As Prisync team, we are in the hunt of developments, trends and crucial insights from e-commerce markets all around the world. So, for this week we did research on Russia. But our focus is not the breaking news from the country, Vladimir Putin, Yelena Isinbayeva, Russian Vodka or climate change. It is just the e-commerce market. We tried to put together a compact piece with specific points from the market.
Still an infant: Russian online retail market
By all means, Russia’s e-commerce is still in its infancy. Russia carries a very big crowd of Internet users but this crowd is not converting into online-shoppers as fast as expected. According to the CEO of OZON, the transition from an Internet user to an online shopper certainly takes some time. But still, the Russian online retail market is a very strong candidate to become one of the most important in the continent in a few years. The online marketing expert Bas Godska states that we can draw conclusions from the 2008 crisis. He says; [the crisis] taught me one assuring thing: e-commerce is here to stay and suffers less from a shrinking market than traditional retail. Russia’s infant online retail market enables businesses to implement their own technologies and also has room for advancements in technology concerning both current and future needs. This freedom for innovation promises serious opportunity for every business. Even the fact that Russia has started from a cash-based economy and moved onto electronic-based transactions shows that there are still lots of potentials to introduce new payment means as Vladimir Grankin mentions in the report. For the foreigner investors and entrepreneurs, it is important to be focused and committed to the country and to research, learn about the local conditions and if possible to be present in the country.
30 million shoppers; $16.5bn sales
Before going deeper, it is crucial to know about the key figures regarding the market. %23 of the Russians, which is about 30 million, shopped online in 2013. The total market size is $16.5bn. $11.5bn of it was spent on physical goods while the whole market is constituted of physical and digital goods which include tickets, B2B sales, coupons but not hotel bookings. The cross-border sales are about $3bn. The average money spent on physical goods only is $390 per year whereas the whole average spending is $550. Online retail market of Russia has grown by %25 annually and it currently constitutes %2 of the total retail market. Insales.ru, a major e-commerce software provider based in Russia, counted 39.000 internet shops up from 32.500 in 2012 of which less than 20 made $100m or more in sales (physical goods only).
According to the report, until now the annual growth rate has been %25 per year in the Russian online retail market, but it is expected to continue with lower rates because of the macro-economic dynamics. The online retail wind has definitely affected the Russian market and turned offline retailers and manufactures into major e-commerce players. On the other hand, the cash-on-delivery system is still a necessity even though there is a slow increase in electronic-based payments. This trend seems like a hard one to evolve. Another problematic aspect of the Russian online retail market is the lack of qualified human capital for the Internet sector. It is a crucial point for the improvement of the sector. Internationally speaking, there is a little point to mention for foreign e-merchants. The cross-border sales are increasing at a high rate focusing on China mostly. This might be a challenge for other foreign e-merchants while adapting their business to the Russian e-commerce market.
A fragmented yet huge online population
In 2014 the internet users which were connected on a daily basis were 58 million people, %50 of the adult population. There is an imbalance between the cities such as Moscow versus Irkutsk but the average internet penetration is %58. This changes from region to region because of various reasons such as standard of living, purchasing power, Wi-Fi access, computer and internet knowledge.The behavioral patterns show that 5 types of goods and services are in most demand. They are beauty services, entertainment, sports, dining and travel. These patterns can vary in different population groups such as age, education or gender-based.According to the surveys, lower prices, easier delivery and simple comparisons are more preferred by online shoppers. The delivery system is a sensitive factor which can affect different socio-geographic groups. For example, people who live in the capital city and the largest cities do more online shopping because the deliveries are quick. The other sensitivity is focused on the price issue. Online shoppers are very sensitive to price and product information when they are shopping online. Pricing, delivery options and product information are highly important when it comes to online retail market and they might cause great dissatisfaction.Russia’s e-commerce market has great potential and if growth can continue a few factors may help the market reach its own potential:
- Internet growth and penetration to Russian regions; e-commerce markets
- New payment technologies like e-signature
- Infrastructure becoming more fulfilled.
Through these steps, the delivery costs can be cut down and the scope of e-commerce can extend to every region in Russia and be more accessible.
Source: East-West Digital News; E-Commerce in Russia