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28 I Cover story bne November 2020
Russian e-commerce market RUB bn
most of the networks are relatively new and companies have gone straight to state-of-the-art solutions. Broadband use is widespread.
Russians have been trading in their dumb phones for smartphones, with sales of the latter continuing to grow in double digits. Today more than a third of all phone calls are made by one of
the messaging services and the mobile phone operators made more money from data services than voice for the first time several years ago. Even the Moscow Metro is about to introduce face recognition technology to do away with tickets alltogether.
The switch from traditional bricks and mortar stores to “click-and-order” stores was always going to resemble a hockey stick. As Russian online pioneer Oskar Hartmann, the founder of online fashion store KupiVIP and an ethnic German born in Kazakhstan, told bne IntelliNews in
a 2012 interview, once online sales move beyond the “consumer commodities” of airplane tickets and paying phone bills it still takes several years for punters to get used to buying other goods online.
Hartmann predicted in 2012 that “by 2020, the e-commerce economy should be of the order of $50bn to $80bn,
Source: Sova Capital
to two weeks.
To get round the problem most Russian online stores have long ago committed themselves to building their own distribution systems. One of the reasons for the success of Russia’s market e-commerce market leader Wildberries has been huge investments it has put into its own delivery system. Ozon, one of the other biggest players, was a little slower to roll out a federation-wide distribution system, but it is closing the gap rapidly.
“One of the main obstacles for the growth of the Russian market in the past was the lack of sufficient logistic infrastructure, especially in Russian regions,” says Mustiatsa. “This why Russian online retailers have been increasingly relying on their own infrastructure.”
Hockey stick growth
analyst at Sova. “That means online is also good for traditional retail chains that are adding online channels to their sales.” Now they have the habit of shopping online these new customers are unlikely to go back to visiting bricks and mortar stores any time soon, say the analysts. This is a structural change in the way retail is done in Russia and is a permanent change.
“There is vast room for structural growth and market consolidation,” says Mustiatsa. “This year Russian online retailers received a boost from the lockdown. They e-commerce market
“This year Russian online retailers received
a boost from the lockdown. They e-commerce
market could reach RUB2.5 trillion ($32.6bn)
E-commerce was already expanding at ten times the speed of the real economy before the coronavirus (COVID-19) pandemic swept through Russia, but
it is growing even faster now.
While lockdowns forced people to turn to their computers and phones to buy groceries, one of the lasting changes will be the number of new customers the lockdown has brought into the market.
“You are not necessarily cannibalising traditional retail, but gaining new unique customers who have never shopped online before,” says Artur Galimov, a retail
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in 2020”
could reach RUB2.5 trillion ($32.6bn)
in 2020, with e-commerce penetration rising to 9%, according to Data Insight estimates. This effect is likely to be long-lasting due to the inflow of new customers into retail and the increase
in the frequency of orders. The market should be able to grow at compound average growth rate (CAGR) of 3% or more for the next three years or so.”
Part of the change has been driven by the rapid growth of smartphone penetration. Internet speeds are fast in Russia, as
depending on supply, and fashion sales will account for about $15bn of that." Not a bad guess. And if you take into account that the ruble unexpectedly halved in value in 2014 then this year’s online turnover is almost in the middle of Hartmann’s range in ruble terms.
Winner takes all
The business has now entered a new phase where being big has become
a serious competitive advantage. E-commerce is becoming a winner-takes-