Good Morning Ladies and Gentlemen,
My name is Neil Whitehead and I would like to welcome you all to this second day of our discussions.
I am here to talk about increasing retail real estate values through methodical architectural design and unique positioning. Design is a commercial tool to make businesses succeed.
All of us here today I believe are involved in the business of working to make Russian commercial real estate profitable and successful.
How do today’s practical and sophisticated modern marketing tools at our disposal, together with the insights and know-how of our experience, lead to improved profits from commercial real estate, particularly when accompanied by careful planning, unique positioning and rigorous execution? I am here to show how to turn a property in Russia into a better retail selling location.
Stuff International Design in London are involved in Environmental Architecture, Commercial Interiors, Retail Branding and Product Design and so we are professionally involved in every step in the development of commercial real estate.
We have been particularly active in improving the profitability and capital value of your investment to ensure that the design will appeal to future investors of Russian retail commercial real estate developments in recent years. So I will be discussing with you during this talk our involvement and commitment in the Russian market, and showing you a number of case studies here in a wide range of Russian and other cities. We and our teams develop close relationships with our clients and guide them through the complex stages of design to deliver a practical solution that is visible on the ground as a finished product. Our service is bespoke, tailored uniquely for the individual client, and follows a proven methodology.
Apart from talking about our in-house methodology, I would also like to discuss with you today our view of the Russian market’s special characteristics and opportunities, what investors are looking for, what their
options are and how we can help them; and, as a word of warning, we will touch also on what can go wrong, how a wonderful opportunity can lose profitability through excessive haste, lack of planning and disorderly execution; serious problems can also arise at any stage along the way and it is an important asset to have at your side a partner and guide who has the necessary professionalism, experience and dedication to produce rapid-response and practical solutions at such times. Mistakes can be expensive to put right and so design industry specialists with top-level knowledge and experience have an essential role to play. During the course of this morning’s session we cover a great deal of practical ground concerning design and profitability. After the formal presentation we will do some practical commercial design exercises; and I will be happy to answer your questions during this open forum or afterwards.
My own personal and business background is that I am the founder and Chief Executive of Stuff International Design, which is based in London. But prior to that, I was the Creative and Managing Director of Fitch Plc, which was one on the top design companies in the world at that time, specialising in retail design. Whilst I was there, I was responsible for developing some of the biggest worldwide brands Reebok, Ford Motor Company, Virgin brand, ING Bank and BNP Bank to name but a few.
My early studies were both creative and practical and I have been in the design industry, man and boy, for the last 30 years. My passionate interest has been in working out artistically inspired, but sound and concrete ways of putting creative marketing at the centre of successful commercial projects and so making a significant contribution to the projects’ success. This is my passion, this is where my talent lies and this is my work. London is in many ways the ideal environment from which to expand this vision. We have worked in most of the major countries in the world and have a very international outlook and understanding of the differences required in different countries.
The result is that we today have a business, as you can see on our website, with a comprehensive range of cutting-edge capabilities to offer our international clients and bring them the appropriate experience and teams to plan and execute creative solutions. Design is a commercial tool to make businesses profitable and successful. We are here to help you in Russia.
In Russia over the last two years we have worked in the following cities: Chelyabinsk (7 major projects), Ulyanovsk (4), Siktivkar (1), Yekaterinburg (1) and Moscow (1).
Each client is unique and each successful project has its own special qualities, so bespoke design must take into account their special objectives and characteristics.
Success also depends on careful planning and implementation, organized by professionals with extensive knowledge and experience in their field and with a sound and tested methodology.
Stuff International Design has a proven methodology which is sensitive to the needs of the client and the use of this process leads to successful outcomes.
The first cornerstone item in this methodology involves drawing up a thorough customer profile: who will be the customers of this retail commercial property?
Market conditions in Russia are different from those in other parts of the world. In post-Soviet Russia there is a rapidly expanding consumer retail market which bodes extremely well for the retail real estate investor, who should design his property carefully to fully exploit current retail habits and future trends.
Russian investors are optimistic about consumer market prospects and so a relatively high proportion of Russian real estate projects are promoted by domestic Russian businessmen themselves, as opposed to foreign investors. They know that a stable Russia has excellent economic prospects thanks to natural resources and good education, and that as Russia catches up with western markets, consumer-spend should continue to grow rapidly. Retail property investment is already leading the boom in Russian real estate and there is a long way further to go, particularly in the 11 Millionniki cities beyond Moscow and St Petersburg, which are catching up, and combined amount to a market the same size as Moscow again. The market is in its early stage, rather like England after the 1950s, though different because we are now in the 21st century. The best investments will increasingly be the western-style investment-grade properties that have been very carefully planned and designed, specifically to suit the local conditions.
Russian investors know things move fast today and that their main mass retail customers today are the younger generation aged 20-28, earning maybe the equivalent of USD 800 - 1,000 per month; unlike in the West where the older and richer section of society is a significant market with its own special characteristics, in Russia the older people, who remember a different society, have modest spending habits - except those older people, who made big money in the new Russia and represent an entirely different luxury market. Russia in general has a declining population and currently a relatively low average life expectancy, though that should improve. Families are close-knit and people have to help each other. The average number of children per family in Russia is relatively low, although Russian mothers have children relatively young, so there is a relatively low age difference between mothers and children; some successful men have much younger wives and older women have less significance in the marketplace.
So the family does matter and mother and daughter can go shopping together but the key to the retail mass-markets is the young and affluent emerging economic middle class. Developers know that a successful retail commercial development should have a relatively high entertainment content and take account of modern fashion trends, and should offer international brands as well as local goods; and they are aware that shopping malls are more successful than high street developments because of the cold Russian winters.
In order to establish the prospective customer-base for a particular retail real estate development, Stuff International Design will examine the customer market carefully as a first step in advising the client. This involves a range of market research techniques, including speaking directly to customers and people in-store, together with other forms of dialogue and desk-research. Stuff International Design already knows the Russian consumer market well and is therefore in a good position to produce the necessary customer profiles.
As each market has its variations and each location and construction has its own characteristics, these are taken into account, along with the customer profiles, when Stuff International Design commences its next step in preparing the cornerstones of commercial success: Mapping the Competition.
When Stuff take on an assignment we recognize that each element of the competition responds in a different way to the market the client wishes to address.
We recognize there are indirect as well as direct competitors. For example, marketplaces with market stalls may represent indirect competition; other shopping complexes and malls may represent direct competition, depending maybe on their location and market orientation; high street shopping locations offer competition of a different kind, somewhere in between.
An analysis of the total competitive environment will be produced. An analysis of each significant element of the competition will be undertaken: Stuff visits the competition in the city and profiles each business; the profile examines how each business thinks, how it talks and how it looks; and it examines the location and logistics of the competition as well.
The analysis of all of these factors together about the competition confirms to the client precisely where his marketing opportunity lies. It indicates in an objective way what practical and imaginative solutions will optimize the client’s investment return. This leads to a clear vision and ‘raison d’etre’ for the property and a clear concept of how it should ‘think, talk and look’.
The profiling and mapping lead to a clear definition of the unique character that can now be given to the retail real estate project.
Real estate is a bit like people; people are all different from one another; but also the more effort and thought people invest in their lives, the more character they develop and the more unique qualities they assume. It is the same for us with real estate: we put in careful and painstaking thought about a property, based on mature business experience, and thanks to our efforts and imagination the real estate then begins to take on a unique nature and a strength of character all of its own.
We call this the ‘vision’, the ‘raison d’etre’ of the property; and we now work to turn this abstract personality into visible physical and concrete reality and give it form.
Profiling the marketplace gives general advice on what we should become; then mapping the competition and observing its differentiations gives us specific advice on what we should not become; we can now give birth, in consultation with our clients, to the ideal character that is unique in its own way, to fill and exploit the gap in the market.
This real estate ‘character’ has a physical body, it has an artistic ‘soul’; and behind these it has an intelligent ‘mind’ which we have now created together with our clients. This concept is as simple and authentic as it is exciting – and it works. The ‘mind’ has been created following customer and competitive analysis; the ‘soul’ is now created as the vision and character of this being. We then move on later to create the physical parameters and characteristics, following this ‘creative’ artistic phase where the ‘raison d’etre’ and character of uniqueness is developed in an imaginative way.
The unique market positioning of the real estate project’s character is then further developed in a combination of the vision that we have established, with a carefully thought-out plan of the tenant mix, because each retail tenant has in turn his or her own special character to add to the party. It is now rather like planning a successful dinner party where the harmonious but exciting overall atmosphere will depend upon the’ seating plan’, the furniture, the premises, the service and the dinner itself; the tenant-mix and seating-plan is important in bringing out the overall character of the development that is projected.
Let us however now move on from these somewhat fanciful images and consider in the most practical terms how this is all brought into concrete expression.
The methodological steps in planning for commercial success leads us, via the psychology and branding that define the unique character of a development, into the practical challenge of realizing this concept in a physical location through architectural design, to differentiate the property from the competition in a winning formula.
Location is obviously the first vital element in any development; and the economic decision to invest in prime locations in Russia today is unlikely to disappoint over the longer term; winning locations will always be a major determinant in optimizing investment returns.
The next vital element however in creating a winning proposition, once location is determined, is far less obvious and much more complicated than location, and this is the role played by architectural design in the unique positioning of real estate developments.
It is at this stage in the client mandate that Stuff International Design will plan the organization of the site, the construction and grid of the physical plant and automobile traffic flows and traffic management. Underground car-parks are very expensive; grid column sizes must be carefully planned to optimize traffic flow and accommodation.
Moving into the interior of the site, advice will be given on the placement of anchor tenants; often it will be advisable for two anchor tenants to be placed on either side, with a retail experience of some kind in the middle.
Footfall circulation needs to work smoothly on the horizontal plane but also vertically from floor to floor. Flows must go in the same direction. Walkways should never be more than 75 meters with a seating breakpoint in the middle at 32 meters. Everywhere possible there should be clear views of the next areas horizontally and the next floors vertically.
What we call the ‘massing’ of the building involves the positioning of the various tenants, with an awareness of their product, image and general harmonious or dramatic impact; we take into account physical communications as well as the marketing communications that are conveyed by the tenants and their ‘names’; in line with their overall impact, appropriate signage is designed for the building, to lead to the fullest possible shopping experience and consequently robust retail sales.
The methodology of these three cornerstones of commercial success (analysis, artistic conceptualization and physical design), with their various sub-components, leads us then on to the practical realization of the project.
Over the years we have completed commissions of all sizes and kinds in many different countries, including a great deal of work in Russia, which we see as an exciting market that can benefit from our services.
I would now like to take you on a journey, showing you a number of our past projects for clients, to demonstrate how architectural design and branding can be applied through the different floors, areas and facades of a building whether it is a new construction or a refurbishment.
We often have long-term relationships with our clients because we do work very closely with them, whether guiding them through the process, or as mentors, because we are always there for our clients. As industry specialists with top-level knowledge, we see our role as problem solvers at every step along the way; our dedicated hard work is intended to make life easier for our clients during a rather intensive period in the development of the project. We do therefore work very closely with clients and long-term relationships tend to be the result.
The three main areas that we work in are as follows:
Here we work on developing the unique position, using some of the techniques and processes, which I outlined earlier in the presentation. The objective of this work is to create a clear vision for the future company, which will be reflected in the brand mark and its application to many collateral materials and buildings. The key is to try and change the culture and thinking of the people to grow and expand the business.
This is the art of creating environments to sell products using techniques to present products and services in such a way as to attract customers into the environments - building an emotional relationship and making the experience a pleasant one.
We are specialists in architectural design for the complete services required to organise a building and to create a unique position in the market place. Also producing unique internal and branding solutions.
We will now take you on a journey that will explain and show you our experience.
A booming retail sector has led to an undersupply of retail space and rising demand; the robust real estate market in Russia is therefore being spearheaded by the retailing real estate sector. But the trend in retail real estate development is now showing a quality shift upwards into investment-grade western-style shopping-centre space, tailored to the local market, and carefully planned for long-term sustainability; architectural design and branding have therefore never before been such an important commercial tool as they are today in creating successful investments for the future.
To enhance value, the investor will want to make his development as attractive as possible to the international investor, as well as the domestic investor.
He will of course need to ensure that his title is credible and that all legal covenants are legitimate. He will want a good location and want professional surveys showing all aspects of construction to be sound, including mechanical and electrical installations. He will want to know that grid sizes give a proper configuration and that all ceiling lights are of a good finish. He will want a good tenant mix with strong contracts, providing good revenue flows, and good shopping-centre management.
In England we have a law we call ‘Murphy’s Law’, which applies to the construction industry; Murphy is an Irish name and many Irishmen work in construction. The law runs: ‘What can go wrong, will go wrong!’ The lesson of this law is that in construction and real estate you should leave as little as possible to chance – because some things will always go wrong anyway. It is not an easy business and to overcome problems solid industry experience is necessary.
The biggest temptation in Russia, especially in a rising market – is to ‘Rush’ at things! A BIG mistake! What can go wrong in Russian development is usually a function of this – an absence of planning and foresight. In contrast, we provide a bespoke service to our clients, using a methodology specifically designed to ensure that everything is carefully planned.
Mistakes in construction and real estate are very expensive. For example, it could be a very expensive mistake and a false economy to provide a car park with only two levels for car-parking, when more will be required soon afterwards. We design it right the first time, using the correct design methodology, with the right friendly guidance for commercial success.
We at Stuff International Design are happy to put ourselves at the service of Russian developers, to enable them to create successfully world-class projects suited to the local environment and address problems as they arise. We have the track-record and technical ability; we have creativity and imagination; we build first-class relationships because we put the client first. With our wealth of experience, comprising some 60 years retail real estate commercial and design experience in projects of all magnitudes, we deal with architects, engineers and all types of professionals and we deliver unique differentiating architectural design and branding solutions.
Our clients place their confidence in us and trust us – because we are friendly advisors and because we deliver.
Stuff International Design Ltd