Natalia Corobco in Baku -

Young fashionistas in Baku often complain there's nowhere to shop. They go on biannual pilgrimages to Dubai and Istanbul to hunt for the latest affordable fast fashion reproductions of designer pieces. Now they no longer have to go that far: on May 28, Baku Plaza, a company of Azersun Holding, will open the doors of Park Bulvar - Azerbaijan's first modern shopping mall.

This is the first of three projects designed to introduce Western shopping values and bury old Soviet models, such as the TSUM (central general store). For appearance and status-conscious Bakuvians, Park Bulvar's offering of 17,000 square metres (sqm) of retail and leisure space on the seaside promenade is like their very own Jumeirah Beach (Dubai).

The market for consumer goods in Azerbaijan has been fairly stagnant over the past five years, constituting AZN3.8bn (about $4.8bn) in 2008. It grew by a meagre 1.9% to 35.6% as a proportion of total consumer spending. This is significantly below the pre-independence days of the late 1980s when people spent only about half of their budget on food. Companies in the apparel industry are still either playing it by ear or choosing to safeguard market information.

Overall, there is a sense of optimism in the capital as spending per capita there has reached AZN2,585 ($3,231), nearly double the country average. In the foreseeable future, competition will be concentrated in Baku, which is home to nearly 68% of the total number of shops. There are few constants for clothes retailers to fall back on in this time of change and previously unknown industry rivalry.

Until recently, the market was split among a few brand investors, such as Sinteks (Mango and top luxury brands) and Novco (Benetton, Lacoste). When Baku Plaza commenced the construction of the mall in 2007, new players saw an opportunity. Today there are plenty of international brands in distress as their European customers, hurt by the crisis, stopped shopping. Thus countries like Azerbaijan that were relatively unaffected by the financial crisis are prized new markets. Infinity is one example of a recent entrant that quickly established its position. It signed up Debenhams, one of the oldest multi-brand retailers in Europe. According to its head of marketing, Murad Tahirov, Infinity negotiated with some 15 different brands before striking a deal.

Most retailers operate on a franchise agreement with local brand investors, getting a cut on the profits. Infinity had to pay up front for merchandising and for establishing the 1,200 sqm anchor store at Park Bulvar (at a going refurbishment rate of AZN1,200 per sqm). Considering that shopping malls are a novelty in Azerbaijan the risks are high, but a stand-alone multi-brand store would cost more to maintain. Tahirov comments that Debenhams is a strategy to fill a market gap. There are many luxury and mass-market brands in Baku, but little of anything to cater to the mid-market. If the pilot project is successful, Infinity will open two additional stores as new shopping malls are completed.

So much more than shopping

Pioneering a whole sector is no easy task, but Park Bulvar has assembled a formidable team of nearly 200 people to run the mall. General Manager of Baku Plaza, Kadir Ozbey, believes that, "over time people will understand the meaning of shopping."

Along with a plethora of international brands, Park Bulvar is introducing an entertainment and dining-out culture to Azerbaijan. The mall houses a planetarium, cinema and art gallery, among other things. The concept (which cost about $60m to complete) leaves older and much smaller shopping centres such Nargiz and AF Mall far behind.

Park Bulvar's success will depend on consumer education and the adoption of new leisure habits. Park Bulvar's business development manager, Zarifa Mirzoyeva, believes that "low-quality street stores will close" as people opt for a comprehensive shopping experience. The share of non-registered trade (markets, fairs or private owners) has been increasing and is now at an all-time high of over 80%, but new shopping centres could absorb some of the workers in non-registered trade and bring spending out of the grey. Park Bulvar's current estimate is that it will take approximately eight years to breakeven; normally, it should not take more than four or five for a project of this size.

At present, Park Bulvar is reaping the rewards of its first-mover advantage. Occupancy is at 100% and being one of a kind allows for premium rates. Rental agreements start at roughly AZN60 per sqm and increase by 5-10% annually on three-year contracts. Meanwhile, New Life City - a new shopping mall which will open within a year - is advertising at only AZN10 per sqm. Further pressure on prices might come when Baku's third mall, the Flame Towers, is completed by the end of 2011. Fortunately for Park Bulvar this project has also been given to Baku Plaza for development.

The success of shopping malls in Azerbaijan will depend on the ability of retailers to cultivate a consumerist society. In terms of industry vision, both Tahirov and Ozbey want to see the development of local apparel brands, as has happened in Central and Eastern Europe. How this will happen is a bit unclear, though. First, entrepreneurship is almost non-existent in Azerbaijan and the current treatment of small businesses will continue to dampen initiative. Second, there are no popular fashion, design or tailoring schools. An effort by the author to locate one or two young designers brought no results. As such, for the foreseeable future the new malls will be populated by a few international and many more affordable Turkish brands.