24 May 2018
New Entrants Undeterred by Slowdown in Russian E-commerce Sector
While Russia's e-commerce sector only delivered half of its expected growth in 2017, Tmall and Yantex.Market remain keen to pursue their ambitious expansion plans, with both intent on becoming major players by the end of the year.
Despite its turnover reaching a record-breaking – and psychologically-significant – level of RUR 1 trillion (US$20 billion), growth in Russia's e-commerce sector slowed noticeably in 2017. Despite earlier predictions of growth of between 22-23% by the Retail Companies Association (ACORT), the Russian retail industry's trade body, the sector only expanded by 13% across the 12 months of 2017. For 2016, the comparable figure was 21%.
With e-commerce sales peaking in the first half of last year, the subsequent six months, in line with general retail receipts across Russia, suffered a 9% decline. Overall, household electrical appliances / consumer electronics were hardest hit by this decelerating growth rate, followed by computers, clothing and footwear. Perhaps counterintuitively, this stalling growth coincided with disposable income levels notching up a 10% rise in the latter half of 2017, a development seen as likely to have delivered a retail surge in the opening months of this year.
Some, however, have questioned the validity of the figures relating to the apparent slowdown. In particular, it has been suggested that they are not wholly-representative as they don't take into account many of the corporate e-commerce purchases, with the cited value of all such transactions just $600 million, a figure seen as a serious under-estimate. Additionally, it has also been alleged that the data, as compiled by ACORT, fails to properly allocate O2O transactions, instances where goods are purchased online then collected in-store.
Indeed, possibly supporting such scepticism, many the sector's major players recorded a sales growth well above the supposed national average. In more specific terms, electronics giant M-Video saw 41% upturn over the year, while Wildberries, the online fashion and accessories specialist, reported an equally commendable 40% uptick.
In the case of M-Video, there's a clear discussion to be had as to which sales should be allocated to the online channel and which should be recorded as in-store-derived revenue. This is largely because some 50% of the retailer's sales are now paid for online then collected in person at a convenient branch.
In terms of the overseas component of the overall e-commerce total, some 36% of all online transactions were conducted via a non-Russian platform, representing sales of about $8 billion. Of these, around 90% of all extra-Russian purchases were conducted via a Chinese vendor, with the EU as a whole trailing way behind at 3% and the US still further adrift at 2%.
Looked at in value terms, rather than in terms of the total number of transactions, quite a different picture emerges. In this scenario, China accounts for 53% of the total annual sales value, followed by the EU (22%) and the US (12%). Overall, though, one company stands as the indisputable leader in Russia's cross-border e-commerce market – AliExpress, with the Hangzhou-headquartered, Alibaba-owned online market processing 20 million Russia-sourced transactions last year, with an average receipt of $19.
In light of the success of AliExpress, it should come as no surprise that Tmall, the hugely-successful b2c retail site, which is also operated by the Alibaba Group, is now looking to make a similar impact on the Russian market. Last year, the company rented a 20,000 sq m warehouse at the South Gate Logistics Park, a facility set close to Moscow's Domodedovo Airport. Announcing a planned investment of $80 million into this new site, the company revealed ambitious plans to become one of Russia's Big Five e-tailers by the end of this year.
Despite being something of a newcomer to the Russian e-commerce sector, with the company only launching its first local operation in September of last year, some three years after AliExpress, Tmall remains optimistic that it can successfully play catch-up and capture a significant swathe of the market. In order to achieve this, it will leverage on the strengths of a number of its existing partners, including the Otto Group, the Hamburg-based online retailer, and LaModa, a Moscow-headquartered online fashion retailer.
With Moscow real estate agents having already announced that e-commerce companies accounted for 25% of demand in the warehousing facilities rental sector last year, that figure may be set climb yet higher following the announcement of a huge joint venture between Sberbank, Russia's largest bank, and Yandex.Market, the country's leading price comparison site. With the deal having already been given the go-ahead by the Russian Federal Anti-Monopoly Service, the two partner companies have an equal stake in an upgraded Yandex.Market platform, with some $1 billion in investment earmarked for its future development.
Ultimately, this well see Yandex.Market transformed into a comprehensive e-tailing platform servicing the 11-strong Commonwealth of Independent States (which includes Russia and 10 of the former Soviet Republics), Georgia, Estonia, Latvia and Lithuania. The all-new Yandex.Market is expected to make its debut at some point during the autumn.
In terms of opportunities emerging in the expanding Russian e-commerce space, any fintech company capable of developing systems that can integrate Chinese payment applications and clearing platforms with their Russian counterparts, particularly Yandex.Money and Yandex.Kassa, will find a ready welcome. As will any businesses developing and implementing new resources that could complement the existing home delivery, store collection and postomat automated locker options.
Leonid Orlov, Moscow Consultant