Starting from scratch in 2008, Ulmart took just five years to assert itself as the leading Russian e-commerce site, generating $1.3 billion in revenues last year in a domestic market that reached or exceeded $17 billion.
In spite of the current economic downturn in Russia, Ulmart expects continued growth this year and considers a Western IPO in 2016 or 2017. In this exchange with with East-West Digital News, Ulmart founder Sergey Fedorinov speaks frankly about how its company is adapting to the crisis and the competition from Chinese players. He also provides details about the company’s financial options, including the alternatives to an IPO.
Ulmart has a rather specific hybrid model, with online and offline, sales and logistics components. How did you come up with it ? Were you inspired by any existing experience – and have you inspired others since site launch in 2008?
I created the concept from scratch: neither in Russia nor abroad was there any such integrated model – with its own offline logistics and delivery directly integrated to the online storefront. This was far from the standard model of that time, when online retailers focused on online sales and outsourced most of the subsequent operations to service providers like the US Post in the US.
This logistics model corresponded to a specific Russian challenge: weak infrastructure plus a need to serve clients as quickly impossible. It makes a difference at the end of the day when you can upload a package to the transport system in 30 minutes instead of 90. This is especially true when you manage big volumes with low margins – as with electronics – in contrast to fashion items.
Our model, which was totally new at that time, largely inspired such businesses as Citylink.ru and Terminal.ru.
Also original are our “cybermarkets.” These virtual storefronts, combined with an offline facility to choose or simply pick up an order made online, are an important part of our model. Our integrated logistics system is designed to ensure optimal product availability in these facilities.
In Ulmart’s “cybermarkets,” customers make their purchases via computer screens in a super modern environment.
Still, Ulmart is not the only online retailer in Russia to have built its own logistics and delivery system…
Yes, but we’re the only one to rely on it 100% – while Ozon and Lamoda, for example, also rely on service providers.
Do you intend to open your logistics capacities to third parties in the future, as did Ozon, KupiVip, the Otto Group and some others?
We haven’t done it so far. Yet this could indeed happen in the future – but only in the form of Ulmart-branded items. We have experimented in this area already with car parts: a large percentage of them come from third parties.
What proportion of your sales go through the “cybermarkets,” and do you consider these sales online or offline?
Some 25% of all orders are placed via “in-cybermarket” terminals, with the rest coming via tablets, PCs and the increasingly popular mobile option. Around 10% of orders are generated via the call centers ; 60% are picked up in the cybermarkets, with 27% going through classic pickup points and roughly 12% via last-mile delivery.
We consider these sales 100% online, since they are made via a virtual storefront. No matter how the virtual storefront is used – on your personal computer, on your mobile or on the computer screens of our “cybermarkets” – without the Internet there is no way to order anything from our platform. Even the call center dispatchers use the company platform.
Over the past two years Ulmart has asserted itself as the the number one online retailer in Russia, with $1.3 billion in revenues in 2014 (1). How did you reach such a result?
There have been two main factors. First, our very deep faith in the possibility of reaching any goal by some means – in the sense that we were ready to invent new models, and actually did so.
The second reason lies in the success of our integrated model, which combines the best of online with the best of offline and organizes optimal synergies between them.
Needless to say, building our offline and online capacities in both sales and fulfilment required a huge investment. Please note that I’m saying “investment,” not “expenses.”
More than others, the consumer electronics segment has been hit hard by the crisis. To what extent has this affected your sales? Do you still hope, in this context, to continue fast growth in 2015?
While consumer electronics is dropping all across the market, the strategic decision we made over a year ago to begin aggressive expansion in new categories like DIY, auto, kid’s stuff and home items is proving to have made our electronics catalogue almost, in a sense, crisis-proof. Yes, the overall slowdown in the economy will have an effect; but we feel that we will still be able, in dollar terms, to grow the company. By how much – we will have a more accurate prognosis only after our half-year sales figures are in.
Last year you began significantly diversifying your business with investments in online music and other digital content, online travel and satellite TV distribution… What’s the strategy behind this? Do you see yourselves becoming a new Amazon?
There is, indeed, a general intention like that. But a key difference with Amazon is that in our marketplace, everything is managed by us and under our brand. The reason for this is that, in our view, loyalty is a key success factor. Loyalty requires quality service – which requires us to control the entire process.
Many Russian e-commerce sites run losses. Is this the case for Ulmart?
We have lost money so far, but this was part of our strategic plan. This year we’ll turn profitable. Still, we have no intention of displaying maximum profits at the expense of investment.
Last year you held discussions with Western investors. How did they end?
We did receive an offer, but we were not satisfied with the terms. As a matter of fact, we don’t have a critical need for investor money. We’re close to breakeven – and we can reach it by lowering the volume of our investments. In addition, our shareholders have the capacity to support us.
Now you intend to go public on a Western exchange. Is this the right moment?
The IPO would not take place before 2016. We’re anticipating that the context might change for the better before then – or at least the situation in Russia may become more stable. People will then see that this country is interesting to invest in.
We’re not considering an IPO as a goal in itself. We are willing to raise money to continue developing a great and very attractive company. This money could come from private investors as well – should their terms be acceptable. In that case there would be no IPO.
Some Russian online retailers have begun selling abroad – or are considering doing so. Do you have any such plans?
We have no international expansion plans. Keeping focused is an important success factor. We haven’t even developed a strong presence in Siberia yet. Instead of geographic expansion, I believe we should continue enlarging our assortment.
Chinese online retailers – first and foremost AliExpress – are invading the Russian market. Do you have anything to fear from them?
I like healthy competition. Pressure from Chinese players will force many Russian companies – including ours – to improve their processes. And this market is big enough for all! By the way, the notion that we will integrate Chinese players into our system has not been ruled out.
(1) Company information. Not including VAT.
- You will be able to meet Mr Fedorinov at the eDays international e-commerce conference on June 5. For more details, please visit the event’s website. Abundant information and data on the Russian e-commerce market can be found in EWDN’s research studies.
