious than before. Priority will be given to the most serious projects and the professionalism of the projects will bring down the risk.

© Kira and Ruben Kanayan,
Authors of the book Planning shops and shopping centres and the book Merchandising
Leading consultants for the company “Union-Standard Consulting”, Moscow

Informational partners – "Shop-Academy", "Mall-Academy" and "Stratomedia Inc."