Off to the provinces

The latest project of the French Leroy Merlin chain (Groupe Adeo) in Russia might well serve as a perfect example of what is happening in the Russian DIY market at the moment. The company has inaugurated a new branch in Tver as a pilot store designed to provide the opening salvo for the chain’s new five-year programme. The plan comprises expansion into the medium-sized and smaller cities of central Russia. The intention is to bring into operation one large-format store in each of 15 cities within the next five years. In view of the fact that competitors Obi and Castorama – occupying second and third places after Leroy Merlin in the Russian market – have no presence in such cities so far, the new project makes real sense. Vicent Jeanty, managing director of Leroy Merlin Vostock, explained the plan in an interview with Izvestija, a daily paper: “We believe that the Tver store has great potential. We will determine the pace of store openings in the other cities after studying the results it produces.” These outlets outside the megacities are to be only 10 000 m² in size rather than 12 000 m². However, don’t be misled by the classification of ‘medium-sized and smaller cities’: after all, Tver has a population of no less than 400 000. It is expected that the average sales receipt will be 40 per cent lower here. Nevertheless, longer amortization periods are not being anticipated, according to Jeanty, since the capital expenditure is not so high in the regions outside the major centres of population. It came to around one billion roubles (approx. € 25 mio) in the case of Tver. That is expected to be the benchmark for the other 14 stores as well. Tver appears to be a good choice for a pilot store. Local competitor Petrovitch also intends to open an outlet here. Especially the location’s logistical advantages speak in its favour: the city is situated some 179 km away from Moscow on the motorway and rail routes to St Petersburg. This area is considerably easier to supply with goods than the large but far-distant cities in the east of the country. The opening in Tver also sheds light on the competitive situation with regard to the Kingfisher subsidiary Castorama, which has been losing ground to Leroy Merlin in the past two years. The announcement made in 2011 of aiming to open nine stores in the following year was missed by a long way – just one single Castorama store was inaugurated in Russia in 2012. Nor was the Castorama-Express pilot project crowned with success…