E-commerce and e-payment expert Anna Kuzmina:
“The Russian e-commerce market is very big, but not in the way it is usually assessed”
You’ve been an attentive observer of the Russian e-commerce scene over the past decade. How would you analyze its main trends?
The first generation of Russian online retailers appeared in the late 1990s-early 2000s. These sites included Ozon, Exist (car parts), Wildberries, B2B-Center as well as Yandex, Cyberplat, Mamba (dating)… They emerged almost as early as eBay in the West. Ozon was seemingly inspired by Amazon.
Around 2006-2013, new models emerged, which now appear as being closer to e-commerce standards. Typically, in 2011, Rocket Internet launched Lamoda, largely inspired by the Zappos model. Meanwhile, Amazon became a giant, but no Russian site had any comparable success even at the domestic scale.
Starting from 2014, new regulations have been proliferating in Russia as elsewhere. Meanwhile, most large Russian e-commerce companies, especially those of the first generation, still didn’t develop as fast as their Western or Asian peers, with the notable exception of Wildberries and of course Aliexpress. The latter is foreign but localized successfully — and in many ways gave birth to Joom and Pandao.
This was, in major part, due to legacy issues, or to the lack of ability to adapt to new market conditions, e. g. quick switch from context ads to influencer marketing. Thus, some companies are running on outdated models, while others have managed to adapt at least partially.
Among other sensitive problems are questionable financial management in certain companies, and poor capacities in terms of consumer studies — even though habits are changing fast in Russia.
We still see every year new projects emerge and quickly disappear, led by enthusiastic amateurs. This is good and bad news for established players: less competition, but also less market pressure to improve and optimize processes.
Note that the recent development of e-commerce services has been more impressive, generally speaking, than that of “classic” e-commerce. In the past years we saw the emergence of strong companies in the fields of meal delivery (with notable VC and M&A developments in spite of limited turnover so far); individual or shared services (Blablacar, YouDo…); e-learning (though at a slower pace); as well as online micro credit and SaaS services.
How would you assess the market’s growth potential?
Surely, there is an obvious potential ahead, given the relatively low e-commerce penetration in Russia compared with advanced countries. No doubt the market will grow considerably. However, one shouldn’t expect Russia’s 90 million Internet users to all become frequent online buyers. Many just don’t have money. For them, pricing — even a small price difference in the delivery fee — is a crucial factor. Product quality and service issues are perhaps secondary to many consumers.
This is one of the main reasons why AliExpress is so successful: they sell the very same Chinese-made products that were, in the past, sold on markets — but cheaper. Then, people will resell them on Avito or VK in what is not only C2C transactions. The purchases are paid in card-to-card transactions, or e-wallets, or even Apple Pay (which is fairly popular in large cities), or cash, or in even less transparent transactions.
Is this grey market significant in terms of volume?
It is huge, seemingly several times as much as the official e-commerce market of physical goods. From this point of view, the Russian e-commerce market is very big, but not in the way it is usually assessed.
Now that Bringly is filling this gap, what are its chances against the Chinese?
While Mail.ru Group has had a “join them” approach, making an alliance with Alibaba, Yandex has opted for a “beat them” strategy. But it will be a challenge to assert Bringly against the super domination of Aliexpress and its sister platform Tmall. If only they had launched Bringly five years ago!
This being said, Bringly has its chances to gain a significant market position, should they differentiate themselves radically from the product offerings of Aliexpress and Tmall, do smart marketing, etc. As we can see, they are actively starting with higher-quality products and Turkish/EU partnerships.
What about the classic Russian e-commerce sites with cross-border ambitions?
So far, none of the main ones (Ozon, Kupi, Lamoda. Wildberries) has succeeded in developing a significant cross-border business. The term “cross-border” has been used in many corporate announcements, but reality remains modest or inexistent. The reasons lie essentially in the strategic obstacle posed by Ali; in the complexity of cross-border business; and in the fact that locals already have to manage their own domestic headaches and legacies.
Can players from other countries also get in the game?
Japanese, South Korean, Vietnamese, Turkish players may come and find their niche — actually cross-border flows from these countries are already noticeable. French, Italian and American ones can also be in the game, even though they’re handicapped by the unfavorable exchange rate.
These players have several options to enter the market. They may come to the marketplaces Bringly or Aliexpress/Tmall — weakening or reinforcing Alibaba’s leadership — or to ASOS, Aizel or Wildberries in the fashion segment. As an alternative or complement to dealing with marketplaces, they may also choose their own website. But this is possible only if their brand enjoys some popularity in Russia, and if they have the budget and energy to localize or build their branded site. Some may bet on classic offline distribution.
ASOS, iHerb and Yoox are examples of foreign companies succeeding in Russia, due to the quality and uniqueness of their offer. They may not always need to complement their direct online sales with a marketplace. For example, why would iHerb need Bringly for the moment, if its own site has stronger traffic?
Other examples include Asian phone makers, which have started to sell directly, partly cutting middlemen: Lenovo, Xiaomi, and unfortunate Huawei & Honor (Huawei brand). And South Korean cosmetics, food and fashion makers — I’m a firm believer in their potential. Korean products already have brands, followers and trust, the rest is a matter of practical implementation — who gets them in and how.
It might sound counter-intuitive, but I believe anyone who wants to sell to Russia can succeed. There are no absolute obstacles — no local marketplace domination, no real or artificial walls. I’d even say it’s easier to penetrate the Russian market than to come to such markets as Dubai or China, where you need to have good local ally and face huge cultural differences. (See Section 2.3.4. “Is the Russian market open to foreign companies?”)
Interview conducted in May 2019
E-commerce and