Mosmart Rising in Russia by $100M

Mosmart, whose three outlets are all in Moscow, plans to build most of its next 12 stores outside the capital by 2008.

Hypercenter, the developer behind local hypermarket operator Mosmart, has started work on its largest project to date, an 87,000-square-meter retail project just southwest of Moscow.

In addition to a 20,000-square-meter Mosmart store, the $100 million development at the intersection of Borovskoye Shosse and the Moscow Ring Road, or MKAD, will include an electronics supermarket and a DIY store.

As work began last Wednesday, Mosmart deputy general director Semyon Slutsky detailed the planned expansion of its network from three to 15 stores by 2008, with most of the development outside Moscow.

At present, Mosmart's stores are all in the capital. It is currently building its first non-Moscow outlet in Nizhny Novgorod, with stores to follow in St. Petersburg, Volgograd, Ryazan, Krasnodar and Samara.

After the Nizhny Novgorod and Borovskoye Shosse stores are built, Mosmart's new outlets are to be developed by Hypercenter Investment, which plans to put $450 million into the expansion. Forty-nine percent of the Hypercenter Investment is owned by Swiss holding Jelmoli, 26 percent by real estate investment trust Eastern Property Holdings, and 25 percent plus one share by the founders of Mosmart and Hypercenter.

After detailing Mosmart's expansion strategy, Slutsky suggested that the Moscow hypermarket business was starting to get crowded.

Responding to recent comments from Wal-Mart CEO Lee Scott that the U.S. retail behemoth is planning on entering the Russian market, Slutsky said that the American chain would be better off skipping the capital and heading straight for the provinces.

"There's no room for [Wal-Mart] in Moscow today," he said. "They need a big volume of business. Today such business in the hypermarket format is not there.

"We're here, Auchan is here. We're not selling up, Auchan isn't selling up. What would be more interesting for Wal-Mart would be regional expansion." He said, however, that he doubted the U.S. firm's arrival was imminent.

On June 25, Scott told the Financial Times that his company wanted to expand into Russia, and that in Central and Eastern Europe, expansion through acquisition would be more likely than building operations from the ground up.

Philippe Beurtheret, deputy head of the retail department at Jones Lang Lasalle, said that while hypermarket chains were opening stores outside Moscow, the market in the capital was far from saturated.

"If Wal-Mart did come, it would come directly to Moscow, whether it bought out someone else or arrived on its own," he said.

Speaking about the new Mosmart site on Borovskoye Shosse, Beurtheret said it had good visibility and access, and that it would likely prove sustainable.

The MKAD, which provides access to shoppers both in Moscow and the surrounding region, has seen numerous large retail developments, including the two Mega malls, Ramstore City and Crocus City, and stores from Auchan and Way-mart, among others.

Other hypermarket operators are also moving aggressively into the provinces. An Auchan representative said that over the next two years, it is planning half of its developments outside Moscow, with two hypermarkets in St. Petersburg, one in Nizhny Novgorod, and one in Yekaterinburg.

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