Face of Nevsky Changes As Rental Rates Decrease
By Yelena Dombrovskaya and Maria Buravtseva
Vedomosti
St. Petersburg’s central thoroughfare looks set to cease being a street of boutiques, as mid-range clothing stores and restaurant chains replace luxury brands. At 47 Nevsky Prospekt, where an Escada store used to be located, a Dve Palochki sushi chain restaurant opened in October. Nevsky Prospekt wasn’t the company’s priority, but the favorable terms made it possible to open another outlet, said Yakov Pak, marketing director of Dve Palochki. According to him, rental rates are now 30 percent lower than before the crisis, and investment amounted to about 35 million rubles ($1.2 million). In place of the Hugo Boss store, which closed down at the end of the summer, a branch of the mid-range clothes brand Love Republic has appeared at 23 Nevsky Prospekt. Investment totaled about 3.5 million rubles; there was a discount on the rent, says Mikhail Urschumtsov, director general of Melon Fashion Group, which owns the Love Republic brand, as well as Zarina and Befree. Flagship stores of these three brands are now open on the city’s central street, though the brands mostly have stores in shopping malls, he said. Revenue at the stores on Nevsky had decreased by 35 to 40 percent — they went from being stable to unprofitable, Oleg Zelentsov, director of Holding Center, the Hugo Boss and Escada franchisee said at the beginning of September. According to Urschumtsov, revenues at Melon Fashion Group rose by 4 percent during the first 10 months of this year, excluding the new stores. In the luxury goods segment, the turnover has decreased by up to 40 percent, and up to 60 percent in the mid-price sector — only the low-price segment is growing, said Nikita Kondrushenko, the former Versace boutique manager. Rental rates have not decreased as much as turnover, he said. Opening a business on the city’s retail hub has become more affordable — landlords are prepared to negotiate, though rents vary greatly with different owners, said Vladislav Rogov, general director of Costa Coffee in Russia, which opened a coffee shop on Nevsky last week. “The rental rate on Nevsky Prospekt used to be 8,000 rubles ($280) per square meter per month and there would be tenants lining up, now it’s 5,000 rubles and it takes six months to find a tenant,” said Marina Fyodorova, the director of the street retail department of Becar. According to her estimate, 15 percent of premises on Nevsky Prospekt are vacant. Among potential tenants, none want to open an expensive boutique on Nevsky anymore, said Roman Ignatenkov, director of Uspekh real estate agency. They are more willing to open bistros, cafes, mid-range clothing or lingerie brand stores — formats that guarantee money, he said. Instead of the flagship boutiques of chain retailers, private entrepreneurs are appearing more and more often, said Yevgenia Vasilyeva, deputy director of the consulting department of Colliers International. Those who could not previously afford premises on Nevsky Prospekt, such as private entrepreneurs, have now started developing actively. One of the main reasons is rental discounts, which amount to 30 to 50 percent — rent varies from 3,500 to 10,000 rubles per square meter per month, according to Ignatenkov’s estimation. The rent level has stabilized and it is now 5,000 to 8,000 rubles per square meter per month, said Vasilyeval. Fyodorova says that 70 percent of the tenants who have moved out their Nevsky premises couldn’t afford the high rent as a result of the economic crisis, while the rest left their premises due to their business closing or problems with the tax authorities. Nevsky has stopped being a deluxe street and is filling up with chain restaurants and coffee shops instead of boutiques, said Kondrushenko. Melon Fashion Group is going to open new retail outlets on Nevsky Prospekt, said Urschumtsov. Rogov said Costa Coffee was also considering doing so. Denis Radzimovsky, director general of the Miks fast food chain, said he believed rental rates are still too high, even with discounts. The rental rates on Nevsky Prospekt have decreased at least twofold — from 8,000 rubles or more to 3,500 to 4,500 rubles per square meter per month, and more vacant premises have appeared, he said. Miks is now considering opening an outlet on Nevsky. During the crisis, businesses should open not only to improve their image, but also to attract revenue, and a 200-square-meter coffee shop on Nevsky Prospekt can be profitable only if rental rates fall by a further 30 percent, said Radzimovsky.
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