Practical Ecommerce

Ecommerce in Russia: Another Emerging Market?

While ecommerce continues to take a larger share of overall retail sales in the United States and Western Europe, the biggest growth rates are occurring in emerging markets such as Brazil, China, India, and Russia, where both domestic and cross border sales are showing healthy increases.

I’ve addressed the cross border market previously, in “Cross Border Ecommerce Booming.” The Indian ecommerce market I described in “Ecommerce in India Takes Off; Potential for U.S. Sellers.”

In this article I will analyze the Russian market.

Like China and India, Russia suffers from limited payment options because most consumers do not have credit cards. Logistics are primitive in a country that spans nine time zones, many of them sparsely populated. Cash on delivery is the most prevalent payment system. Russia has the added burden of never being a consumer-goods-focused society because communism downplayed materialism. Unlike China, Russia never developed a middle class. Choice has always been limited and quality has been shoddy.

Russian Ecommerce Statistics

The report “E-Commerce in Russia,” from East-West Digital News, lists the following statistics.

  • Almost 30 million Russians shopped online in 2013, representing 23 percent of the population 18 and over.
  • The ecommerce market is composed primarily of small merchants and is fragmented. There are 39,000 Internet shops but fewer than 20 earn at least $100,000 a year.
  • The market is growing 20 percent a year.

Russian research firm Data Insight reports that:

  • Ecommerce revenue in 2013 was $16.5 billion, up 28 percent from 2012 and representing two percent of total retail expenditures;
  • Consumers in Moscow and St. Petersburg account for 30 percent of total Internet users in Russia but do 60 percent of ecommerce purchasing.

Almost everything is more expensive in Russia than in Western Europe and the United States because of inefficiencies and a lack of focus on consumer items. Russian Post, the national postal operator, is notorious for slow service and losing parcels, so companies rely on retail or warehouse distribution center pick-up points.

While non-Russian sites have a price advantage on products, if they rely on Russian Post, the local competitors who have distribution centers or courier delivery have an advantage on delivery time and possibly cost.

Local Ecommerce Sites

While most Russian online merchants are small, two local companies have outpaced the others. Ozon, considered the Amazon of Russia, offers 3 million products for sale and recorded $700 million in revenue in 2013.

Many observers consider Ozon.ru the "Amazon of Russia."

Many observers consider Ozon.ru the “Amazon of Russia.”

Ulmart, a hybrid online-offline retailer of computers, home electronics, and household appliances, offers a relatively meager 55,000 items for sale but had revenue of $1.2 billion in 2013. Ulmart also has a delivery service — with a fleet of 90 trucks — in the major urban centers of Moscow and St. Petersburg. While Ulmart targets the major cities, Ozon serves the entire country.

Couriers are an important part of the ecommerce story in Russia. As in China, the drivers deliver products that consumers have purchased online and then wait patiently as they try on clothing to see if it fits or turn on the electronics to make sure the product is working. If all is well, customers pay in cash.

A Russian online payment system does exist. The QIWI Wallet electronic payment system now is used mostly for recurring bill payments such as utilities, but it will likely eventually penetrate ecommerce.

Non-Russian Sites

Ebay launched a Russian-language website in 2013 and received permission from Russian regulators to use its payments service, PayPal. This year the government gave permission for Russians to sell as well as buy items on the site.

Chinese ecommerce giant Alibaba Group launched a Russian-language site for its AliExpress B2C marketplace early this year. Within months it became Russia’s most visited ecommerce site, with 16 million visitors in July, according to research firm TNS.

What Do Russian Consumers Buy?

Not surprisingly, Russian online shoppers are young, better educated, and have higher incomes than the average Russian citizen and have more sophisticated tastes.

Fashion is not something the domestic brick-and-mortar market does well. So clothing, shoes, and accessories are very popular online. Although a few retail brick-and-mortar stores in the major urban areas sell designer clothing, their prices are double or triple what is available online. Beauty products also sell well for the same reason. Online shoppers are willing to wait for several weeks — or risk not receiving the goods at all — in exchange for the lower online prices.

Electronics, including all things Apple, are the other major online purchase category. Household appliances are becoming a bigger part of the market.

Do-it-yourself car repair is popular in Russia, so auto parts are also a big seller. Diapers became a major item in 2014 and now toys and other baby goods are gaining traction.

Issues that Inhibit Growth

There are other factors that hurt ecommerce growth in Russia.

  • Lack of qualified personnel in areas such as IT, marketing, logistics, inventory management, and finance.
  • Poor infrastructure and logistics, especially in remote areas, which makes shipping very expensive.
  • Venture investment in Russian ecommerce fell to $235 million in 2013 from $360 in 2012 in 2013. Ecommerce merchants need money to improve their websites and their logistics.

Opportunity for Foreign Sellers?

A desire for good quality foreign goods certainly exists in Russia. But the country has more hurdles than either China or India, and short-term prospects are not good. Russian consumers can buy from foreign sites now but only the rich and educated can maneuver around language barriers and limited payment options. In the long term, if an inexpensive and reliable alternative delivery system can be established, and merchants can localize their sites, prospects will be better. For now, non-Russian merchants may wish to try Ebay as a means of selling into the Russian market.

Marcia Kaplan

Marcia Kaplan

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Comments ( 12 )

  1. MS November 12, 2014 Reply

    Seems like the text was written a year ago. Dollar price has skyrocketed in Russia since that (http://chart.finance.yahoo.com/z?s=USDRUB=X&t=3y&q=l&l=on&z=l&a=v&p=s) and foreign goods almost doubled in price.

  2. Leighton November 13, 2014 Reply

    Great summary. One point of clarification, though: I believe that electronics constitute the largest portion of online purchases, which is the main reason that Ulmart is the largest Russian e-commerce company by revenue. The article makes it seem like fashion is the biggest sector.

    Also agree with the comment about the pricing issue in Rubles. Foreign goods are now becoming out of reach, with the ruble’s devaluation. This will have a chilling impact on cross-border market growth in the short run, while local prices have not yet been fully re-adjusted.

    • Marcia Kaplan November 13, 2014 Reply

      Yes, by revenue electronics is the largest sector.

    • Timo (www.ecommerceincome.com) November 20, 2014 Reply

      Because of the sudden great devaluation of the ruble, there now exists the interesting situation that Apple products are now cheaper in Russia than in the US. Of course this will fairly soon be corrected.

      I think that expensive designer clothing, even though the ruble is weak, will still find a market because of the superrich will still have enough money to spend. For them availability is often even more important than price, although the ecommerce prices will still be lower than the prices in brick-and-mortar stores in Moscow and St Petersburg.

      I believe that if the physical barriers Marcia talks about will be resolved ecommerce in Russia may represent a great growing market. There are many talented people working in IT and Marketing in Russia and the labour costs are low. Localization, setting up local payment systems and even ecommerce platforms can be developed quickly. In that sense selling online in Russia is ready for a quick take-off.

      In my eyes, therefore, delivering the products and getting them to Russia (or developing them in Russia itself) present the largest obstacles.

      Other European markets can be looked at for expansion as well. At our blog we especially focus on European markets as we have most experience there operating multiple European stores.

      http://www.ecommerceincome.com

  3. Vladimir November 13, 2014 Reply

    Simple as “E-commerce in USA: we have Amazon”

  4. Michel November 19, 2014 Reply

    You missed out the most advanced ecommerce site in Russia: Mvideo.ru :)

  5. berrymepk December 8, 2014 Reply

    It is said that online sales in Russia is expected to reach $38 billion by 2018 and also it ranked 5th worldwide in ecommerce growth last year.
    http://www.berryme.pk/

  6. Amir Ilyas February 24, 2016 Reply

    http://Buybest.pk is a best way to buy products online in Pakistan with benefit of cash on Delivery service and free shipping service all over in Pakistan

  7. Berry May 9, 2016 Reply

    Companies like Rocket Internet are using the point you have mentioned and focusing on GROWING markets rather than developed markets. This strategy has so far get them good results like their e-commerce portal in Malaysia and now Bangladesh. The competition is low and consumers are keen to try new things.

    ——–
    Berry
    http://www.thewarehouse.pk/

  8. Chris May 23, 2016 Reply

    Now that the economic sanctions on Russia have been lifted to a large degree (the rest will be removed given some time) even Alibaba has shown interest in targeting Russia in this field.
    http://yayvo.com/

  9. Zambeelcom October 14, 2016 Reply

    Exactly you are right E-commerce trends are penetrating all over the world like in russia.

  10. Imran hussain November 17, 2016 Reply

    http://martedge.com is a Best way to shop online in Pakistan with huge benefit of cash on Delivery service and free shipping service all over in Pakistan. So Visit the site and enjoy the splendid services