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From Russian malls with love



Shoppers who find that 250 stores aren't enough can go ice skating, watch movies or even ride a carousel, all under a single roof.
While it sounds like the Mall of America, this mall is outside Moscow, not Minneapolis. "I feel like I'm in Disneyland," Vartyan E. Sarkisov, a shopper toting an Adidas bag, said recently while making the rounds of the Mega Belaya Dacha mall.

Instead of bread lines, Russia is known these days for malls. They are booming businesses, drawing investments from sovereign wealth funds and Wall Street banks, most recently Morgan Stanley, which paid $1.1 billion a year ago for a single mall in St. Petersburg. One mall, called Vegas, rose out of a cucumber field on the edge of Moscow and became, its owners say, larger than the Mall of America if the US mall's 7-acre amusement park is not counted in the calculation of floor space.

A few offramps away on the Moscow beltway, another mall scored a victory by another measure: the Mega Tyoply Stan shopping centre attracted 57 million visitors at its peak in 2007, well ahead of the 40 million annual visits reported by the Mall of America. As US malls dodder into old age, gap toothed with vacancies, Russia's shopping centres are just now blossoming into their boom years, nourished by oil exports that are lifting wages. "It's 1982 all over again in Russia," said Lee Timmins, the country representative of Hines, a Texas-based real estate group that is opening three outlet malls in Russia, referring to the heyday of the US mall experience. Russians, he said, love malls. The mall boom illustrates an extraordinarily important theme in Russian economics these days.

"Over the past 10 years, Russia has turned into a middle-class country," Charles Slater, a retail analyst at Cushman & Wakefield, a commercial real estate consulting firm, said in an interview. "What better to do than go to an enclosed, warm environment with many things on offer, whether that be bowling, cinema or food courts, things the customers have not been used to in the past?"

Moscow now has 82 malls, including two of the largest in Europe, according to the International Council of Shopping Centres, a New York-based trade association. Both are owned by Ikea Shopping Centres Russia, the branch of the Swedish assemble-it-yourself furniture franchise that manages 14 malls here. In Russia, malls are still novel; the first Western-style suburban mall opened in 2000. They are now changing hands as developers sell to institutional investors, like Morgan Stanley, shedding light for the first time on their eye-popping values. Russia has a flat 13 per cent income tax rate. Most Russians own their homes, a legacy of post-Soviet privatisations, and so pay no mortgage or rent. Health care is socialised. Not surprisingly, then, Russians have become fanatical shoppers. Russians spend 60 per cent of their pretax income on retail purchases, a category that includes food, according to Jones Lang LaSalle, a real estate consulting firm. The country in second place in Europe is Sweden, where retailing accounts for 40 per cent of total private spending. Germans, by comparison, spend 28 per cent of their salaries shopping, according to Jones Lang LaSalle.

Malls, where the secrets of Western capitalism were finally peeled open and laid bare, with fast food, clothes, ice rinks, electronics and appliances wherever the eye falls, have mesmerized shoppers here – much as they did in their early years in the United States, from the 1960s to the 1980s.

The essayist Joan Didion, who wrote of malls as they first opened in Southern California in the 1960s, said that they were "like pyramids to the boom years." They were cities, sparkling and ideal, "in which no one lives but everyone consumes." A megamall built for Russians, not surprisingly, is subtly distinct from the idealised urban environment preferred by Americans, a result of careful analysis of consumer behaviour and Russian retailing desires.

Moscow, the new capital of malls, has more floor space in malls than any other European city, with 34 million square feet. Belaya Dacha was one of the largest malls in Russia from 2007 until 2010, when it was overtaken by Vegas. The interior space of Vegas is 4.15 million square feet, larger than the Mall of America excluding the Nickelodeon Universe amusement park. "This is a big world with a lot of people in it," Dan Jasper, the spokesman for Mall of America, said. "I think it's great they are building these things in Russia, too."

And a new record-setter is going up. Avia Park in northwest Moscow will have 5 million square feet of interior space including covered parking, which will make it the largest mall in the world outside Asia. So, the market is buzzing. Morgan Stanley is in talks to buy another mall, the Metropolis in Moscow, for more than $1.2 billion, according to real estate professionals who spoke on the condition of anonymity. The seller is Capital Partners, a Kazakh developer that opened the mall in 2009. Malls in Russia appear to be following a familiar course. While some US malls continue to flourish decades after opening, the arc of a mall from buzz to blight has been established in the United States. But it is not here yet.

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