Russians are shopping more online and big players are investing to improve delivery options for online merchants, according to a new report. This opens the door for foreign companies to enter Russian e-commerce, although there are still Russian-specific rules and consumer preferences that need to be taken into account.
Online sales of physical goods from domestic e-commerce sites grew by 19% in 2018 to reach 1.15 trillion rubles (about $18.3 billion), according to the recently published report “E-Commerce in Russia from East-West Digital News, an English-language newspaper and research organization based in Moscow.
Meanwhile, cross-border sales – Russian consumers buying from foreign websites – rose 22% in terms of the number of orders shipped to Russia, according to Russia Post, which says it handled 345 million packages destined for buyers in online in 2018. They came from Chinese sites like Alibaba’s AliExpress.com that sell cheap products, the report said.
76% of Russian online shoppers in 2018 said they bought from non-Russian e-commerce sites, up from 65% a year earlier.
Adrien Henni, editor of East-West Digital News and lead author of the “E-Commerce in Russia” report.
The report cites two estimates of the value of these cross-border purchases: $5.5 billion from research organization Data Insight and $3.24 billion from the E-Commerce Russia Association, a trade group. Survey data shows that 76% of Russian online shoppers in 2018 said they bought from non-Russian e-commerce sites, up from 65% a year earlier.
According to East-West Digital News, foreign companies successfully selling to Russian online shoppers include Swedish furniture retailer Ikea, Italian luxury online marketplace Yoox and US nutritional supplements retailer iHerb Inc., which is n No. 52 in the 2019 Internet Retailer 1000 ranking. Yoox is part of Yoox Net-A-Porter, which was acquired last year by Swiss luxury conglomerate Richemont Group, No. 33 in the Top 1000.
Big investments in Russian e-commerce
Seeking to satisfy Russian buyers’ desire for foreign goods, Bringly was launched in late 2018 as an online marketplace offering goods from abroad. Bringly is “actively seeking cross-border partnerships with overseas retailers and brands,” the report said. The new shopping site is the product of a joint venture between Russian e-payments company Yandex and Sberbank, Russia’s leading bank which has pledged to invest at least $500 million in the e-commerce project.
In another major deal last year, Alibaba teamed up with Mail.ru, a Russian messaging and online gaming company, to pursue online retail opportunities. The joint venture, valued by investment firm Morgan Stanley at $2 billion, plans to spend “hundreds of millions if not billions of US dollars to grow their e-commerce business, with a substantial portion of that being dedicated to logistics,” the report said. Delivery of online orders has been a weak spot for Russian e-commerce, with delivery to smaller towns often taking weeks or even months, the report noted.
Russian e-commerce regulations
The second part of the report is titled “A Practical Guide for International Players” and offers information on how Russia differs from other markets in areas such as payments, duties and taxes, and storage of consumer data.
For example, 70% of online orders are paid for in cash on delivery, the report says, citing Russian delivery company CDEK. However, COD is on the decline, with Russian online retailer Ozon reporting that such payments fell to 26% of online orders in the first quarter of 2019, from nearly 80% five years ago, the report said. “Most foreign online stores do not offer cash on delivery options, as Russian online shoppers are generally willing to prepay for orders from abroad,” the East-West Digital News report said.
The report notes an upcoming change in the rules regarding customs duties. Today, no duty is levied if an online shopper does not purchase more than 500 euros ($555) overseas in any given month. The above purchases are charged 30% fee. Starting January 1, 2020, the threshold will be lowered to 200 euros ($228), but it will be per package, not per month, and the tax on purchases over that threshold will be lowered from 30% to 15%, according to the report. . said.
American retailers and Russian e-commerce
American companies showed great interest in selling online in Russia in the early 2010s, but this interest evaporated with the collapse of the ruble in the middle of the decade and political tensions since then, explains Adrien Henni, editor of East-West Digital News. and the main author of the report. Big Chinese e-commerce players have filled the void and gained a dominant position, he says.
“Chinese giants AliExpress and JD.com entered the market with their low prices; AliExpress won the battle, establishing its absolute leadership in the Russian cross-border e-commerce scene,” says Henni. While few US retailers are investing in Russia, other European companies are, he says.
“Since 2017, Western retailers have seen their sales in Russia pick up,” Henni tells Digital Commerce 360. “The market outlook has improved significantly with the stabilization of the ruble and the emergence of new marketplaces, such as aiming to enter the market. easier for foreign players.
While most US online retailers stay away from Russia, US-based iHerb is an exception. The supplement retailer ships around 700,000 packages to Europe each month, Henni says, citing confidential sources. By contrast, he says, Amazon averaged about 7,000 shipments to Russian online shoppers from 2014 to 2018, a figure that could now approach 10,000 packages per month, Henni says. Amazon does not operate a dedicated e-commerce site in Russia, but Russian shoppers can shop on its sites in Europe, the United States, and elsewhere.
Amazon and iHerb did not respond to requests for comment on these shipping numbers. Amazon is #1 in the Top 1000 Online Retailers 2019.
Russian carrier Shiptor estimates that the average value of a package arriving in Russia from US online retailers is $182.91, about half the average value of $362.36 in 2014. The average price of items has changed little, at $87.10 today from $96.63 five years ago, but the average package contains just 2.1 items today from 3.75 in 2014, according to Shiptor.
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