AND PRESENT NAMO (National Association of Mail Order and Distance Selling) E-Commerce in Russia E-COMMERCEWhat brands, entrepreneurs and investorsIN RUSSIA need to know What internationalto succeed merchants, in one of the service world’ providerss hottest andmarkets entrepreneurs must know to succeed in a fast-changing market MARKET INSIGHTS – MARCH 2016 R E S E A R C H P A R T N E R S NAMO National Association of Mail Ordering and Distance Selling E-COMMERCE IN RUSSIA About this report This report is offered by East-West Digital News, the international resource on Russian digital industries, in partnership with Yandex. It reflects a monitoring and research effort which has been conducted with dozens of industry players and experts since 2011. Companies interested in this market may request more detailed data and analysis, or strategic advice, which East-West Digital News and its associated experts will provide on demand. Please send your inquiry to [email protected] About the publisher East-West Digital News is the first international information company dedicated to Russian digital industries. EWDN.COM provides news, market data, business analysis and updates pertaining to the Internet, e-commerce, mobile and telecom industries, digital TV and satellite systems, software and hardware innovation, as well as to the related investment activity and legal developments. A consulting branch, East-West Digital Consulting, provides international players with assistance for business development in Russia and advises Russian companies on their international strategies. For more information, please contact us at [email protected] Copyright policy The content of this report is protected by copyright. Individuals and organizations can, without prior authorization and free of charge, copy and publish without limitation extracts in the form of quotes. East-West Digital News must be clearly indicated as the source with the following link: http://www.ewdn.com/e-commerce/insights.pdf To copy and republish very large extracts, or the full report, or for other editorial cooperation opportunities, please contact us at [email protected]. Advertising, sponsorship and distribution opportunities This report is a great support to raise your company’s profile and promote its services in Russia and internationally. To inquire about advertising and sponsorship opportunities, or if your would like to get involved in the distribution of this study, please contact us at [email protected]. 2 E-COMMERCE IN RUSSIA Table of contents Key market trends and figures 4 Market insights 7 1. The Russian Internet market 8 2. The domestic online retail market 11 3. Cross-border sales 19 4. Investments in Russian e-commerce 23 5. Operations 25 6. Legal aspects 27 7. HR: The most painful issue 28 Interviews 30 International e-marketing expert Bas Godska 31 Radius Group Managing Director Chris Van Riet: 33 B2B-Center.ru CEO Alexey Degtyarev 36 Select articles 41 Russian e-commerce in crisis: Molotok shuts down, Mamagazin suspends activities 42 Ulmart sees sales slow down amid the crisis but confirms western IPO plans 45 In 2015, KupiVIP saw its sales revenue increase by 50% and became “fully profitable” 47 Loyalty program, mobile payments, personal data storage: AliExpress to conquer Russian e-commerce on all fronts 49 JD.com launches Russian site as first step to global expansion 52 Russia’s B2B-Center and China’s XBNiao team up in cross-border B2B trade 55 Russians may order embargoed food products through foreign online stores 56 Personal data storage law comes into force as some key players still not ready 57 Select industry events 59 Download EWDN’s free report on Russian e-commerce: E-commerce in Russia (English): http://www.ewdn.com/e-commerce/insights.pdf E-commerce in Russia (Chinese): http://publications.ewdn.com/china-russia Personal data storage in Russia (English): http://publications.ewdn.com/personal-data-storage 3 E-COMMERCE IN RUSSIA KEY TRENDS & F I G U R E S To request more detailed data and analysis, or strategic advice, on the Russian e-commerce market, please contact East-West Digital News at [email protected] 4 E-COMMERCE IN RUSSIA Key trends and figures About R U S S I A N 30 million E-COMMERCE online shoppers I N 2 0 1 5 generated an estimated 148 million orders Sources: Data Insight (domestic market) and NAMO (cross-border) unless otherwise stated Total market size for physical goods: Domestic sales of Domestic market: physical goods, not including cross-border +16% in rubles 650bn rub. sales; food deliveries, C2C, – 28% in USD ($10.5bn) MLM, tickets, coupons, etc. or of the total Russian approximately 2% retail market Average Approx. Cross order 4,050 rub. -border sales: value ($65) + $3.4bn from 2014 Up +55% in value 5 E-COMMERCE IN RUSSIA Key trends and figures KEY MARKET TRENDS The domestic market slightly grew in 2015 in real terms 1 with certain segments severely affected by the crisis Becoming more mature and competitive, and facing a less 2 favorable macroeconomic environment, the industry is now entering a period of optimization and consolidation. Some pure players are still witnessing fast growth, while 3 others are facing financial difficulties with some even going bankrupt. Most major offline retailers and manufacturers keep 4 developing online and mobile sales channels and the 4 related infrastructure. Since 2014, venture investment activity has decreased 5 considerably – but some investors are still interested in e-commerce related services. Most large and mid-sized cities are served by shipment 6 companies in satisfactory conditions, while the Russian Post is reforming itself to improve service. Cash-on-delivery is the rule for physical goods and will 7 remain so for a long time, even though the use of electronic payments is increasing slowly. The lack of qualified human resources appears to be 8 one of the most painful issues, hampering the entire Internet industry. Cross-border flows from China are increasing dramatically 9 while most western online retailers have seen their sales to Russia fall due to the ruble’s depreciation since 2014. 6 E-COMMERCE IN RUSSIA MARKET INSIGHTS To request more detailed data and analysis, or strategic advice, on the Russian e-commerce market, please contact East-West Digital News at [email protected] 7 E-COMMERCE IN RUSSIA Market insights 1. The Russian Internet market 1.1. Internet penetration Russia, which lagged far behind most other European countries in terms of Internet penetration in the recent past (with a 37% penetration rate in 2010), has been catching up rapidly over the past few years. In late 2015, according to a GfK poll, Internet penetration exceeded 70%, with 84 million Russians aged 16 or more — up 4 million in one year — declaring that they use the Internet. Much of the growth can be attributed to mobile connectivity. According to GfK, mobile Internet access in Russia more than doubled during the year. By the end of 2015, 37.5% of users 16 and older went online by way of their phone and 19.5% from tablets (up from 17.6% and 8.4%, respectively, in 2014). Thus approximately 50 million Russian users (42% of the adult population) accessed the Internet from mobile devices as of late 2015. 1.2. Regional contrasts Russians in bigger cities and primarily Moscow are more practiced Internet users. The Internet penetration in Moscow exceeds the country average and has a significantly higher mobile and tablet uses than other areas. Russians from places with smaller populations are less practiced Internet users but the regions are slowly catching up with larger cities thanks in large part to mobile accessibility. Often the lower costs of mobile connectivity encourage Internet use.1 Among the key factors explaining these regional contrasts are differences in the standard of living, purchasing power and development of broadband and wireless Internet access, as well as computer and Internet literacy. In 2015 almost three quarters of all Russian Internet users lived in the European part of Russia. 1.3. Russian audience worldwide Total Russian-speaking audience nears 110 million users, taking into account an approximate 25 million Russian-speaking users in the former Soviet republics, Western Europe, Israel and North America 1. http://russiansearchmarketing.com/everything-mobile-devices-platforms-and-cost-of-connectivity-in-russia-2015/ INDUSTRY ANNOUNCEMENT Managing E-Commerce Operations in Russia 20 events each year in Moscow http://business-breakfast.ewdn.com 8 E-COMMERCE IN RUSSIA Market insights Internet penetration in Russia (16 y.o. and older), 2008-2015 Types of Internet use by age in 2015 Mobile Internet penetration (16 y.o. and older), 2013-2015 Source: GfK Omnibus survey 2015, all Russia, 16+ 9 E-COMMERCE IN RUSSIA Market insights Distribution of Internet users by federal district (spring 2015) ! Source: FOM ADVERTISEMENT WITH THE SUPPORT OF PERSONAL DATA STORAGE IN RUSSIA PERSONAL DATA STORAGE IN RUSSIA What international businesses should What international businesses should know to organize data transfer to Russia and maintain ongoing compliance with Russian law know to organize data transfer to V1.1 – APRIL 2015 Russia and maintain ongoing compliance with Russian law A comprehensive analysis by East-West Digital News with EY’s top legal analysts and key market players Request your free copy at [email protected] 10 E-COMMERCE IN RUSSIA Market insights 2. The domestic online retail market 2.1. Market size and 2015 trends With 160 million small packages and parcels sent to online consumers in 2015, up 10% from the previous year, Russia’s domestic online retail market grew in real terms. It also grew in rubles, reaching some 650 billion (+16%), with an average order value amounting to some 4,050 rubles (up from 3,750 rubles in 2014), according to Data Insight.