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Record Growth Sees Russian E-Commerce Enter More Mature Phase

With online sales surging 44% year-on-year in the first six months of 2019, confidence in the sector is soaring.

Photo: Wildberries: Currently delivering one in three of all Russian e-commerce purchases. (Shutterstock.com/Arsenie Krasnevsky)
Wildberries: Currently delivering one in three of all Russian e-commerce purchases.
Photo: Wildberries: Currently delivering one in three of all Russian e-commerce purchases. (Shutterstock.com/Arsenie Krasnevsky)
Wildberries: Currently delivering one in three of all Russian e-commerce purchases.

Russia's overall number of online purchases rose by 44% year-on-year in January to June 2019, the fastest level of growth in the country's e-commerce sector ever recorded. Overall, over the same period, the value of the sector grew by 26% to a total of US$13 billion, according to figures recently released by Data Insight, a specialist, Moscow-based e-commerce research agency.

Russian consumers placed 191 million orders online in the first six months of the year, a figure roughly equal to the whole of 2016. The agency's findings also indicated that much of this growth has been driven by the two established market leaders in Russia's e-commerce sector – Wildberries and Ozon.ru.

Although both are enjoying similar success, the two companies are very different propositions. Moscow-headquartered Wildberries has remained a private, family-owned business, while Ozon.ru, although again operating out of the capital, is jointly owned by the AFK Sistema Group, a major Russian conglomerate, and Baring Vostok Capital Partners, the country's largest independent private-equity firm.

For its part, Wildberries processed 65 million orders in the first six months of the year, double the volume of transactions in the same period a year earlier. Essentially, this equates to one in every three online purchases made by Russian consumers being handled by the company.

Its dramatic growth is seen as being down to, in part at least, a dramatic expansion in the range of products it has on offer. This has been bolstered by the huge expansion of its collection point network, which has surged to more than 5,000 from 1,600 at the end of 2018. At the same time, the company has boosted profitability by cutting the commissions payable to suppliers. Over the near-term, it is now projecting a turnover in excess of $3.3 billion, with its number of collection points climbing to some 7,000.

Over the period in question, Ozon.ru handled 11.5 million orders, an 80% year-on-year uptick that took its six-month turnover to $500 million. This saw the company process an average of 62,100 orders a day.

As to the future, the company remains confident its growth momentum will be sustained throughout the rest of the year, believing its improved logistics offer, new services and expansion into previously underserved regions will all serve it well. More generally, it also sees the upbeat sentiment that currently characterises the market, as well as the ever-higher levels of broadband and 4G penetration throughout Russia, as likely to ensure the continuing growth of the sector as a whole.

Indeed, looking at the overall market, the survey also highlighted another significant development – the growth of the country's two e-commerce giants has not been at the expense of the smaller operators or the more niche players. As testament to this, the combined growth across all of Russia top 500 e-commerce platforms was recorded at 21% for January-June this year, a sizable increase on the 14% recorded for the first six months of 2018.

In another positive move, individual Russian consumers now shop online with increased frequency. In line with this, the number of shoppers making 15 separate purchases a year has grown 25%, while consumers also tend to buy more items per visit, typically combining products from three or four different categories.

According to Wildberries' own data, the average shopper is now placing 8% more orders than they were 12 months ago. The downside of this, though, is that the amount spent per purchase session has decreased by 14%, with the average online checkout basket now valued at about $55.

For most Russian consumers, e-commerce is now an everyday reality, a development that is largely down to improved, customer-friendly services, largely delivered to a consistently high standard, on the part of the principal players in the sector. With such firm foundations in place, the developments expected over the next 12 months – including enhanced O2O collection point convergence and the implementation of a wider range of digital payment options – seem certain to facilitate both accelerated growth and wider penetration.

With Russia's e-commerce sector clearly entering a more mature phase, this is a development that shouldn't be overlooked by Hong Kong-based manufacturers and distributors. Far from being a useful add-on to their existing conventional retail supply agreements, it could be that the online purchase channel – in certain product segments at least – is now set to go centre stage.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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