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Russian E-commerce Operators Set to Migrate to Marketplace Model

Platforms set to abandon own procurement with marketplace model seen as key to expansion and customer retention.

Photo: Online marketplaces: Consumer-wooing and high inventory costs-eschewing. (Shutterstock.com)
Online marketplaces: Consumer-wooing and high inventory costs-eschewing.
Photo: Online marketplaces: Consumer-wooing and high inventory costs-eschewing. (Shutterstock.com)
Online marketplaces: Consumer-wooing and high inventory costs-eschewing.

The marketplace model is set to dominate Russia's e-commerce sector, with many new entrants favouring the format, while several existing players are also gradually shifting in that direction. Over the long term, it's seen as a development likely to disrupt conventional supply chains, while allowing online sales to make further incremental gains over transactions conducted via more conventional channels.

Essentially, the marketplace model, which has already been wholly or partially adopted by many of the world's leading e-commerce sites, including Amazon and Tmall, sees the platform operator handling promotional activity, transaction-processing and delivery logistics, while the actual products come courtesy of a wide range of suppliers of varying sizes and specialties. This sees the third-party inventory either seamlessly integrated into the sales architecture of the platform or featured as part of a series of bespoke, separately branded, online mini-stores, all operating within the umbrella of the e-commerce master brand.

As has proven the case in many other parts of the world, the marketplace model has won over many Russian consumers, vendors and platform operators due to the intrinsic advantages it has over alternative online shopping set-ups, particularly those where the platform operator is also the sole vendor. Most obviously, for consumers, the marketplace model maximises the range on offer while keeping prices down due to multiple vendors competing for sales of the same – or similar – products. At the same time, the established logistics and transaction mechanisms of the platform operators help protect purchasers from individual rogue or fraudulent vendors.

From the vendors' point of view, the model offers a one-stop solution for promotion, transactions and fulfilment, all in exchange for an agreed commission on sales made via the platform. The platform operator, meanwhile, benefits from not being obliged to manage its own substantial product inventory, while the multiple vendors help drive traffic and build critical mass.

Already, there are a number of sizable Russia-based manufacturers / distributors that rely on e-commerce marketplaces for up to 70% of their sales. Naturally, due to their wide accessibility, another plus of such platforms is that they also attract buyers in neighbouring jurisdictions, including Central Asia and even Ukraine, with even its ongoing spat with Russia not deterring consumer purchases.

Given the advantages of such a set-up, it's not surprising that many of Russia's first-generation e-commerce platforms have also announced plans to move towards a more marketplace-oriented operational model. The most prominent of these is Ozon.ru, the Moscow-headquartered business that is Russia's longest-established and largest multi-category online retailer. Although it has publicly committed to the marketplace model, it is to retain a scaled-down procurement department for the foreseeable future. In truth, it's not a huge departure for the company, as it has a long history of extending its transactional and logistics facilities to third-party businesses both within and beyond Russia's borders.

More wholehearted in its commitment to the marketplace model is Tmall, with the Hangzhou-headquartered business poised to curtail its proprietary sales in Russia. At present, its Russian operation carries 30,000 consumer items, some of them on its own behalf, but many of them from third-party suppliers. It now hopes that, by withdrawing its own product lines, it will be able to attract a higher level of vendor and offer a far greater selection of items, models, variants, colour options and designs. Ultimately, its aim is to create a so-called "endless shelf", which would see it aping the winning formula of AliExpress, its stablemate, which currently tempts Russia's online purchasers with an inventory that runs into the millions.

Apart from such big mainland-based players as Tmall and AliExpress, Russia is also served by a growing number of domestic e-commerce players, all of which have embraced the marketplace model to a greater or lesser extent. Chief among these are two sites – Yandex.Market and Beru – which have close links to Yandex.ru, Russia's most popular search engine, the independently owned Wildberries.ru and Goods.ru, a platform developed by the M-Video-Eldorado consumer electronics chain.

Beru was launched last October as a joint venture between Yandex.Market and Sberbank, Russia's largest and oldest bank. It has sought to take on the many domestic sites that solely offer Russia-made merchandise by proactively sourcing from overseas suppliers. At present, it offers 100,000 product lines from about 1,000 suppliers. In order to compete effectively in what is already seen as a somewhat oversubscribed sector, though, it will have to drastically extend its product range, while further integrating the logistics solutions of its third-party suppliers and optimising its receipts and payments functions for both vendor and consumers.

Photo: Goods.ru: Winning sales through price comparison transparency.
Goods.ru: Winning sales through price comparison transparency.
Photo: Goods.ru: Winning sales through price comparison transparency.
Goods.ru: Winning sales through price comparison transparency.

Goods' USP, meanwhile, has been its integrated price comparison function, which allows browsers to identify the best offers available in real time – not only those from the site's parent company, but also out across the wider market. It also guarantees to deliver any ordered items even if the original vendor fails to honour its commitment. It's a combination of these policies that saw the site enjoy sales in excess of €100 million (US$114 million) in Q3 2018.

For Hong Kong-based suppliers and distributors, though, the rise of the marketplace format represents both an opportunity and a threat. The increased level of direct vendor access to consumers offered by such sites opens up the possibility, for instance, of them either opening bespoke online stores on their own behalf or in association with a Russia-based third party.

Less positively, the rise of the marketplaces could, over the long-term, disrupt a number of trading arrangements already in place. This could see exclusive agreements with sizable conventional retailers and hospitality groups undermined on account of the same products being widely available online at a lower price point. In light of this, it may be worth building an association with the relevant Russian marketplace operators as a bulwark against the day when conventional retailers inevitably begin to evaluate the viability of conducting their own sourcing activities via one of the burgeoning number of marketplaces.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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