21 April 2016
Niche Sectors and Low Commissions Bolster Besieged Russian E-tailers
Domestic players look to online alcohol sales and third party deals to stave off Chinese competitors.
With many of Russia's e-commerce players left reeling from the inroads made locally by a number of China's leading online trading platforms – notably AliExpress and JD.com – these domestic providers have increasingly looked to super-serve various niche sectors. In particular, they have turned to trading in alcohol, medicines and adult goods, areas as yet untouched by the mainland interlopers.
In the case of alcohol, however, online trade in this was officially banned back in 2007 as part of the same tranche of legislation that restricted casinos to solely operating in designated zones. Given the changes to the realities of digital retail in Russia, however, the legislative bodies are now facing pressure to relax the rules relating to the online trade in alcohol. If, as is anticipated, such sales are again permitted, it is expected that a number of restrictions will still apply. These will include a requirement for special licences, a ban on late night sales and an insistence on the introduction of a range of age verification protocols.
Even should such measures get the green light, alcohol sales will still not be completely virtual in nature. Indeed, all actual pick-ups will have to take place in person and only at certain designated collection points. Despite these limitations, any such change in legislation could prove a lifeline for both ecommerce companies and smaller suppliers in the alcoholic beverages sector, with many of the latter ill-equipped to compete with the national chains and garage forecourt outlets.
For its own part Ozon.ru, the online trading company frequently seen as Russia's answer to Amazon, has found other means to remain competitive with many of global players entering the local market. At present, it is prioritizing its cross-border trade in high-end and mid-range European garments and footwear.
As an incentive for European suppliers, Ozon works on a flat 5% commission rate per transaction for the provision of its promotional and logistics services. This sees all such suppliers guaranteed delivery to any address in Russia within three weeks, with all handling services and customs requirements managed by the Russian e-giant.
This approach partly explains why Ozon's sales grew by 33% last year, despite the vastly increased level of competition in the sector. For 2016, it is anticipating growth of 25%.
At present, the site is said to attract some 11 million unique users per month. Overall, Ozon recorded five million transactions last year, relating to 23 million individual items. The average level of each transaction was US$45. In addition to product sales, the site also facilitates the booking of airline and train tickets.
Overall, the rapid growth of the ecommerce sector in Russia has been attributed to three key factors. Firstly, the country's per parcel duty free allowance remains substantially higher than in any EU country. Secondly, many of the country's e-commerce platforms have proved more than willing to work with third parties at a comparatively modest commission level. The final fillip has come courtesy of the Russian Post, which is now said to offer a range of considerably improved services, while still retaining a low fee base.
Leonid Orlov, Moscow Consultant