In spite of the international turmoil, the Russian e-commerce market is still growing with cross-border sales to Russia jumping to $5 billion this year, up from $3 billion last year. However, while e-commerce flows from China is reaching new heights, the present troubled times have brought new difficulties – but also left many opportunities – to Western players.
A detailed study by East-West Digital News, with the participation of Ernst & Young, PayU, Qiwi and Yandex, industry association NAMO as well as dozens of industry players including Alibaba Group, ASOS and eBay, reveals the following key trends.
- The substantial combination of AliExpress and Chinese eBay sellers has driven China to become the dominant force on Russia’s cross-border market – representing up to 70% of parcels this year, up from 40% in 2013. The low prices of Chinese-made goods and the assortment made available on such a huge platform as AliExpress are ultimately the biggest attractions for Russian consumers.
- Parcel flows from Western countries are growing more slowly or even stagnating this year due to the ruble’s fall (-50% vs the US dollar since early 2013) and a shift in the behavior of the most patriotically-oriented Russian consumers. While competition is becoming more acute, Western retailers are witenessing a variety of situations, from continued sales growth to stagnation or even a decrease for the most exposed ones.
- Relatively few foreign online retailers have made localized interfaces and payment options available to their Russian consumers – which make the shopping experience more comfortable and purchases more appealing. For example, by allowing their customers to pay by cash upon delivery – which is the rule on the domestic e-commerce scene – some pioneering foreign players have seen their sales double.
- Shipment via postal operators may take weeks or even months, but the Russian Post’s service is improving slowly. Global carriers such as DHL Global Mail, TNT Post and UPS are being challenged by a new generation of Russian companies (e.g. Boxberry, CDEK and SPSR). Not only do these local players offer quick service at competitive prices, some of them manage customs processes with superior efficiency, avoiding the service interruption which affected international carriers in early 2013.
- While most shipments are currently tax-free, the expected changes in the customs legislation should be extremely mild in spite of the intense lobbying efforts of some domestic players. Meanwhile, customs procedures are being simplified progressively with the introduction of electronic declaration and other novelties.
- While Russia is commonly associated by foreign operators with a high level of such payment issues as fraud and refusals, the data and expert opinion collected by East-West Digital News do not support this view. “The Russian market is not that different than any other market when it comes to the card payments main indicators, be it fraud or the decline rate,” write Steven Mandurano and Nicolas Vedrenne of the Merchant Risk Council (MRC). Even more surprisingly, “the level of fraud-related losses in Russia is four times lower than in the USA and Western Europe,” notes Elena Orlova, General Manager of the Russian branch of international PSP PayU. However, according to Euromonitor data, loss tocard fraud reached 104 million euros in 2013 in Russia, up 27.6% from 2012 – which is among the highest growth rates in Europe.
- Many foreign retailers and their service providers are concerned by new rules on personal data storage, which will be allowed only on servers physically located in the Russian Federation starting from 2016. These rules may entail significant technical and organizational challenges and costs, as discussed in the report by E&Y analysts.
As for Russia’s domestic online retail market, the EWDN-Data Insight expert pool expects it to reach approximately $18 billion this year, up 25% in rubles and 12% in USD from 2013. This growth rate is lower than during the previous years – but still significant given the current quasi stagnation of the Russian economy. Long-term expectations are still high, with the full potential of the Russian e-commerce market far from being tapped.
Growth will be fuelled by the growing Internet and e-commerce penetration in the regions, wider use of online payments and electronic signatures, and further development of the fulfillment infrastructure in remote areas. The domestic segment could thus reach or exceed the $100 billion mark within 10 to 15 years.
- This report on cross-border sales is part of EWDN’s pioneering research program covering the Russian e-commerce market, which has involved more than 100 market players and service providers as well as experts from leading universities and consultancies. In addition to a full set of market data and forecasts, these studies include practical recommendations to e-commerce players in the fields of marketing, payments, shipment and deliveries, as well as little-known legal and HR challenges. To receive an executive summary at no charge, please email to [email protected]
