In the spring of 2020, people around the world were abruptly forced to change their habits, from the way they shop to the contents of their shopping baskets. The conditions imposed by the COVID-19 pandemic – self-isolation and social distancing – have driven millions of shoppers online.
This transformation has made e-commerce one of the fastest growing sectors of the economy. While in 2017, the share of online sales was estimated at just 10.4% globally, by the end of the first half of 2020, that number reached a record 16.1%.
Similar trends have been at play in Russia, but they are even more pronounced given the country’s low e-commerce penetration rate – only 6% of total retail in 2019 (compared to 27% in China and 18% in the United States).
But partly thanks to the pandemic, the Russian e-commerce market grew 21% in the first quarter and 75% in the second quarter of 2020, according to a new research report by INFOLine-Analytics. The report analyzes current trends and maps out what’s in store for online retail over the next five years.
“Russia’s e-commerce is in its early stages of development and is most comparable to that of Brazil, where the penetration rate is 7.3%,” Mikhail Burmistrov, CEO of INFOLine-Analytics and a lead author of the report, told NEO. “What differentiates Russia are strong macroeconomic factors and highly developed telecoms infrastructure and online payment services, which may result in further e-commerce penetration to at least 16.5% by 2025.”
Other drivers of growth noted by INFOline-Analytics include the generational change among shoppers, growing popularity of online payments, increasing trust in online shopping, and company investments into logistics development.
Logistics are difficult in a country as vast as Russia, which spans 11 time zones. Analysts see companies investing in logistical and fulfilment infrastructure across the country in a race for market share and predict that future e-commerce growth will be driven by demand in the less populous Russian regions, where e-commerce penetration is currently low.
Another distinctive feature of the Russian market is its fragmentation. The country’s top 10 retail companies, both online and offline, accounted for just 25% of total retail sales in 2019. By comparison, top retailers in the UK, Germany, and the US account for 42%, 40% and 35% of total sales, according to Euromonitor. Russia’s e-commerce segment is even more fragmented with the three leading online players accounting for just 18% of the total market in 2019, according to INFOline-Analytics.
In a market where consolidation is already underway, online marketplaces that have been building up their logistics capacity and ensuring a wide assortment have a leg up on the competition. Russia’s e-commerce leaders of today – Ozon and Wildberries – have similar business models to such international peers as Argentina’s Mercado Libre and Brazil’s B2W.
“By opening logistics hubs throughout the country, these companies make a significant contribution to regional infrastructure development, while expanding the geography of sales for both their own and their partners’ products on the marketplace,” Burmistrov says.
Cooperation between leading multicategory marketplaces and small local manufacturers is proving to be mutually beneficial, according to the research report. The online platforms offer local manufacturers and distributors access to millions of potential customers, along with advertising tools to get on their radar and well-honed logistics for their products to travel across the country. In turn, local manufactures help expand the market’s product range with consumers becoming the ultimate beneficiaries of this partnership, as they gain access to a wide range of goods and convenient service.
As the online marketplace format takes hold in Russia, INFOline-Analytics says it is bound to open new opportunities for consumers and entrepreneurs in even the most remote regions of the world’s largest country.