East-West Digital News has just released an in-depth report on Russian ecommerce and e-payments (download: https://www.ewdn.com/ecomreport2/). Lead author Adrien Henni shares here the key findings of the study, highlighting the opportunities and constraints for foreign players interested in this market.
Russian ecommerce, which accounted for a bit more than USD 20 billion in 2018 (physical goods only, including cross-border transactions), is entering an accelerated development phase. The market is expected to at least double in the next five years, nearing the USD 50 billion mark.
Online purchases of services and digital goods are also growing fast: online travel sales were estimated between USD 10 billion and USD 15 billion in 2018, while gambling platforms generate USD 5-10 billion annually (including gray transactions).
Domestic Russian ecommerce market growth forecast. Source: Morgan Stanley
The Russian ecommerce scene remains fragmented, with domestic market leaders generating just around USD 1 billion or USD 2 billion in 2019. As no site has reached yet a dominant position like Amazon in Western countries, several major players – including Mail.ru Group, Yandex, Ozon, and Wildberries – are involved in a fierce race for leadership.
Considerable amounts are put on the table: the Mail.ru-Alibaba ecommerce joint venture expects to receive more than USD 400 million from its shareholders, while in 2018 Sberbank injected USD 500 million in Yandex’s ecommerce projects. On its side, Ozon has just secured a USD 154 million convertible loan from its existing shareholders, which include international private equity company Baring Vostok.
International openness
The market is open to international players. Pure player Lamoda, launched in 2011 by Rocket Internet, has become the leading fashion and lifestyle-focused ecommerce company in Russia, generating USD 463 million in sales revenues in 2018. That same year, IKEA was one of the fastest-growing Russian online stores (+366%) with a strong omnichannel strategy, while Hoff and Leroy Merlin achieved impressive performances both offline and online.
However, Otto Group, which used to be among market leaders, saw its online sales decline in Russia over the past few years. The German group even shut down some of its online properties in 2018. The cross-border segment is still dominated by AliExpress, but other companies can position themselves and succeed in a variety of market segments or niche. Western players saw their sales resume in the past two years after a setback in 2014-2016: for example, ASOS and iHerb attract around 1.5 million visitors each month, up 21% and 22% from September 2018 to June 2019.
A range of Turkish players are now entering the Russian market. Among them, in 2019, are Hepsiburada, N11.com, and Ziylan Group, with support from Bringly, the new cross-border platform launched by Yandex.
Personal data storage
While the majority of cross-border purchases are tax-free, the traditional hurdles – payments, logistics and customs – tend to disappear. However, the demanding Russian personal data laws has created new constraints: all companies, both domestic and foreign ones, must store the personal data of their Russian users or customers in servers located physically on Russian soil.
The Russian authorities, which have already blocked access to LinkedIn for not being in compliance, have announced that more and more attention will be drawn to the ecommerce sector with regards to this personal data storage legislation.
A lesser-known fact is that this storage requirement also applies to the personal data related to payment operations. This practically means your payment service provider must store Russian personal data in Russia, not in global servers.
Foreign e-merchants are encouraged to allow their Russian customers to settle their purchases using specific local payment methods – including such e-wallets as Yandex.Money, WebMoney, and Qiwi as well as the MIR national bank card.
The good news is that there are no specific security issues to deal with when working with Russian consumers, and that it is not necessary to offer them payment-on-delivery options for cross-border purchases, even though this payment mode is still often used for domestic purchases.
About Adrien Henni
Adrien Henni is chief editor at East-West Digital News (ewdn.com). With nearly 20 years of experience in the high-tech and venture businesses in France and Eastern Europe, he advises a variety of startups, investors, and other organisations. He is a regular contributor to industry publications and speaks at conferences across the world.
About East-West Digital News
East-West Digital News (ewdn.com) is a news, research, and event agency dedicated to tech innovation and digital industries in Eastern Europe. Through its news sites and industry reports, EWDN provides international audiences with updated information and deep market analysis. A consulting branch provides international players with assistance for market research and business development in the region.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now