Ahead of Drapers’ first special Global edition this weekend where we’ll be exploring retail in multiple overseas markets, we catch up with Håkan Nilsson, head of leasing at shopping landlord operator IKEA Shopping Centres Russia, which operates 14 sites across 11 of the countries most populated cities.
You now have 14 Mega shopping centres in Russia with three schemes in the Moscow region, two in the St. Petersburg region, and one each in: Kazan, Ekaterinburg, Nizhny Novgorod, Novosibirsk, Rostov-on-Don, Adygea, Omsk, Ufa and Samara. Why did you choose these cities/regions?
We started [in 2002] with Moscow and St Petersburg, both natural first steps. Then Russia has about [10 further]cities with a population of over 1 million. So it was quite simple really and there was not really any big research behind it; it was quite natural to go to these markets, they were the biggest ones. And we have to understand that in those days there weren’t any administration agencies, there are absolutely no statistics of anything, so it was more the size of the population that mattered. These things have developed since then of course.
How do the consumer groups in those areas differ?
There are differences between the towns. It’s not only a geographical difference, it is an enormous country. If you’re in the south it’s like it’s summer year-round, and if you go into Siberia then you can understand what is happening there. But it is also cultural differences, both religious and different ethnic groups. But [due to] the old soviet system and now the Russia Federation, they have the language in common, and they have a lot of common things, but there are these differences. Also if you look financially some areas are much more developed than others, and it is quite heavily connected to if there is oil and gas and if you have an administration in the town that is efficient with a mayor; it really matters, [having that infrastructure] it has a big impact.
Is there an appetite for British brands/retailers?
Absolutely. If it is a well reputed brand that is hungry, that dares to come in, that dares to actually be a little bit aggressive on the market. You need to promote yourself, you cannot just land in and then everything works, it will not be like that, because you need to show who you are and you need to teach a little bit what you stand for and what you are doing. Some brands for sure they can just come in and it works. H&M [for example] when it came in, they [Russian consumers] know what this is. But not everything, they don’t know. So you need to teach.
Who in your view has successfully entered the market in terms of strategy and promotion?
In general H&M did a very good campaign when it came in. I must say Debenhams also, it was quite good in the beginning, but it still just has one store; it’s not enough, it needs more. It needs a bigger footprint to do it, then it will make it for sure. I talk to them, for sure they are thinking about it, I don’t know their exact plans but I would be very surprised if they don’t [open more stores].
71% of your tenants are franchises and 29%are direct, which way is the market heading?
We see that it is much more efficient when retailers are coming in directly, for sure. They can come through a franchisee to us, but we would rather see that they come directly, and if they choose to go through a franchisee they should really choose carefully and listen to other companies that have done it. For example, [we have seen] when the direct owner takes over the sales can increase. We have experience of a 23-43% [increase in a retailer’s] sales; so it is an enormous difference. I mean you do have franchisees that are doing a very good job, of course. However, there are a limited number of really good franchisees, and more and more brands are coming in to them. Where do you reach [saturation]? How many can they take care of, 10 brands, 20, 30, 40? How much time will you spend on them?