Cross-border e-commerce is a very hot trend in the Russian market today. People shop online more and more, and buying goods from abroad is not uncommon – for various reasons.
Russian e-commerce in 2013
According to the latest report from Data Insight, a Russian market research company and a source of invaluable data about Russian Internet industry, Russian e-commerce turnover in H1 2013 was at 160 billion Russian rubles (approx. 3,6 billion Euro / 5 billion US dollars), which is 29% growth comparing to the same period last year.
28 million people in Russia shop online today.
By far the largest category is consumer electronics. Clothes and sports-related products are growing very fast.
Cross-border e-commerce trends
Cross-border buying behavior in Russia was brought up in multiple sessions during recently held in Moscow industry conference Russian Internet Week. No wonder though, the niche grows at astonishing tempo of 100% per year, which is 3 times faster than Russian e-commerce in general.
According to the latest report from Data Insight, the turnover of cross-border e-commerce in Russia can reach 100 billion Russian rubles (approx. 2,3 billion Euro / 3,1 billion US dollars) by the end of this year.
Data Insight estimate that about 4 million people in Russia buy goods from China- , Europe, or US-based online stores. This is approximately 15% of all Russian online shoppers. These shoppers buy both abroad and in Russia. On average, they buy products from abroad about 4 times per year.
Image credit: Yandex.Market presentation at RIW 2013
Cross-border vs. local shopping
Cross-border e-commerce segment is growing very fast. Global players see astonishing growth in Russia – eBay sales increased by 100% during the last year, Alibaba – 4 times during the same period.
People shop abroad for various reasons, and the reasons vary depending on the country, but the main explanations for this behavior are:
– same products can be bought at lower price
– quality of products is higher in foreign stores
– foreign online retailers have better variety of products
– some brands and products are not being sold in Russia
– it is fun
Of course, language barrier is a large obstacle for cross-border shopping, as well as fear of buying from unknown stores, or not receiving the order, or receiving the order in bad condition.
Delivery is yet another hurdle of cross-border e-commerce. According to the research conducted by Yandex.Market, 70% of online shoppers are prepared to wait for delivery from abroad for one month, but in reality have to wait for up to 3 months to receive their orders.
Image credit: Yandex.Market presentation at RIW 2013
How the explosion of cross-border e-commerce affects local merchants
The most popular categories for cross-border shopping are the same as generally for Russian e-commerce. This means that Russian retailers that sell clothes, shoes, mobile phones and children’s products have to compete not only with each other, but also with American, Chinese and European giants. How does it affect the market?
I thought the best person to ask about this was probably Peter Prabhu from Interstice Consulting, who in in expert on Russian e-commerce, and has unique insights into cross-border shopping in Russia, since he is dealing with it every day.
P: Russians can buy from abroad (up to a limited value) for personal use without having to pay VAT and customs duties, so foreign companies enjoy an unfair advantage in this respect, but logistics and payments will continue to limit the effectiveness of cross-border sellers to Russia. The foreign companies need to localize their payment options, otherwise they are not addressing the mass market of Russians, at least for fashion goods where COD (cash on delivery) is the norm (however, it isn’t so critical with other products which are well specified like car parts and some electronics). Also, in many cases it’s not economical to drop ship from abroad due to high cost of shipping as a component of the total order value.
Russian-based companies are lobbying the government heavily to introduce more restrictive conditions on Russians shopping abroad, and it looks like the rules will change shortly. However, local retailers cannot compete with the range of products and scale of operations offered by foreign companies.
Note: Not many know, but local retailers get privileges from Russian-based media already today. For example, it is very hard to rank for commercial search queries in Yandex without having local contact information (!!!). Yandex.Market gives “priority” to the local sellers too, and even though foreign sellers can be listed on Yandex.Market, the Russian companies will get more exposure as “priority” goes before the bid.
A: What should a foreign retailer do to conquer Russia?
P: The US companies are already big players in Russia. Given that eBay claims direct sales to Russia last year were over $400 million, that would put them amongst the top e-commerce companies in Russia already, without even a localized presence. Now that their site is in Russian and they’ve established a local office, that number is set to skyrocket.
A lot of other big foreign companies are testing the waters by implementing Russian language versions of their sites, but to be fully functional in Russia, they also need to adapt their marketing to Russian media properties like Yandex and Mail.ru / VK, and offer customer service in the Russian language.
I imagine if the big players see some success in Russia, they will proceed to stocking more items locally to facilitate quicker fulfillment, which will of course create serious competition for the local merchants.