Page 52 - Bloomberg Businessweek - November 19, 2018

Bloomberg Businessweek The Year Ahead 2019 Consumer

e-tailers gear up to spend more than $1 billion model, without establishing a physical presence,
on their websites, warehouses, and delivery has been the most successful strategy for interna-
services. Those investments, starting next year, tional online retailers.”
will help boost e-commerce in Russia to $52 bil- By many measures, Russia is primed for
lion by 2023, from $19 billion in 2018, Morgan e-tailing growth. Internet and smartphone
Stanley forecasts, spurring a wave of consolida- adoption is higher than in Brazil and India.
tion likely to leave just a handful of major play- There are now some 270 million bank payment
ers. “It’s been a breakthrough year for Russian cards in Russia, up two-thirds since 2012. And
e-commerce,” says Sergey Libin, an analyst at more than half of Russians buy online at least
Raiffeisenbank AO in Moscow. “Local internet once a month, according to Morgan Stanley.
giants are forming alliances with other heavy- “Money is pouring into Russian e-commerce,”
weights to conquer the market.” says Artem Sokolov, executive director of the
Association of Internet Trade Companies, a
lobbying group for web shops. “Next year the
market will get a boost from a surge in sales of
food and groceries, and the government is set
to legalize online sales of alcohol and medicine,
which will create a further push.”
Much of the investment will go into getting
goods to customers more efficiently. Russia ranks
No. 37 in the Universal Postal Union’s assess-
ment of mail services—behind China, India, and
even Moldova. Shipments routinely go missing, ◀ Gathering orders for
Ozon in a warehouse
and until two years ago, the Russian Post didn’t in Tver
Internet search provider Yandex NV has deliver packages to apartments in cities. Private
teamed up with state-controlled Sberbank PJSC courier services, meanwhile, are too expensive
38
to create Beru, which seeks to transform Yandex’s for most consumers.
price-comparison site into a full-fledged web That means would-be e-commerce players
retailer with fulfillment centers across the coun- must invest far more in their own logistics oper-
try. Social network operator Mail.ru Group Ltd. ations than they do elsewhere. Wildberries, for
is working with Alibaba Group Holding Ltd. to instance, has a huge warehouse in Moscow as
build a web shop offering all manner of goods. well as smaller facilities across the country, and
Ozon.ru, an online hypermarket backed by bil- it operates a fleet of 600 vehicles. Ozon runs its
lionaire Vladimir Evtushenkov, raised $80 mil- own courier service, which includes more than
lion this year and plans to more than double its 5,000 self-pickup points and parcel lockers. “A
warehouse space. Electronics e-tailers Citilink and good supply chain and expertise in logistics are
M.video PJSC are expanding into a wider range of the key to expanding online sales” in Russia, says
goods. And clothing specialist Wildberries is add- Daniil Fedorov, director for corporate develop-
ing appliances, electronics, and more. ment at Ozon. ● Morgan Stanley’s
projection of the size of
What’s unusual about Russia’s e-commerce Russia’s traditional retailers, of course, Russia’s e-commerce
landscape is the absence of Amazon.com Inc. already have many of those assets, opening the market
Facebook Inc. and Google have made inroads, door to online competition from chains such as $50b
but Amazon and many other big overseas com- X5 Retail Group NV and Magnit PJSC. Those com-
panies have been slow to invest in a country that panies, which have invested heavily in store net-
has laws restricting foreign ownership and is works and logistics, could either create their FROM LEFT: ARTYOM GEODAKYAN/GETTY IMAGES; PHOTOGRAPH BY PIPPA DRUMMOND FOR BLOOMBERG BUSINESSWEEK
under international sanctions for its annexation own e-tailing businesses or buy one or more of 25
of Crimea. Even Alibaba, the biggest foreign oper- the online upstarts, says Ivan Fedyakov, head of
ator, has only tiptoed in, mostly selling imported researcher Infoline. While contenders such as
goods directly to consumers rather than investing Yandex and Mail.ru have the financial clout to
in its own operations in Russia. One big advan- sustain years of losses as they build their busi- 0b
tage for the outsiders is that they’re not required ness, the newer e-tailers are largely dependent on 2018 2023
to collect the country’s 18 percent value-added cash flow to fund operations. “They’ll find it hard
tax on purchases below about $1,100. “Logistics to compete,” Fedyakov says. “They’re not sitting
in Russia are difficult,” says Fedor Virin, a part- on piles of investors’ cash, and they don’t have a
ner at researcher Data Insight. “The cross-border solid offline business.” <BW> �Ilya Khrennikov