Stockmann’s department store in Moscow’s Smolensky Passage closed until further notice

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Notices on the doors of Stockmann’s department store located in the Smolensky Passage shopping centre in downtown Moscow state that the store is closed until further notice, and customers are advised to go shopping in one of Stockmann’s other three outlets in the Russian capital.
     
On Tuesday, the landlords of Stockmann in this shopping centre - Mostroiekonombank and its subsidiary the real estate company Smolensky Passage - cut off the distribution of electricity in the premises as a result of a dispute over the lease agreement.
      ”The actual dispute is not about the rent itself but about the possibility to do business in Russia in accordance with agreements”, says Jussi Kuutsa, the Development Director for the Stockmann Group’s international operations.
      Stockmann has operated in the premises since 1998 and the company has a right of option under the lease agreements to extend the lease period until 2018. In 2006, Stockmann informed the landlords that it will exercise this option.
     
However, the landlords have disputed the existence of the right of option, saying that the rent Stockmann is paying for the premises is below the current market rate.
      Stockmann refers to the 10-year lease agreement made in 1997, according to which the Finnish retailer was to pay a fixed rent for the premises for the first five years, whereafter the rent has been based on a certain percentage of turnover.
     
In accordance with the agreements, Stockmann submitted the matter to the International Commercial Arbitration Court of Moscow (ICAC), which stated a week ago that Stockmann has the right to continue the lease period until April 30th 2018, in accordance with the terms and conditions currently in force.
      After the decision made by the Arbitration Court, the landlords threatened to make it impossible for Stockmann to continue business operations on the premises.
      ”On Tuesday they carried out their threats by cutting the distribution of electricity at 15:35 in the afternoon”, Kuutsa reports.
      According to Kuutsa, the landlords also removed the Stockmann logo from the facade of the shopping centre, as the conflict deepened in the course of the past six months.
     
Russia’s leading business daily, Vedomosti, has calculated that the annual rent Stockmann pays is USD 4.8 million or USD 575 per square metre.
      While not giving the accurate figure, Kuutsa says that the estimate is ”about the right size”.
      Kuutsa reports further that for the first five years Stockmann paid a high rent compared with the general level of rents in Moscow. At that point the lease holder was Zao Tema, the original constructor of the commercial complex.
      ”With Zao Tema, Stockmann never had any problems. The difficulties started after the change of landlords, while the dispute over the rent has been continuing since 2003”, says Kuutsa.
      Kuutsa believes that the real reason for the conflict is the fact that the current landlords could not benefit from the rents accrued over the first five years of the lease agreement.
     
Stockmann intends to take legal action against the landlords in order to continue the distribution of electricity and to be able to continue their business activities in the shopping complex.
      Moreover, the Finnish retailer has no intention to give up and consent to a higher rent.
      ”There is no reason to accept any changes, as the Arbitration Court ruling is on our side”, Kuutsa argues.
      Having worked in Moscow for eight years, Kuutsa says that this is a one-off case and has no effect on the company’s general strategy in Russia.


Previously in HS International Edition:
  Stockmann would take Lindex to Russia and Ukraine (2.10.2007)
  Building officials in St. Petersburg accuse Stockmann of violations (2.2.2007)

Links:
  Stockmann Group press release (13.5.2008)

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