A partnering approach to mass merchandising in Russia.

A large, untapped retail market exists in Russia--if, as Oscar Wilde stated, the potential conforms to what "statistics have laid down for our guidance." The country represents a market of about 148 million people, but it has fewer than 700,000 retailers--compared to more than 1.9 million in the United States, which has a population of about 263 million. Although the gross domestic product (GDP) per capita in Russia is only $2,500, compared to $14,000 in the U.S., most economists foresee a continual growth in GDP and workers' incomes. When measured in dollars, say Western economists, Russian GDP increased by 41 percent between 1993 and 1994.

In the 1950s and 1960s, West European countries with their market economies embraced the concept of mass merchandising. Enlightened entrepreneurs saw a growing mass market that was not being well served by the small, high-priced specialty shopkeepers. This resulted in the development of large discount stores and huge hypermarkets handling a variety of general merchandise and groceries. At this same time, Russia--a communist nation with a command economy--was prescribing the kinds of retailers that could exist, adhering to an archaic distribution system that provided consumers with the essentials of life but few of the luxuries.

Today, Russian retailing is characterized by enclaves of small, independently operated stores and numerous medium-sized, state-run stores. As the Russian economy stabilizes and employment and wages increase, Russians will increase their demand for consumer goods. The question arises about how to satisfy the needs of an emerging market with a distribution system designed for a less affluent and tightly controlled economy. One way to meet this need is to borrow from the experience of the United States after World War II and encourage the development of discount stores containing a variety of leased departments. Russians would provide the physical facilities and store services while foreign retailers would provide the necessary merchandising talents. In addition to operating leased departments, the foreign retailers would make a direct investment in the enterprise, supplying startup capital to their Russian landlords. This type of organization would satisfy the Russian desires for joint ventures and for Russian management of these ventures. In a similar manner, a mass merchandising industry could develop in the other republics of the former USSR.

ORIGINS AND USE OF LEASED DEPARTMENTS

Although …