The Russian e-commerce market has already attracted many large international companies, from high-tech visionary Microsoft, to gaming industry stalwarts Sony PlayStation and Nintendo, to retail giants such as AliExpress and ASOS. However, there is still enough room for small foreign companies because the market is far from being oversaturated. Many Chinese, Korean, European and American companies are trying to meet the growing demand from buyers from Russia and CIS countries. Payment provider Yandex.Checkout analyzes why this market is worth fighting for.
Russian e-com: tripling by 2023
The Russian e-commerce market is constantly growing: in 2017, the Association of Electronic Commerce Companies (AKIT) estimated its volume at around $18 billion, which is 13% more than in 2016. According to Data Insight, in 2017, the industry’s volume stood at around $14.4 billion if excluding ready-made food delivery, cross-border trade and digital content – and nearly $30 billion if the above categories are taken into account.
In a recent Morgan Stanley study, banking experts predicted an almost three-fold growth of the Russian e-commerce market over the next five years. According to analysts, the electronic market for physical goods will reach $31 billion by 2020 and will likely reach $52 billion by 2023.
Currently, despite the high degree of Internet penetration (about 80%) and smartphone use (66%), e-commerce accounts for only 3% of purchases in Russia. However, the experience of Yandex.Checkout shows that in 2018 the number of payments in online stores increased significantly, as more and more people prefer to shop online (82.8% of Internet users made at least one purchase from an online store in the first half of 2018, according to research firm Mediascope). Morgan Stanley also suggests that the Russian market is on the verge of a “sea change”: “We believe that in Russia we are reaching a critical mass of increases in ‘mature’ Internet users, which is driving a increase in the number of online transactions as users. get used to them. »
Cross-border: foreign players in the Russian e-commerce market
The cross-border trade segment of Russian e-com is growing in parallel with the global trend of increasing cross-border trade. According to AKIT, by the end of 2017, cross-border sales in the online retail sector reached 36% of the market, or nearly $5.5 billion, a growth of 3% compared to 2016. The number of shipments from foreign stores in 2017 (380 million) increased by 63% compared to 2016 figures. According to the organization’s estimates, by the end of 2018, the cross-border e-commerce segment will reach 6.3 billion dollars, an increase of 12%.
90% of overseas shipments to Russia come from China, but in monetary terms, Russians’ purchases from Chinese online stores account for 53%, indicating low average purchase control. Generally, according to AKIT’s calculations, most orders (61.4%) in foreign online stores do not exceed $25. 3% of purchases are made in EU stores (22% in monetary terms), 2% in US stores (12% of Russians spend on online purchases from abroad).
The most popular product categories among Russian customers shopping online from abroad are clothing and footwear (38%), appliances and electronics (33%), perfumes and cosmetics (8%). The “Other” category (11%) includes pet products, office equipment, building materials, decoration, food, books (data provided by AKIT).
Morgan Stanley’s assertion of “the absence of a dominant e-retailer” is easily denied: for several years, the biggest player in Russian e-com has been AliExpress, which has the largest audience, 20 million people, and occupies 18% of the market (AKIT). However, according to Yandex.Checkout experts, the number of key players will increase in the future: the world is moving towards consolidation and joint ventures are likely to become new pillars of Russian e-commerce.
Morgan Stanley suggests that joint ventures created with the participation of the largest national Internet companies, Yandex and Mail.Ru Group, are likely to conquer the Russian market. According to Morgan Stanley, the leader can take up to 60% of the e-commerce market in Russia. The cost of such a venture could reach $9.8 billion.
Market trends and growth factors: key insights
- The model for the Russian e-commerce market is China. According to KPMG, 17% of Russians buy from Asian online stores, most of which are Chinese. Their sales and promotion mechanisms and market model have successfully taken root in the Russian market. The question of logistics is very important due to the low population density in Russia: according to Morgan Stanley analysts, it makes sense for online companies to cooperate with offline networks that have a large number of points of sale that can provide customers with products ordered online. As the experience of Yandex.Checkout shows, in addition to logistics, foreign companies entering the Russian market also need marketing and distribution, for example, a platform of offers with promotional offers provided by partners.
- Cost of goods continues to be a key factor in choosing an online platform. KPMG analysts estimate that a customer selects an online store based on price (24%), brand (15%) and peer influence (9.8%). Thus, Asian online stores with their unprecedented low prices have a high chance of success in the Russian market. However, according to Yandex.Checkout analysts, in a number of categories buyers are more focused on quality, and this is where the pre-existing image comes into play (Korean cosmetics, European children’s products, etc.). ). This can be a new “entry point” for generally recognized high quality brands.
- Mobile commerce is growing. According to Data Insight, in 2017, 13.4% of customers made smartphone purchases through the store’s website and 12.3% placed orders through the mobile app. For young adults under the age of 25, the smartphone is the main online shopping device. KMPG estimates that in the coming years the share of purchases from mobile devices in Russian e-com will double, in line with the global trend.
- According to Morgan Stanley, in the coming years, investments in the Russian market could reach 1 billion dollars, while over the past ten years, private companies in the online retail segment have received only $800 million. According to investment bank UBS, the fastest growing segment of Russian e-commerce over the next five years is food delivery. The bank’s analysts claim that this sector will be the main focus of investors who intend to invest in Russian e-commerce in the coming years.
- According to Yandex.Checkout, the Russian e-commerce market is an audience ready to accept new products from foreign markets. According to analyzes of search trends and payments, Russians show an increasing preference for offers from world leaders in various product categories. Thus, the Russian market could soon count on new leaders of Turkish or Korean origin.