New EWDN study: Cross-border sales still growing fast, Chinese players invading the market

In spite of the ruble’s fall, market volumes are expected to increase by at least 50% in value, and by 75% in the number of parcels, to around USD 5 billion in 2014, with ecommerce remaining one of the few growth drivers of the Russian economy.

A detailed study by East-West Digital News, with the participation of Ernst & Young, PayU, Qiwi and Yandex, industry association NAMO as well as dozens of industry players including Alibaba Group, ASOS and eBay, reveals the following key trends:

• The substantial combination of AliExpress and Chinese eBay sellers has driven China to become the dominant force on Russia’s cross-border market – representing around 70% of parcels in 2014, up from 40% in 2013. The low prices of Chinese-made goods and the assortment made available on such a huge platform as AliExpress are ultimately the biggest attractions for Russian consumers.

• On the Western side, the market is growing more slowly in 2014 due to the ruble’s fall (-50% vs the USD since early 2013) and a shift in the behavior of the most patriotically-oriented Russian consumers. While competition is becoming more acute, Western retailers are witenessing a variety of situations, from continued sales growth to stagnation or even a decrease for the most exposed players.

• On the Western side, the market is growing more slowly in 2014 due to the ruble’s fall (-50% vs the USD since early 2013) and a shift in the behavior of the most patriotically-oriented Russian consumers. While competition is becoming more acute, Western retailers are witnessing a variety of situations, from continued sales growth to stagnation or even a decrease for the most exposed players.

• Relatively few foreign online retailers have made localised interfaces and payment options available to their Russian consumers – which make the shopping experience more comfortable and purchases more appealing. For example, by allowing their customers to pay by cash upon delivery – which is the rule on the domestic ecommerce scene – some pioneering foreign players have seen their sales double.

• Shipment via postal operators may take weeks or even months, but the Russian Post’s service is improving slowly. Global carriers such as DHL Global Mail, TNT Post and UPS are being challenged by a new generation of Russian companies (e.g. Boxberry, CDEK and SPSR). Not only do these local players offer quick service at competitive prices, some of them manage customs processes with superior efficiency, avoiding the service interruption which affected international carriers in early 2013.

• While most shipments are currently tax-free, the expected changes in the customs legislation should be extremely mild in spite of the intense lobbying efforts of some domestic players. Meanwhile, customs procedures are being simplified progressively with the introduction of electronic declaration and other novelties.

• While Russia is commonly associated by foreign operators with a high level of such payment issues as fraud and refusals, the data and expert opinion collected by East-West Digital News do not support this view. “The Russian market is not that different than any other market when it comes to the card payments main indicators, be it fraud or the decline rate,” write Steven Mandurano and Nicolas Vedrenne of the Merchant Risk Council (MRC). Even more surprisingly, “the level of fraud-related losses in Russia is four times lower than in the US and Western Europe,” notes Elena Orlova, General Manager of the Russian branch of international PSP PayU. However, according to Euromonitor data, loss tocard fraud reached EUR 104 million in 2013 in Russia, up 27.6% from 2012 – which is among the highest growth rates in Europe.

• Many foreign retailers and their service providers are concerned by new rules on personal data storage, which will be allowed only on servers physically located in the Russian Federation starting from 2016. These rules may entail significant technical and organizational challenges and costs, as discussed in the report by E&Y analysts.
   

• As for Russia’s domestic online retail market, the EWDN-Data Insight expert pool expects it to reach approximately USD 18 billion in 2014, up 25% in RUB and 12% in USD from 2013. This growth rate is lower than during the previous years – but still significant given the current quasi stagnation of the Russian economy. Long-term expectations are still high, with the full potential of the Russian ecommerce market far from being tapped. Growth will be fuelled by the growing internet and ecommerce penetration in the regions, wider use of online payments and electronic signatures, and further development of the fulfillment infrastructure in remote areas. The domestic segment could thus reach or exceed the USD 100 billion mark within 10 to 15 years.

About EWDN’s study: This report is part of a pioneering research program covering the Russian and Ukrainain ecommerce markets, which has involved more than 100 market players and service providers as well as experts from leading universities and consultancies. In addition to a full set of market data and forecasts, these studies include practical recommendations to ecommerce players in the fields of marketing, payments, shipment and deliveries, as well as little-known legal and HR challenges.

About East-West Digital News: East-West Digital News is the first international information company dedicated to digital industries with a focus on ecommerce markets in Eastern Europe. Its websites EWDN.COM and UADN.NET provide news, market data, business analysis and updates pertaining to the internet, ecommerce, mobile and telecom industries, digital TV and satellite systems, software and hardware innovation, as well as to related investment activity and legal developments. For more information, please contact Chief Editor Adrien Henni editor@ewdn.com.

To receive an executive summary at no charge or interview leading market experts and players, please email to report@ewdn.com.