Launched in 2008 by Oskar Hartmann, a German entrepreneur born in the former Soviet Union, KupiVIP quickly became Russia’s leading flash sales site in the field of fashion. When the cross-border e-commerce market emerged in Russia, the company lobbied against what Hartmann called – with some justification – “duty-free e-commerce.” But KupiVIP also launched its own cross-border business as early as 2012, combining domestic and international shipments in its catalog.
The company’s current general manager Vladimir Kholyaznikov told East-West Digital News how this cross-border business was built, the company’s achievements in this field, and shared his vision of a market that he believes will still enjoy significant growth in spite of the ruble’s sharp fall in 2014. This interview is an excerpt from an industry report recently published by EWDN.
Initially KupiVip was a domestic e-commerce project. Why did you launch cross-border business a few years ago?
Like any classical domestic player, we understand that geographical borders, the borders between domestic and international markets, are being blurred in the modern world. So, at the end of 2011 and beginning of 2012, we actually launched a cross-border delivery project from Europe.
Cross-border now accounts for more than 25% of our total volumes and is likely to increase in 2015. In the outerwear product category, the cross border share exceeds domestic flows, especially in the winter and spring seasons.
Which countries are concerned?
With our own international logistics, we deliver to the CIS from ten countries, mainly from Europe – in particular from Germany, Italy, France and Great Britain. Now we are integrating Turkey into the delivery system. They have quite high quality linens and leather goods. We are also entering the Asian countries.
The main producer of fashionable shoes is Italy. About 70% of shoe production comes from there. Italy is traditionally linked with the world of fashion. But we work a lot with Germany, which consumers often associate with quality and a high level of accuracy. Moreover, Germany is the second largest fashion market. The country is in second place in Europe by retail volume. Since our business is built on liquidating leftovers from the fashion market, large retail volumes in a country are very important for us.
The fact that our founder is of German descent also plays a role. He is familiar with the German market. Plus, the base cost is lower in Germany than in many other European countries. Renting space, logistics, labor are all cheaper in Berlin than the European average. Plus the convenient central location – close to Russia, and with dependable logistics.
We will expand the Asian base as well as the European, since it is in Asia where production of many fashion brands’ textiles and leather goods goes on.
How do you manage the shipment process?
The goods from our foreign suppliers (we work directly with brands and manufacturers) are sent to our German hub. We pack orders there and then either use our own delivery system (90%) or third-party suppliers to send the orders to our customers, depending on the region they are located in.
Logistics prices are rising, especially for air delivery and so on. Therefore, we have to manoeuver it so that the consumer does not feel the rise in domestic services.
Did your cross-border business grow or fall in 2014?
In 2014, our cross-border volume approximately doubled, in line with the fast growth of the market. That was mostly tied to strong development of cross border ecommerce in Russia, desire of Russians to buy goods directly from Europe as well as attractive product and price offering.
The growth during first three quarters was quite inspiring, but of course following the ruble’s fall in mid December, the growth isn’t as fast as we would like. However, we are trying to avoid increasing prices too sharply, even if this means smaller profits. In the premium segment, prices for Russian consumers increased by 40% on average, which obviously hasn’t been an advantage for us or for all European sellers. Now China is winning, occupying 70-75% of the cross-border market because of its inexpensive goods. We will be working on our cross-border strategy in 2015 and will adapt to the actual economic environment in Russia and neighboring countries.
How have you prepared for a potential crisis in 2015?
We have certain advantages over other Internet stores. First, we work directly with brands and producers worldwide, connecting them with consumers through our platform. This means that we do not have our own inventories but rather sell third-party products on our web sites, and organize end-to-end logistics after customers place orders. Thus our short buying cycle – not 8-12 months like many traditional Internet stores – allows us to react more flexibly to changing consumer behavior, and adjust the assortment and pricing on a daily basis. Everyday on KupiVIP.ru one can find up to 120 sale events (actions) from 50-60 vendors worldwide.
Second, our discounted sales model came out of the crisis of 2008, when the population saw its real income decrease. In such crisis conditions, consumers tend to avoid impulsive purchases. They look for bargains to purchase the products they are accustomed to, which favors discount stores – which is precisely our business model.
Even our most pessimistic scenario for 2015 includes growth for both local and cross-border sales volumes. Obviously, we will grow not only due to our strong internal business performance, but also due to market growth, higher inflation – which raises the average purchase size – and so on. On average, we are expecting 20-25% growth in cross-border for 2015, depending on the exchange rate of the ruble. I think the market itself will growth by an average of 25% for the year.
Will the potential lowering of the duty-free threshold affect you, if it occurs in 2015?
Even if it is lowered to 150 euros per package, it won’t particularly affect us, since we work in the market price range of less than 150 euros, like most other Western cross-border merchants. Our Chinese colleagues have an average purchase size of about $25-35. Lowering the duty-free threshold will mainly affect those who use the B2C channel not for the intended purpose of their own commercial purchases, and this is quite reasonable and healthy for the Russian economy.
- East-West Digital News publishes in-depth studies on the Russian e-commerce and cross-border sales markets. To order a copy or receive an executive summary at no charge, please contact us at report [at] ewdn.com
