BRICKS & MORTAR: Central Asia's biggest mall opens in Almaty

By bne IntelliNews September 15, 2009

Clare Nuttall in Almaty -

International retailers have been slow to come to Kazakhstan, but that is set to change with the opening of Central Asia's largest mall in mid-September.

When completed, A'port, located in Almaty's western outskirts, will cover 110,000 square metres, more than three times the size of the largest existing mall in Central Asia. It also hosts Kazakhstan's first hypermarket, opened some 20 years after the concept was first developed. The Ramstor hypermarket and DIY retailer Kazmart are already open, while construction and outfitting work continues elsewhere. More than 50% of the stores at the mall are international brands coming to Kazakhstan for the first time; they include Spanish retailers Zara and Cortefiel, Fox from Israel, and Italy's Terranova.

Dmitry Revin, general director of developer Eurasia RED, hopes the mall will give help propel Kazakhstan's underdeveloped forward. "Right now, retail is in its infancy. Markets go through four stages: emerging, development, maturity, saturation. We are somewhere between the emerging and the growth stage," Revin tells bne. "Until now we have had only small stores and supermarkets."

The mall was named after the "a'port" apples for which Kazakhstan was famous in Soviet times. "We say that every single spoiled a'port apple spoils the whole A'port mall," says Revin, explaining that Eurasia RED was very particular about which companies it accepted as tenants. "We are not just construction developers that do not understand the retail business. We have worked in retail for the last eight years. We provide very lucrative commercial terms for our tenants - at least 25-30% less than current market prices, because rents were over-inflated in Almaty due to the lack of supply."

He admits that, "In terms of finding tenants, it was a little bit more difficult than in 2006 or 2007, but we do not just pick up all the tenants we can get. We pre-selected the candidates based on their financial reliability, their know-how and skills, and their personal skills. It's like a marriage and we had to be comfortable with the people behind our tenants." The company rejected more than 20 of the retailers that approached it, and not one of its tenants is a purely local company.

According to Revin, of the mass-market fashion retailers that are present in other CIS countries, only about 20% are in Almaty. "Retailers are coming to Kazakhstan, but they are slow for several major factors," he says.

"First, a lack of knowledge about Kazakhstan - at many of the international events we participated in, retailers didn't even know the country existed; second, the lack of quality retail space; third, the limited number of professional local franchisees. To enter the market, brand owners need a local franchisee to help with logistics, management and other issues. We are happy to note that there have been new entrants to the market - companies that work in other sectors of the economy are turning to retail," he explains.

Margins

The slow entry of international brands to the Kazakh market has resulted in low competition and high prices. In internationally branded stores, mark-ups are typically around 30-35% higher than prices recommended by the brand owners. "The cost of goods in Almaty is two to three times higher than for the same quality goods in Europe, Dubai or the US. This is because there is no strong competition," says Revin. "There are very few professional retailers managing stores to international standards, with collections that are updated on a weekly or bi-weekly basis."

To drum up tenants and raise awareness about retail opportunities in Kazakhstan, Eurasia RED participated extensively in international retail and commercial real events, both alone and with other mall owners and developers.

Revin describes the retail opportunities in Almaty and Kazakhstan as a whole as "pretty significant." A'port is located in one of Almaty's most populous areas, and increasing car ownership also makes out of town malls a viable proposition - 700,000 people in Almaty and Almaty oblast (region) own cars.

The mall is targeted specifically at the middle classes, who shop locally, mainly in bazaars, since they cannot afford to fly abroad for shopping trips or to pay the high prices of city centre stores. "Our target sector is medium income, working families. Our focus is on women and their kids," says Revin. "Our goal is to improve the lives of normal people."

Shuhrat Toshev, mall manager, agrees. "We are building something for the people - this is important to us. It's not just for the rich, but for the middle classes," he explains. According to Toshev, even before the official opening, there is already considerable interest from Almaty residents. The hypermarkets have been open for several weeks already, with Kazmart receiving 14,000 customers and making $100,000 on its first day. The fountain outside the mall, which features an enormous glossy red a'port apple, has even become popular spot for wedding parties to have their photographs taken.

Although Kazakhstan is by no means out of the crisis, Eurasia RED is confident that Kazakhstan's growing population and the expected return to long-term GDP growth will make the mall a success. It was funded by Halyk Bank, the World Bank's IFC, and several Kazakh and Hungarian investors. While other construction companies have been struggling since the real estate bubble burst, Revin says funding is already in place for a second mall in eastern Almaty. "The return on investment for malls in Almaty is very good. It is averaging at about three years. There aren't a lot of businesses where you can find this. Previously, they enjoyed two to two and half years, but three years is pretty good," Revin says. "We expect that from the start of 2010 the economy will speed up; this has been confirmed by the National Bank of Kazakhstan. Right now oil prices are around $60 per barrel, which is very good for the economy, and prices have risen for other exports. Kazakhstan's fundamentals are very good."

In addition to several ongoing office block construction projects, Eurasia RED is planning to push ahead with the second phase of A'port and to build its second Almaty mall, which is due to open in December 2010. In the longer-term, the firm plans to build a nationwide chain of malls.


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BRICKS & MORTAR: Central Asia's biggest mall opens in Almaty

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