Retailing is a concept that keeps evolving from decade to decade as per the changing consumer demand, but we can all agree there has been nothing more paradigm-altering than e-commerce. Although a buzzword for several years now, e-commerce has grown to become the all-encompassing choice for shopping for the likes of electronics and mobile phones to the smallest of trinkets and luxury clothing.
Russia, an economy that is one of the more obscure ones, has recently found its niche in the rising need and popularity for e-commerce, especially in the field of apparel as is reflected by the growth statistics. In 2019, Russian apparel e-commerce soared 20 per cent and was expected to rise 25 per cent to US $ 6 billion in 2020, according to Euromonitor International. Of the total clothing market, online apparel accounts for 13 per cent in Russia which seems to be comparable or faster in growth as opposed to other e-commerce rich countries with US charting 13 per cent, UK at 11 per cent and China at 13 per cent as well. However, these were the estimates before the onset of the pandemic, but the thing to note is that this crisis seems to have fuelled the e-commerce industry even further.
With its share of impediments as new consumers make a reluctant switch to online channels and foreign companies vying to be the first ones to claim their share in a market that has all the potential to be a lucrative one, the question that looms large is if the rising Russian e-commerce market will boom in the aftermath of a catastrophe.
Also Read: It’s not easy selling apparels digitally
Setting the wheel in motion
The key to the surge of e-commerce in every nation has been the ready acceptance of the format by consumers. Unfortunately for Russia, shopper and market nuances including a dislike for prepaying for goods (preferring to see the items in hand before agreeing to payment), price sensitivity and poor local delivery options have not only deterred foreign brands from launching e-commerce operations, but have also kept the shoppers at bay due to deficient product and brand offerings.
However, in the last 5 years, the trend in cities like Moscow and St. Petersburg is rapidly changing, as more and more millennials turn to e-commerce, especially during COVID-19, which has boosted penetration among sceptical older consumers and outside luxury clusters of the two main cities. In keeping with this, Prada announced the launching of its Russian online counterpart next quarter and Louis Vuitton opened for business online late last year.
Having said that, the lower share of brands tapping the market has somewhat created room for domestic e-commerce platforms like luxury department store Tsum and online multi-category retailer Ozon to spread their wings.
Ozon, one of the biggest e-tailers in the country, announced that its sales grew 115 per cent year-on-year in the first quarter as coronavirus lockdown restrictions boosted e-commerce. Sales in the first 3 months of 2020 were up to 31.6 billion rubles (US $ 458 million), which entailed that the company had delivered 13.4 million orders over that period. “In March, the number of new customers shopping at Ozon doubled from the previous year, and then doubled again in April compared with 2019,” the company reported in a statement.
The same is the case for Tsum which launched e-commerce in 2011, but 6 years later, it represented just 10 per cent of total sales. That’s tripled to 30 per cent by the beginning of 2020. Notwithstanding, Alexander Pavlov, Vice President of Russia’s largest luxury retailer Mercury Group and Chief Operating Officer of Tsum, still conveys the problems they are regularly faced with, “Even today, after two months of COVID-19, people haven’t overcome the fear or reluctance to go online because they don’t know how easy it is. It is our job to show them,” he told Vogue Business.
Overcoming hindrances and peeking into the future of Russian e-commerce
It is inevitable for a market of such magnitude to be without its set of challenges, and the Russian e-commerce industry is no different. The true potential, however, lies in how retailers rise to combat these obstacles to have the market rise to what it’s worth.
Reassuring uncertain first-time online shoppers has been core to Tsum’s growth. It has hired extra customer service staff during lockdown to advice clients on online purchases over the phone, from fabric details to fit. Pavlov says, “If you are an offline customer, you are used to having direct contact with a person you trust.” While it may seem a ‘been there, done that’ moment for most, it is the extra perks that will get the Russian consumer going. The retailer also offers same or next day delivery with try-before-you-buy services, especially aimed at older clientele who do not like to buy things on credit.
This brings to notice a new customer segment that brands and online retailers want to shift their focus to – the 40 plus consumer with deeper pockets than the millennials. Tsum’s extra services might be falling to be a tad costlier, but give it an edge over international luxury players with their costly shipping.
International brands need to build their own logistics operations domestically to compete with local players’ sophisticated delivery and returns systems. Russians are used to convenient services and are unlikely to shell out extra bucks for delivery, buy without trying on, and wait for a long delivery.
Tatyana Bakalchuk, Founder & CEO of Wildberries, Russia’s biggest fashion portal confesses to having to break down stereotypes and gain the trust of customers from scratch. Wildberries’ 2019 sales rose 94 per cent last year, and since April, the number of new customers has more than doubled as compared to the same period last year, with increased penetration among consumers over 55 and consumers outside of the main cities amidst COVID-19.
In fact, the retailer which stocks popular names in fashion like Mango and Levi’s along with Moschino and Versace is instilling the faith for prepaid orders in Russians, as the pay-upon-receipt model became redundant once the outbreak hit the country.
Ingenico, a France-based payments giant, revealed that within 18 months of going live, its Russian Payments Solution has outperformed all expectations with impressive payment volumes and customer adoption. It is now one of the fastest growing payment offerings from IngenicoePayments, providing unique local acquiring and payment capabilities for international businesses selling online to Russian consumers in digital goods, retail, travel and more.
The examples of the burgeoning market and success of e-commerce platforms are far and wide in the recent past of the country. They all convey the fact that Russia has come a long way from being an unfavourable ground for international players to enter the online sphere. Payment systems are revamping the way consumers shop, while brands up their game to make the experience smoother than ever, with safety measures in mind. It is, no doubt, the beginning of a new phase for Russian e-commerce, one that was brought on by no less than a pandemic, but is here to stay.