Expansion of the network

We opened 44 new stores in a calendar year for the second consequent year in 2011. We also closed 2 stores in Saint Petersburg due to low efficiency and relocation of the existing outlet.

The total number of stores by the end of the year amounted to 261. The net space increased by 86,000 square meters or 2,050 square meters per store, totaling 650,000 square meters. Of the 44 new stores opened 24 were in new cities and new markets in East Siberia (Yakutsk and Ulan-Ude) and in the North (Syktyvkar and Ukhta).

In 2011 M.video continued to implement its strategy of increasing the density of operations to get economies of scale on advertising and supply chain costs and to increase our market share in those cities. The number of cities with more than three stores increased by 50% (14 versus 9 the year before).

Our store profile includes 225 of our stores in shopping malls and 36 stand alone destinations. We lease 90% of our stores while own 10% of stores.

In 2011 we experienced a 4% increase in the rent rates for the new openings which were fully justified by the revenue growth.

As the pipeline of the new construction of shopping malls in Russia dried up since 2008 we became more opportunistic. We are approached by those landlords during 2011 who wanted us to substitute some of their existing anchor tenants and regarded M.video as the partner of choice for their malls. Thus we opened more than half of our new stores in 2011 in existing shopping centers where we were able to find space fitting our 2,000+ sq m store format.

The average time it takes us to open a store is 3-4 months, and we invest 46 million rubles (without VAT) in each store on fixtures, lease agreements and other pre-opening costs.

In 2011 we piloted a new format of 1,000 square meters and opened 13 stores in the various regions. The smaller selling space allows us to use the same metrics which we apply to a standard 2,000 square meters store but having advantages on the capital expenditure side. We also put pressure on the competitors in smaller cities where they have good sales because we are not present. The net benefits of the new format introduction are to be more scrutinized but we’re enthusiastic on the potential synergies this approach brings to our Omni-Channel strategy.