Shopping malls to mushroom in Baltics

  • 2000-11-16
  • Ilze Arklina
RIGA - The recent shopping-center boom in the Baltics will continue as Italian businessman Ernesto Preatoni plans to finish a new retail and recreation mall in Riga by the spring of 2002.

Located on the territory of the former electronics factory VEF, the new center will have the first hypermarket in Riga with a trading space of 7,000 to 8,000 square meters. It will also include four or five specialized stores, a gallery of stores with 70 to 80 small shops, seven or eight cafes and restaurants and 10 cinemas and a recreation area will be located on 46,000 square meters, according to plans. The center will have parking spaces for up to 1,900 vehicles.

A total of $58 million will be invested in the project.

"We've already invested $10 million," Preatoni said.

Construction is scheduled to begin in March, 2001. "This will be a typical rental business, we do not plan to sell the center," Preatoni said.

"Around 65 percent of the space is already reserved," said Elita Sproge, the center's project manager. She stressed that another Preatoni shopping mall - the Kristiine center in Tallinn, opened in recent years - is fully rented. An estimated 20,000 people per day visit the Kristiine center. The investors have calculated that due to the mall's favorable location in Riga, 600,000 capital dwellers can reach it within 20 minutes.

However, in Riga, open-air markets and independent stores still have about 75 percent of the market share in food retail (see chart above). Between 1996 to 1999, the number of markets in Riga has increased by 14, increasing the total number to 24 despite the presence of already-existing supermarkets nearby. This tendency shows that many residents can't afford supermarket prices and have to go to the open markets, said Ita Zarina, the deputy executive director of the Riga City Council.

Preatoni strongly disagrees.

"Shopping centers are the most convenient way to distribute merchandise," he said. "It doesn't make any sense from the market point of view, from the economic point of view or from the hygienic point of view to go to open markets or small shops. Only small boutiques may survive because they specialize on special items, all of the rest will be distributed through the shopping centers," he predicted.

In Estonia, the rapid growth of the number of shopping centers in the past year has already pushed down prices, making them equal or even lower to those at the market.

The past 10 years have seen a major trend toward huge, global retailers such as Walmart ($137 billion in turnover in 1998), Metro AG ($5 billion) and others. The same trends have emerged in Central Europe at an equally fast pace. The past five years has seen a rapid growth of global retailers in Hungary, the Czech and Slovak republics, Rumania, Russia, the Baltics and Poland.

"The effect of the advent of these retailers in each of the Central European markets has been the same: they are changing the "rules of the game" at retail. They quickly make the inefficient "mom and pop" stores uncompetitive, and they make life very difficult for the local chains. The reason is because they offer more variety of goods but at lower prices while being inside exciting retailing formats that make shopping easier and more enjoyable," said Egons Plavnieks, managing director of Procter&Gamble Marketing Latvia Ltd.

The Baltic retail sector is on that trend too, he said.

The Astri shopping chain will open Lounakeskus, a 15,000 square meter shopping mall, on the outskirts of Tartu, Estonia's second largest city, in August 2001.

Lounakeskus project leader Jaan Lott said the mall, to be built at the corner of Riia maantee and Ringtee streets, will be one of the biggest shopping centers in Estonia and is intended not only for the people of Tartu alone but also for southern Estonia's more than 300,000 inhabitants.

So far, the 5,000 square meter Tartu Kaubamaja is Tartu's biggest shopping center.

Preparations for construction will start in mid-November and, for the time being, Lounakeskus will finance it from its own resources. The Astri chain belongs to two individuals, who are currently holding talks on extending the Lounakeskus stock capital by attracting new investors. The Astri shopping chain has six shops - four in Tartu and two in Narva. The company's projected turnover this year is 200 million kroons ($11 million).