22 June 2004 05:40
Coming to a Neighborhood Near You
The name Shagmag may make some English speakers titter, but it could be just what your Moscow neighborhood is
lacking.
Shagmag is a small-scale convenience center chain, whose name translated directly from Russian means "step
shop." The mission of the chain's developers, Narodnaya Torgovaya Set, is to bring basic household goods and
services within "one step" of every Moscow residence.
A pilot Shagmag, recently completed on 240 square meters of land on southern Moscow's Kolomensky Proyezd, will
open its doors within a month. It is a three-story building with 500 square meters of space, which will have a food shop
and various household services ranging from shoe repairs to a dentist.
Speaking last week at the second annual Adam Smith conference on real estate and construction in Russia, Narodnaya
Torgovaya Set's general director Metso Igityan said Moscow needs more neighborhood stores.
"The Soviet-era household goods and services shops called sluzhba byta that operated in every neighborhood
closed, but the demand for them remains," Igityan said. "The small kiosks that sprang up in their place do not
guarantee the quality of their products, and their format is not up to par with what Muscovites have come to expect in
recent years," he added.
Retail kiosks are now ubiquitous near metro stops and in residential neighborhoods, but while some are known for
selling the best pastries in town, others have been made infamous by food poisoning cases resulting from their selling
counterfeit liquor and other low-quality products.
"These kiosks had a strong place in the market until they were identified by the city as undesirable," said
Gerald Gaige, partner at Ernst & Young.
Nina Novikova, head of retail research at Noble Gibbons, said the number of traditional corner stores operating in
spaces no larger than 150 to 200 square meters was likely to decrease even more in the near future as they gave way to
chain convenience stores, "similar to America's 7-Eleven chain."
Narodnaya Torgovaya Set's Igityan estimates that Moscow has the market for at least 3,000 new convenience
centers, designed to support the residents of 2,000 to 3,000 apartments. He hopes that the Shagmag chain of convenience
centers, each one housing a basic food shop, a beauty salon, dry cleaners and other household services under one roof,
will fill the modern convenience store niche in Moscow.
Major supermarket chains are also aggressively trying to fill this gap, opening "small-format" stores that
mainly target average- and low-income families. Sedmoi Kontinent already operates 14 neighborhood stores called Sem
Shagov, no larger than 800 square meters each, and plans to open 10 more by 2005.
"The main difference between Shagmag and other neighborhood stores is that while others focus on food products,
we will provide all household services," Igityan said in an interview.
The pilot Shagmag will open in southern Moscow because the authorities of Moscow's autonomous southern district
have been instrumental in helping establish Shagmag centers, Igityan added.
Mayor Yury Luzhkov announced earlier this year that the city government plans to help entrepreneurs develop
"socially significant" stores to supply average-income-level consumers with basic products. However, only the
southern district has actively begun attracting neighborhood store developers. Pyotr Biryukov, prefect of the southern
administrative district, has announced concrete plans to build 10 easily accessible stores in each of the
district's neighborhoods by the end of 2005.
The local authorities gave Narodnaya Torgovaya Set access to land, enabling them to bypass the red tape Moscow's
developers have come to dread. The southern district also allowed Shagmag to keep the entire building, without giving 30
percent of their newly constructed property to the city, as the law in Moscow requires. In return, Shagmag must remain a
convenience center for the next 10 years.
"We weren't planning to turn Shagmag into a casino or anything else, so this is fine with us," Igityan
said. "The incentives cut our investment costs, so we'll be able to pass on the savings to small businesses
that will lease our space."
Eleven Shagmag complexes are set to open in southern Moscow by the end of 2005, and the developer already has leasing
rights for all the land plots, ranging from 200 to 1,700 square meters in size.
Sedmoi Kontinent's Sem Shagov stores, however, do not have the same reliance on government incentives for
obtaining land in Moscow. Sem Shagov stores plan to open in all of Moscow's districts that demonstrate demand for
their services, said Sedmoi Kontinent spokesperson Anna Zaitseva.
Igityan said that while the company wanted to expand into other areas of Moscow, the southern district was the only
area that provided the necessary incentives.
The company estimates it will be able to recoup its investment within three years. It has already created
subsidiaries to manage Shagmag's food shops and beauty salons. The remaining commercial space will be leased to
small businesses.
"It is difficult to comment on the feasibility of Shagmag because of its focus on household services, which is a
mysterious market," Ernst & Young's Gaige said.
He said that revenues of service-focused small businesses are highly sensitive to consumer demand, and differ greatly
from business to business and from neighborhood to neighborhood.
"Predicting the level of rent service businesses will be able to pay is very difficult," said Gaige, who,
despite the uncertainties, approves of the flexibility of space in Shagmag's model.
"Strong businesses will survive and support the complex, while businesses not appropriate for the neighborhood
will fail and, with the small, flexible spaces, can be replaced by others," Gaige said.
.TX-..**********************************************
[The Moscow Times] |
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