Two notable Russian e-commerce sites are suspending their activities this summer, illustrating the crisis that has been affecting certain segments of this market since last year. While online auction and marketplace Molotok.ru, one of the country’s most established e-commerce sites, has announced it will shut down on August 20, Mamagazin.ru, a kids goods online store launched last year under a $30 million investment plan, has stopped serving customers at least for a few months.
Several other sites are under threat – especially in the segments of consumer electronics and household appliances – even though a range of major players have recently reported continuing growth.
Launched in 1999 as a local analog of eBay, Molotok (“the hammer” in Russian) initially asserted itself as a Russia’s number one auction site. When a controlling stake was acquired by Allegro Group, a property of South Africa’s Naspers, in 2008, the site witnessed a promising growth, and became profitable soon afterwards.
However Molotok failed to generate sufficient income, with $3 million in revenues and $300,000 in operating income last year, according to a source cited by Russian business daily Vedomosti, which would explain Naspers’ decision to shut down the site.
Molotok claims just 250,000 daily users – compared with over 3.8 million (according to TNS) for Avito.ru, the country’s leading classifieds site in which Naspers also owns a stake.
However, Molotok has remained popular among Russian collectors of coins, antiques and some other items. A new site, Auction.ru, which presents itself as being run by the former Molotok team, has called the collectors to resume transactions on its platform.
The Allegro press service declined to answer EWDN’s questions.
$30 million powerless against the crisis
Other bad news came from kids goods online store Mamagazin.ru. Launched just one year ago under a $30 million investment plan, the site was one of the first Russian sites combining e-commerce with strong social features.
Designed by international marketing guru Martin Lindstrom, the project got some attention beyond Russia. Just two weeks ago Lindstrom, who was named one of Time magazine’s “World’s 100 Most Influential People” in 2009, posted a video presenting Mamagazin as his brainchild.
The site’s general manager Marina Pogodina told Vedomosti that the project is now being “frozen” and “downsized.” The assortment strategy needs to be reviewed since up to 90% of catalog items are imported. “The prices have increased significantly due to the currency variations,” she said.
Several other important Russian e-commerce properties were hit by the crisis in recent months. In January Vasko.ru, a major retailer of household appliances whose sales revenues neared $90 million in 2013, was on the verge of bankruptcy. In March Enter.ru, a multichannel retailer with a diversified assortment, was sued by its suppliers for non-payment of a 462 million ruble (nearly $8 million) debt.
Launched in 2011, Enter relied on its former owner Maxim Nogotkov’s commitment to invest several hundred million dollars – which the Russian businessman could not do due to his own financial difficulties.
The crisis also triggered the fall of Sotmarket.ru and Utinet.ru, two important players in the consumer electronics segment, which merged recently. The owner, IQ One group, is in discussions to sell these assets while keeping afloat its other e-commerce property, e96.ru, which is in better shape.
From current crisis to bright future?
Amid Russia’s economic turmoil, in fact, the online retail market as a whole is far from agony. In 2014, the domestic segment grew by 35% in nominal terms, or some 15% in real terms, to 560 billion rubles ($14.5 billon at the average exchange rate) for physical goods only, according to research agency Data Insight.
This growth rate was lower than that of the preceding years – but still impressive if taking into account the stagnation of the offline retail market.
A much more modest growth is expected this year. While the consumer electronics and some other segments have been particularly exposed to the crisis, several leading market players still claim strong growth rates, as announced by Groupon Russia, KupiVip, Lamoda, Ozon and Ulmart at the eDays conference this past June.
For example, Ozon.ru reported a 40% year-on-year growth in value in Q1 2015, with some product categories nearing or exceeding 100%.
Even stronger is the traction of Chinese e-commerce players, such as the AliExpress platform which last year asserted itself as the number one e-commerce site in Russia at least by traffic and number of fulfilled orders. Last year Russia’s cross-border e-commerce market reached $2.5 billion, up 75% from the previous year.
Industry experts are still confident in the long-term prospects. The Russian e-commerce market could reach or exceed $50 billion in five years, according to a recent report by East-West Digital News.
