COVID-19 crisis: a shot in the arm for Russian e-commerce

According to Reuters, COVID-19 crisis: a shot in the arm for Russian e-commerce.

GDANSK / MOSCOW (Reuters) – The coronavirus crisis has contributed to an increase in online shopping in Russia, putting even the remote icy expanse of Chukotka on the ecommerce map.

The windy region of Russia’s far east, where winter temperatures can drop below -50 degrees Celsius (-58F), has begun to thrive for online retailers since the pandemic began to keep consumers at home.

It is a trend that is happening all over Russia and is driving explosive growth for online retailers. Traditionally, they have been unable to deliver quickly in the largest country in the world, where roads have been clogged with ice and snow for months, and they have invested heavily in logistics centers and delivery points.

With foreign players largely absent, Russian companies cash in on online shopping spikes.

“It’s very convenient,” said Alina Lunina, an English teacher from the city of Samara who now buys clothes, books, makeup and sometimes groceries online.

She uses the Russian company Wildberries, which she says delivers to collection points within two days, even though Samara is more than 860 km from the headquarters in Moscow.

“There are many collection points in my area. It takes me five minutes to walk, ”she told Reuters.

The e-commerce boom is a welcome development for economists who say Russia is too dependent on oil and gas revenues, especially as retail, a gauge of consumer demand, plummeted as lockdown measures kept people at home at the outset of the pandemic – it killed more than 34,000 people in Russia.

(GRAPH: Russian Consumers Affected By COVID-19,)

According to research firm Data Insight, e-commerce accounted for just 1.4% of the Russian economy in 2019, compared to 2.6% in the United States and 5.1% in China.

“The Russian e-commerce market is growing significantly faster than in the United States or the largest EU countries, due to the low penetration base effect,” Boris Ovchinnikov, co-founder of Data Insight, told Reuters.

He estimated the market value in Russia for the first half of 2020 at 1.16 trillion rubles ($ 15.2 billion).

Analysts from market research firm Euromonitor expect annual online sales in Russia to grow more than 40% this year to about 2.5 trillion rubles and 10-15% per year over the next five years.

FRAGMENTATION

E-commerce penetration in Russia has increased from 7% of total retail sales in 2019 to about 11% in 2020, although that’s still less than in the United States, where penetration is about 19%, said Marija Milasevic of Euromonitor.

The Russian market is also very fragmented.

Privately owned Wildberries leads with 15% of the market, according to Data Insight, and Ozon, which has filed for an IPO in the United States, has 7%.

Behind them is AliExpress Russia, a joint venture between Chinese online shopping giant Alibaba and Russian partners. Other rivals include the Russian electronics company M.Video; Sbermarket, controlled by a joint venture between Russia’s largest bank, Sberbank, and Internet group Mail.Ru; and internet company Yandex.

Amazon did not enter Russia, where the country’s size – it has 11 time zones – and the competitive IT market are challenges.

“To cover at least two major cities in Russia, the company must invest heavily not only in delivery but also in storage to have enough goods to maintain the current level of quality,” said Sergey Belyaev of Sova Capital.

Amazon did not respond to a request for comment.

Wildberries, which said it attracted more than 12 million new customers to its website in the first nine months of 2020, has experienced spectacular growth.

April-October orders were up 490% in Chukotka, a remote region just across Alaska’s Bering Strait, where winters bring endless nights and temperatures below -50 degrees Celsius (-58 F).

Wildberries said orders also rose 385% between April and October in Ingushetia in the North Caucasus, and 239% in Buryatia, a region of Eastern Siberia.

The retailer, which claims to have more than 34 million customers, now has 13 warehouses and dozens of sorting and distribution centers across Russia that are shortening delivery times in the Far East and Siberia.

BIG CHALLENGES

Logistics and poor infrastructure are major challenges, but door-to-door couriers have boomed in major cities, with low labor costs helping businesses keep prices down.

(GRAPH: map of Russia,)

Wildberries customers can order items to fit in miniature sites spread over cities. Ozon manages a network of delivery boxes where customers can pick up packages.

Ozon said in March that it spent $ 300 million on logistics improvements and opened a logistics center in Rostov-on-Don, close to Ukraine, for same-day delivery.

In April-May, Ozon registered an 84% increase in new active buyers year-on-year, and regions outside of Moscow account for more than 55% of the gross trade value, company data showed.

As in other countries, online grocery orders have skyrocketed during the pandemic and the race is underway to shorten delivery times even further.

Yandex launched a service, Yandex.Lavka, last year to deliver groceries in 15 minutes. This followed its success with a food delivery service, Yandex.Eda.

Yandex.Lavka has small warehouses in Moscow and uses couriers on bicycles, electric bicycles or motorcycles. Monthly orders have increased from about 50,000 a year ago to more than 1 million, the company said.

Sbermaket said its orders in cities such as St. Petersburg, Yekaterinburg and Nizhny Novgorod were 15-17 times higher in the third quarter than in the first three months of 2020.

Sbermarket expects Russia’s e-grocery sector to continue to grow rapidly in the coming years, Chief Financial Officer Michael Loyko said.

Online grocer Utkonos, which reported a 65% year-over-year revenue increase in the third quarter, also said demand for delivery services is likely to continue to grow as consumers sample the convenience of online shopping.

Additional reporting by Andrey Ostroukh, Olga Popova, Nadezhda Tsydenova and Vladimir Sadykov, edited by Katya Golubkova and Timothy Heritage

© Thomson Reuters

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