How E-commerce is Thriving in Russia and Where it is Going

24/04/2019

Albeit a little late compared to other developed countries, e-commerce is booming in Russia. While moving towards the cross-border market, it also shows some similarities with the Chinese model

 

Today, the Russian Federation is one of the markets with the highest e-commerce development potential. According to Internet World Stat, with over 110 million internet users, Russia ranks 7th in the list of countries with the highest number of internet users globally, therefore, representing one of the most significant digital markets.

Although Russian e-commerce is not fully developed yet compared to neighboring markets, a recent report by the investment bank, Morgan Stanley, released on September 2018, forecast growth of about $19 billion in 2018, compared to $15.2 billion in 2017. Moreover, Russian e-commerce is expected to reach over $51 billion by 2023, thus recording a growth of 170%.

Nevertheless, despite the internet and smartphones penetration have reached respectively 80% and 66% in the country, e-commerce accounts only for 3% of purchases. But as online shopping is growing year after year, Morgan Stanley believes an increasing number of “mature” internet users is going to drive the Russian e-commerce boom in the near future.

 

Cross-Border E-commerce is Thriving in Russia - moscow - cifnews

© Unsplash. Moscow. Although Russian buyers prefer to pick up the purchased product at stores, couriers are more commonly used in Moscow than in the rest of Russia.

 

Compared to other countries, the Russian market surely shows some peculiar aspects. On one hand, there is a lack of strong market leaders, and on the other hand, the absence of main international marketplaces.

While in the most developed countries local marketplaces usually detain the largest share of the market, in Russia they only hold 23%. However, thanks to the recent advent of local big players, the figure is all about to change.

Sberbank – the main Russian bank – together with Yandex – the most popular search engine – opened Beru.ru, an e-commerce platform that holds 16% of the market. Then, the Chinese e-commerce giant Alibaba has entered the game setting up AliExpress.ru, which is a joint venture with the Russian Mail Group.

 

Outside the Chinese exception, the Russian e-commerce sector is actually reluctant to the settlement of foreign giants. In 2010, eBay tried to enter the market with little success while other companies like Amazon did not even try.

 

According to Morgan Stanley, the reasons are many. Not only the high capital requirements and the search for the right business partners could represent a challenge for foreign companies, but demanding legislation on the collection and storage of personal data could also have affected the international interest. Not to mention the economic crisis and the depreciation of the ruble, which has made foreign products less accessible to Russian consumers since 2014.

Nevertheless, with Russia’s exit from the crisis and the increase in internet and mobile connections in many areas, the e-commerce sector is now booming, especially in large cities such as Moscow, St. Petersburg, and Ekaterinburg, which boost the country’s consumption.

For what concerns local commerce, it is leading to many trends and advantages such as a renewed interest in the “Made in Russia”, an enhanced logistics sector and the consequent speed in deliveries, but also to the domain of large local players.

According to Admitad’s research, before ordering, Russian users usually compare prices on various platforms and foreign sites avoiding impulsive purchases in order to find a better offer. The result is the rising popularity of cross-border e-commerce, mainly driven by purchases from China, which represent 90% of the cross-border transaction.

 

Cross-Border E-commerce is Thriving in Russia - ozon - cifnews

© Ostrov Svobody, Остров Свободы. Ozon offline store. Considered as the Russian Amazon, Ozon is the most popular e-commerce platform in Russia attracting 1 million daily active users.

 

In 2017, the cross-border turnover of e-commerce in Russia reached 400 billion rubles (over $5.6 billion), 25% more than the previous year. In economic terms, 52% of cross-border trade comes from China, while Europe and the US only weight 23% and 12% respectively.

Even considering shipping costs, many products from abroad are still cheaper. And this factor has allowed various international players and marketplaces such as ASOS and Yoox to take hold in the Russian market and AliExpress to reach the largest audience with 20 million users, occupying 18% of the market.

On the American iHerb website, Russian users generate more traffic than American ones while on the Italian platform Yoox, they rank second after the Italians. The reasons for this success are given by competitive prices and a wide range of products specifically addressed to the Russian target.

In particular, an efficient customer service, as well as the use of the Russian language, is what makes the difference while targeting the Russian audience. English is not so widespread in Russia, especially among older people, and Russian customers prefer to buy on a marketplace in their own language. Moreover, Russian users prefer to be supported during their online purchase phase. Therefore, all those customer care services that allow long-term customer loyalty are fundamental.

 

AliExpress success in Russia shows the role model for the Russian e-commerce market is actually China. Not only Russian customers demonstrate to love Chinese sales mechanics and marketplace model, but Russian marketplaces also mirror the constant dialogue between online and offline sales typical of Chinese platforms.

 

As Evgeny Zhukov – Head of Business Development and Sales at Admitad – has pointed out, “Russian consumers are more likely to purchase online if they see a brick and mortar store offline.” An example is the recent launch of an online order option for Russian customers that now allow them to buy Chery cars on AliExpress platform and then collect the purchase from one of the 100 Chery dealers offline across Russia.

Considerable differences in language, culture, and politics make both Chinese and Russian users very different from Western ones so much so that social networks play a fundamental role in both local e-commerce and cross-border trade.

Indeed, even in Russia the spread and use of social networks are constantly growing and consumers usually consult social media before buying something online. Here, the most used social network is VKontakte, also known as VK. It counts over 97 million monthly active users while Facebook “only” counts 36 million users, mostly concentrated in cities like Moscow and St. Petersburg. Data Insight’s research reveals that more than 85% of e-commerce platforms in Russia also have a community on VK.

Nevertheless, the growing use of mobile devices is what will lead the e-commerce improvement in Russia. Although Russian users still prefer to finalize purchases via computer accounting about 63% of online sales, young adults under the age of 25 have indicated smartphones as their favorite tool to shop online. Data Insight says that in 2017, 13.4% of customers made purchases from smartphones via the store’s website, and 12.3% made orders via the mobile app. These figures, however, are expected to double very soon.

 

Cross-Border E-commerce is Thriving in Russia - fashion - cifnews

© Unsplash. In Russia, Fashion is the category that drives e-commerce sales, followed by household appliances and consumer electronics.

 

While the Russian e-commerce landscape is growing at a rapid pace, in the coming years, investments in the Russian market could reach $1 billion, compared those by private companies over the last decade that only reached $800 million, according to Morgan Stanley. And food delivery is considered to be the fastest growing sector, thus representing the main focus for investors. Moreover, since Russian consumers are getting more accustomed to online retail, a new seek for quality products will emerge, opening new windows of opportunity for foreign brands with international high-quality recognition.

Alibaba and the Chinese experience is going to play a fundamental role in the big entry of the Russian Federation in the digital retail scene.

Talking about the partnership between the Chinese giant and Mail.ru, Michael Evans – president of Alibaba – pointed out that “through leading consumption with Russia in cooperation with the Internet platform, AliExpress Russia will help digitize and transform the Russian retail value chain, provide consumers with a seamless and innovative experience, and create important opportunities for Russian entrepreneurs and SMEs to develop in the local market and expand in the world.” He also added: “Our experience in other markets around the world has made us qualified to help build the future commercial infrastructure of Russia.”

For their part, Russian customers are showing to be ready to welcome a mature cross-border e-commerce environment fully integrated into the international market. And with the help of the Chinese experience, the international market is going to see new leading players from the other Big Red Country.

MORE ON THIS TOPIC

Leave a Reply

Your email address will not be published. Required fields are marked *