The pushed-back past: foreign brands will pay for returning to Russia
Foreign clothing brands will face serious difficulties if they want to return to Russian shopping centers, as business associations told Izvestia. All quality and central places in shopping centers are already occupied by domestic companies, lease agreements have been signed for 5-10 years. There are about 5-6% of vacant spaces left. Moreover, foreign brands will literally have to pay for the return "entrance ticket", Russian centers assure. The size of this additional fee is already being discussed in the industry.
Domestic chains have taken the place of foreign brands in shopping centers
Large foreign clothing brands, which left Russia in 2022-2023, returned to an informal dialog with the country's shopping centers. We are talking about European business: for example, the holding Inditex (it develops such brands as Zara, Bershka, Pull & Bear, Stradivarius and Massimo Dutti). So far, the parties are not discussing any specific conditions, but it is already clear that the return to the domestic market will be long and difficult, the Russian Council of Shopping Centers (RSTC) and the Union of Shopping Centers told Izvestia.
Russia is a serious sales market, in the structure of global sales of foreign brands, the share of our country was from 3 to 15% depending on the company, it is the sixth to eighth place in foreign ratings, said "Izvestia" member of the presidium of the RSTC Dmitry Tomilin. According to him, European business did not want and does not want to lose such a platform.
-Today the window of opportunity is gradually opening, political events foreshadow a thaw in relations with the U.S., so foreign brands have indeed started to get in touch - we are talking about such names as Zara and Bershka, Pull & Bear, Stradivarius and others," the expert added. - No concrete steps have been taken by the companies yet. But when the time comes for a concrete dialog, foreigners will be faced with the fact that there is nowhere to go back to and they still have to pay for it seriously.
First of all, the places of Europeans in shopping centers are already occupied: such domestic companies as Lime, Stockmann, Gloria Jeans, Melon fashion group (brands Zarina, Befree, Love republic and others) have taken thecentral sites - only in 2023 they occupied 400 points, the companies themselves estimated. Some sites were taken by foreigners, for example, from Lebanon - Maag, Ecru and Dub. These retail chains signed lease agreements for 5-10 years in 2022-2023. Therefore, there will be nowhere to return quickly, the expert explained.
Of course, some shopping centers can give up inefficient tenants, giving their sites to foreign partners with "good numbers", but even this will not be easy to do: the current sellers, at least, must violate existing contracts, for example, delay rent, says Dmitry Tomilin. According to his estimates, the whole process of return may take at least 6-12 months.
- If in the future Inditex considers that the new circumstances will allow to return the group's brands to the Russian market, the company and Daher group (Maag, Ecru, Dub) have a possibility of potential cooperation within the framework of the franchising agreement, - said "Izvestia" in the Spanish holding in response to the request of the edition.
Earlier in October 2022, Inditex sold the business in Russia to Daher Group, which included the transfer of most of the leases associated with the stores.
Foreigners are waiting for a return "entrance ticket" to the market
Indeed, in most cases Russian brands signed long-term lease agreements - from five years - and only serious violations on the part of these companies can be grounds for their termination. There is also another option, a milder one, - our brands will be paid back pay, Pavel Lyulin, vice-president of the Union of Shopping Centers, explained to Izvestia. According to him, Inditex holding has now entered into an informal conversation with shopping centers.
- Now there is a deficit of vacant space in shopping centers, it is about 5-6%, so there will be strong competition for quality locations. And it may be difficult and expensive to squeeze Russian and Turkish brands. Although shopping centers have already stated that they are ready to offer options from vacant space to tenant rotation. Western brands used to occupy the best sites at the facilities," said the expert.
Also, foreign retail chains will have to pay a kind of return "entrance ticket", it will be substantial money, added Pavel Lyulin. The amount will take into account investments in the Russian economy, higher rent compared to our brands and additional deductions. According to the expert, the industry is already discussing different variants of this approach. For example, if earlier shopping centers were ready to compensate foreigners for the costs of repairs at the facility, now there will be no such preferences, explained Dmitry Tomilin.
"Izvestia" sent inquiries to the key shopping centers in the capital - "European", "Aviapark", "Okhotny Ryad" and "Atrium". For example, "Afimoll" now has no vacant space for foreigners, said "Izvestia" in the press service of AFI Development.
Why Western brands are not welcome in Russia
So far, foreigners have not had any specific conversations with brokers of retail real estate, said "Izvestia" in NF group. But in case of their return, they will have to pay at least fines to developers for sudden termination of agreements with current tenants, said Evgenia Hagberdieva, regional director of the company's retail real estate department. The amount may start from 5-10 million rubles.
According to her, in large shopping centers in Moscow and St. Petersburg there are practically no vacant premises that could be promptly offered to foreign brands. In the regions the situation is more varied, but quality facilities with high attendance also have already formed a pool of tenants, Hagberdieva added.
"Izvestia" sent inquiries to domestic tenants to understand whether they are ready to vacate some sites. Lime, Stockmann, Gloria Jeans, Melon fashion group did not respond at the time of publication. The managing company Rmixed (which develops Maag, Dub, Ecru brands) told the editorial board that they support and welcome "healthy competition: the increase of offers on the market is in favor of buyers, who will have more opportunities to choose".
In principle, the Ministry of Industry and Trade does not expect foreigners to return to Russia, as follows from theMinistry's response to Izvestia's inquiry. Foreign brands in 2022-2023 made the decision to leave Russia themselves, the ministry noted. It was an unfair practice: the companies violated their contractual obligations to shopping centers to rent space, which resulted in a sharp decline in occupancy of shopping centers, the ministry said. Ordinary shoppers were also affected: they were faced with the fact that their favorite brands would no longer be available.
- At the request of shopping center owners, the Ministry of Industry and Trade got involved in the issue of increasing traffic and occupancy of retail real estate. Stimulating measures were developed for the market, which helped to fill vacant areas with Russian brands and social infrastructure. Traffic has recovered," they said. - But most importantly, we see that our business was able in a very short time not only to fill the vacant space in shopping centers, but also to make a complete rebranding and adapt the concept of their business models. Now it is Russian brands that dominate in the leading shopping centers across the country.
The Ministry of Industry and Trade added that the trend for the development of domestic names, which is supported by the state, will continue. In particular, the bill "On the Russian or Russian shelf" is aimed at this, the task of which has nothing to do with encouraging or stimulating the return of foreign brands. "Those foreign brands that remained to work in Russia, continue to operate, and the vacated niches will continue to be replaced by the names of Russian manufacturers," the ministry summarized.
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