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bne November 2020 Cover Story I 27
Russia’s online economy is September, sales are already slowing The disadvantage is the country’s
booming and no one has really
noticed. The traditional economy will be badly hurt this year by the double whammy of the oil price collapse and the coronavirus (COVID-19) epidemic, but the growth of online sales has almost completely ignored the multiple crises and continues to expand at double-digit rates. Indeed, if anything it has only accelerated.
Russia’s new economy has reached
a critical mass, where the leading companies have gone from building
up individual business lines to
creating entire ecosystems. A period of consolidation has already started where billion-dollar deals and IPOs are being announced on a monthly basis and there is no sign of any of this slowing down any time soon.
But there is still a long way to go. Despite the progress, Russia’s new economy and its penetration still
lag behind those of more advanced markets like the US and China. Russia’s e-commerce is still relatively underpenetrated, highly fragmented and there is a low share of multi- category players, say the experts.
“2019 e-commerce sales as a share of retail sales in Russia reached just 6%
vs 8% in Poland, 15% in US and 28%
in China,” said Oksana Mustiatsa, an e-commerce analyst with Sova Capital during a recent webinar dedicated to Russia’s online business. “Multi-category players accounted for less than 20%
of the e-commerce market in Russia in 2019, vs 50% in US and over 70% in China.”
E-commerce’s share of retail won’t stay at 6% for long. Traditional retail sales have been walloped this year and have completely collapsed to never- seen-before lows during the lockdown that started in May. Sales bounced back strongly in the summer after the restrictions were lifted, which is one of the reasons Russia’s economy is doing better than expected in the second half of this year, but as the second wave of the pandemic began to build momentum rapidly in the last week of
again, according to the latest data from the Watcom Shopping index; the outlook for the rest of this year is poor.
The story with online sales is very different. There sales have been putting double-digit growth and the lockdown barely registered. Indeed, according
to Sova Capital’s estimates, the coronacrisis will accelerate the switch to online retail, which will account for 9% of total retail by the end of this year and 20% of all retail sales by 2024.
“The step up from 10% of retail done online to 20% in just four years is an enormous change,” says Mustiatsa. “And it means there will be a con-
sheer size. The game is not just to be able to get goods ordered online to the customer, but to get them there quickly.
A survey made by Data Insights last year found that 40% of respondents said they would not order online if the terms of delivery were “inconvenient.” “The geography of Russia has been more of a hindrance than a help so far,” says Mikhail Terentiev, Sova Capital’s head of research. “In Moscow you can promise to deliver goods in under
30 mins, but getting the same goods to some regional town or village is very hard and a lot more expensive. And most of the population live in the regions.”
“Russia’s new economy has reached a critical mass, where the leadingcompanies have gone from building up individual business lines to creating entire ecosystems”
solidation in the sector that will end with two or three very large players.” Russia’s advantages for a prospective e-commerce player is its widespread fast internet, the rapidly growing penetra- tion of smartphones and its very large population; Russia already has more people online than the entire population of Germany.
Russia Watcom shopping index (Moscow)
Residents of Moscow and St Petersburg, Russia’s two biggest cities that have bigger populations than most Central European countries, have been spoiled with super-fast, super-efficient express delivery services, but in the regions delivery times can stretch into days.
If the supplier is relying on the Russian post office then deliveries can take up
Source: Watcom
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