After six years with BCG in Russia, Europe and India, Maëlle Gavet joined Ozon.ru in early 2010 as Marketing and CRM Director. She was appointed CEO in 2011, a year that came as a tipping point for this major online retailer, with a $100 million round of financing in September and, by the year’s end, preparation for the acquisition of leading footwear retailer Sapato.ru.
Ozon.ru is often called ‘the Russian Amazon.’ To what extent is this comparison accurate, considering the radically different sizes and levels of diversification of the two companies?
Amazon has always been an example for us and there are strong parallels. We both started as bookstores but have since diversified. Within the Ozon group, we also have an online travel arm similar to Expedia and a fulfillment arm similar to FedEx. We also recently acquired Sapato, Russia’s largest online footwear retailer. It’s worth bearing in mind that the Russian e-commerce market is generally five years behind the West. So yes, we’re different, but Amazon has become the leading online marketplace in the West and that’s what we aspire to do here.
How do you envision the potential of online retail in Russia? Do you think it could reach, one day, a size matching advanced foreign countries?
The Russian Internet market is now the largest one in Europe if measured by number of users, and it continues to grow very rapidly, with a largely untapped potential in the regions.
The majority of internet sales have, to date, been in the affluent west of Russia and larger connected cities such as Moscow, St Petersburg – but the regions are catching up fast.
Since November 2011, total sales from the regions have outstripped sales from Moscow and St. Petersburg combined, so that gives you an idea of the potential.
But online shopping is a recent phenomenon: it takes time to convert an average online user to an online shopper. Sixty million Internet users are far from representing sixty million online shoppers. Russian users are perhaps less eager for innovation and novelty than users in China or Brazil. Russians are more sensitive to the brand aspect. For example, the iPad’s popularity in the country is more due to the brand than a passion for the latest technology.
What makes online retail difficult in Russia?
Payments are an important issue. The banking system is underdeveloped. Many Russians do not keep their savings in banks. Consumer credit remains less developed than in most western countries, in spite of huge progress over the last decade. Online banking is embryonic in this cash-based economy, with few Russians using their bank card for anything other than cash withdrawals.
All this hampers the development of new payment instruments, which are useful to e-commerce.
Why is cash on delivery – which also dominates in certain foreign countries with thriving e-commerce – such a bad thing?
Historically, Russian e-retailers were obliged to offer cash on delivery. It is more comfortable to users, but less profitable for e-commerce companies – due in part to the cost of processing cash payments and in part to a higher return rate. Now the habit is there and it will be challenging to make sweeping changes – at least for physical goods. People understand that virtual payment is more ideal for virtual goods (granting immediate access to the service); but, objectively, it remains preferred for users to pay cash for physical goods.
Another important issue is fulfillment. Russian delivery service providers are far from the level of providing a fine-tuned experience and the low pricing offered by DHL or UPS in the West. The fulfillment situation is satisfactory in Moscow and St Petersburg, and more or less acceptable in other large cities. But when you go deeper into the country, your main option is the Russian Post, which is less than efficient. Modern delivery tracking tools are not even offered.
Having initially launched B2B offers, Western delivery operators have not invested enough to develop B2C-specific processes.
Ozon has internalized most of the delivery process to make it more cost-friendly and efficient than the Russian Post. Ozon is now the only company to offer true nationwide coverage. In five to seven years, there may be a few additional operators offering national delivery coverage at affordable prices, but these probably will not include the Russian Post or Western companies like DHL because B2C is unlikely to become their priority.
Ozon’s specialized arm O’Courier already positions itself as a provider, working with a variety of e-commerce sites – 70 clients to date – excluding only direct competitors.
Regarding imports, that is another strong issue: any product coming into Russia needs certification. That is a hassle requiring money, connections, and patience. So, most players either use customs brokers or distributors who have already imported the products. Ozon does that but will increase the share of its own-imported products.
Ozon recently acquired Sapato.ru. Could you explain the reasons why you chose this site?
Despite the fact that Sapato.ru is a relatively new business, it is already well established within Russian e-commerce. It has a good customer base, and good supplier relationships. We have the fulfillment platform, and we aspire to offer customers coming to Ozon.ru everything they need. Also, since clothing and shoes are the most popular products in Russia, the partnership made perfect sense.
How do you intend to develop this business further? Will Sapato.ru remain a stand-alone brand or will its offer be integrated into Ozon.ru’s catalog?
Both. We intend to keep Sapato.ru in its current form, but we also intend to offer their full product range through Ozon.ru.
How do you envision further perspectives for Ozon.ru?
At this point, our focus is on continuing to increase our sales in this market and expand our product range. The e-commerce market here is still relatively young, and even though we have the largest online population in Europe, less than half the country’s population is currently online. Despite this, we are now making in excess of $1 million in sales every day and growing fast.
- RUSSIAN E-COMMERCE REPORT 2012 – The total volume of Russian online retail reached 310 billion rubles, a little more than $10 billion, in 2011, up 25% from the previous year. EWDN’s research study of Russian e-commerce, which includes a case study of Ozon.ru, will be available soon. To receive free insights or to order the full version, please contact us at [email protected].
