Russian Market for e-Commerce and Mobile Commerce in 2014
25.10.2016 537 views
1. According to different estimates, the volume of the e-market in 2014 was between 713 billion rubles (according to the Association of Internet Trading Companies, AITC) and 660 billion rubles, 440 billion of which account for sales of tangible goods (data from Data Insight and EWDN). The key market growth drivers included an increase in the number of Internet users in regions and mobile Internet development.
2. In 2014, 31 million (21%) Russians made purchases online.
3. Internet sales made up 2% of the Russian retail volume.
4. According to InSales, there are 50,000 online stores in Russia with at least 50 visitors a month.
5. According to eBay's Russian office, the number of Russian online stores varies from 16,000-18,000 stores registered on Yandex.Market, to 70,000 websites found in the Russian segment of the Internet (Runet), according to Data Insight, with "some signs of online stores". The real figures are considered to be somewhere in between.
6. Compared to 2013, the market increased by 27% in rubles (by 5% in dollars) according to Data Insight and by 31% according to AITC.
Against the backdrop of the current economic recession, some online retailers noticed stagnation, and even a reduction, of sales volumes at the end of 2014 to the beginning of 2015. However, the negative trends affected different segments of the market in various ways: experts note that while the household electronics sector is experiencing serious difficulties, the children's products sector is weathering the hard times without too much difficulty.
However, despite the constant ups and downs, the potential of the Russian e-commerce market is far from exhausted. According to experts, the preceding pace of growth in key areas is likely to resume fairly quickly after the external economic environment improves due to the following structural factors:
• growing reach of the Internet and online commerce in Russian regions;
• growing popularity of the use of online payments due to mass demand for intangible goods, such as insurance and tourism packages;
• maturity in the fulfillment infrastructure: as the cost of delivery is reduced, the sphere of e-commerce will begin to cover cheaper categories of products and will become affordable even in small towns and remote regions.
Some experts believe that in 10-15 years the volume of the Russian e-commerce market may reach or exceed the $100 billion mark.
Volume of e-commerce market
According to Data Insight, the volume of the Russian e-commerce market for tangible goods was 560 billion rubles in 2014. Another 85 billion rubles accounted for the segment of cross-border Internet trade. Thus, Russians spent 645 billion rubles in 2014 on tangible goods purchased from online stores. This indicator does not include cross-border sales, as well food delivery, C2C, MLM, collective purchases, ticket sales, or bookings.
The growth of the Russian market for online sales of tangible goods was 35% in 2014 (42%, if we take into account purchases made by Russians in foreign online stores). The pace of growth formally remained on the same level as the indicators of the previous years and even slightly exceeded them, but the structure of growth changed sharply. Earlier, the market volume increased almost exclusively due to growth in the number of orders, but in 2014 almost half of the nominal growth accounted for the price increase (inflation-induced increase in the average bill of sale is estimated at 15%). The real growth of the Internet trade market in Russia was about 17%, which is 1.5 times less than the previous year's indicators.
Number of online shoppers
At the end of 2014, 34% of Internet users aged 18 to 64 were online shoppers, that is, they purchased tangible goods from online stores at least once in the past 12 months. With 97 million Russians aged 18 to 64 and 74 million Internet users in this same age group, e-commerce penetration at the level of 34% corresponds to 25.4 million online shoppers. Experts believe that in 2015 this figure may exceed 30 million, and by the end of the decade, tens of millions of online shoppers will be added. This increase may occur due to three groups: populations in regions (especially in small towns), low income populations, and people who have only recently gained Internet access.
Frequency of purchases and number of orders
According to Data Insight, the average frequency of online purchases (including purchases from Russian and foreign online stores) is 7.7 purchases per year per online shopper, or one purchase every 47 days.
This average indicator of the frequency of purchases is the result of a combination of the low frequency of purchases by the majority of online shoppers with the hyperactivity of a small "core" audience. In total, 5% of the most active buyers make up 30% of all orders, while the inactive majority (users with 1–3 online purchases a year, or 53% of all shoppers) account for only 18% of orders.
The core of the e-commerce audience is about 1.2 million people who buy tangible goods from online stores at least twice a month and whose share accounts for almost a third of all orders from online stores.
As of November 2014, 69% of all online shoppers (17.5 million people) made online purchases at least once in the past 3 months (in autumn 2014), including 47% (12 million people) who made online purchases in November 2014.
In total, Russian consumers made 195 million purchases of tangible goods from online stores in 2014, including 47 million orders from foreign online stores and 148 million from Russian ones. With the average frequency of orders being slightly less than eight per year, 25 million online shoppers made 195 million purchases from online stores during the year.
Average average receipt amount for online purchases
The average receipt amount for all online purchases in 2014 was 3,300 rubles (including the cost of delivery to the customer if delivery was paid for at the time of purchase). Evaluation of an average receipt amount of 3,300 rubles takes into account both Russian and cross-border purchases, with the latter being on average twice as cheap as purchases from Russian online stores. More than half of all orders involve a sum less than 2,000 rubles, with a quarter less than 800 rubles. The share of these orders in the total turnover of Internet trade is less than 15%. The relatively high amount of the average receipt amount and a large total turnover of Internet commerce are mainly achieved due to a small number of expensive orders: almost half of all turnover (45%) accounts for orders with a cost exceeding 7,500 rubles (which is just 10% of the total number of orders), Orders with a cost of about 15,000 rubles and up (4% of all orders) account for a quarter of the whole Internet trade market (26%).
Geography and segments
According to information from InSales, 40.1% of e-commerce orders in 2014 came from consumers living in Moscow (11.5% from St. Petersburg). The most in-demand categories of tangible goods include clothing and footwear, household appliances and goods, household electronics and computer equipment, as well as auto parts and children's products.
However, according to AITC, in the first half of 2015, the volume of online sales of household appliances and electronics fell by 2.4%, to 1.794 billion rubles. This was the result of the general economic situation, which caused an increase in prices and a reduction in the total number of purchases. This fact should not be taken too negatively because all retail (online and offline) in this segment fell by 15.6% to 97.95 billion rubles.
Internet sales of household appliances and electronics accounted for 15.7% of all sales (online and offline), which exceeds the indicator of the first six months of 2014 when Internet sales were 13.7%. Shoppers are using the Internet more and more, and the popularity of Internet sales is on the rise.
Computers were the best-selling segment, with its share making up 35% of sales. Second and third place according to the number of sales were: large household appliances, telephones and smart phones. Their shares are 22% and 20%, respectively.
The only segment that showed growth in the first half of 2015 is telephones and smart phones, whose sales volume increased by 23.6%. The worst showing came from the photo equipment segment, which fell by 31.9%.
According to Yandex.Market, orders for home and dacha goods, household equipment, cars and auto parts, as well as children's goods are growing the fastest. The last category remains one of the most successful business categories on Yandex.Market because even in crisis people cannot do without everyday products such as diapers and toys.
Considerable differences relating to online sales can be observed between different categories of people depending on a number of demographic and social characteristics. For instance, men spend more online than women; they are more active in buying auto parts, mobile phones and computers, while women are more attracted to such categories as clothing and children's goods.
The behavior and preferences of Russian consumers have a number of particular characteristics that often require application of a special merchandising strategy to stimulate them to buy. According to EWDN, the following points can be highlighted:
• Unlike western consumers, Russians trust retail trade less and are afraid of artificially inflated prices. They have to be sure that the product is worth its price, regardless of whether this means quality, a warranty, brand recognition, etc.
• Russians are more worried about the process of shipping international purchases and fear unscrupulous suppliers. In this case, clear presentation and disclosure of shipping conditions is vital for a successful business.
• Russians react positively to advertising offers and events, especially those related to their cultural and social traditions. Frequent and memorable advertising campaigns and discounts are important to preserve the loyalty of Russian consumers.
During a survey of its customers in February 2015, KupiVIP, a website for flash sales of fashionable clothes, discovered that a new type of online consumer behavior is forming in the current, unstable economic situation. In particular, only 5% of respondents noted that they will increase their spending on clothing, footwear and accessories this year, and only 12.6% believe that the current economic problems will not influence their purchasing power. At least 83% of clothing and footwear shoppers are looking first and foremost for discounted products, which is 1.5 times more than at the start of 2014. 58% of shoppers bought more than a half of their clothes at a discount.
Interaction of online and offline retailers
In 2014, ROBOKASSA, a payment processor, and Openstat, an analytical company, discovered there are 1.17 million commercial websites (i.e. those where payments are made) with .ru, .su, and .рф domains from a total number of 3 million Russian Internet sites. According to InSales, the number of e-commerce websites with a shopping cart function comprises 43,000 resources. Only 50 of them generated more than 4 billion rubles (about USD 100 million) in revenue a year, and 950 websites reached or exceeded the 200 million ruble (USD 5.2 million) mark.
As for the gradual involvement of traditional offline players in e-commerce, the large Russian retail chains entered the Russian e-commerce market much later than in western countries, and many of them are still absent here. Speaking about international offline players, we should note that some of them still do not sell via the Internet in Russia even if they have considerable e-commerce experience in other countries.
Nevertheless, in the past few years we could clearly observe large retailers transitioning to an online-offline integration. While traditional retailers are starting to deploy their first e-commerce projects, some online players are developing their offline business in response.
Cross-border online retail sales
Cross-border purchases are the fastest-growing segment of the Russian Internet trade market. In 2014, online shoppers placed 47 million orders from foreign online stores and received 75 million parcels from abroad (one order on AliExpress or eBay may contain several items from different sellers, so they will be sent in different parcels). This is almost triple the number of parcels sent in 2013.
The volume of the cross-border purchases market in 2014 was 85 billion rubles, which is 13% of the total volume of tangible goods purchases made by Russians from online stores.
According to Data Insight, the main driver of the growth of cross-border Internet trade in 2014 was China: its share according to the number of orders nearly doubled from 45% to 72% within one year. The share of the Chinese segment in the turnover of the cross-border market is lower, just 55%, due to a modest average bill, which is half that of European orders.
In general, starting in 2014 the Chinese players took the lead in ensuring market growth, while the increase in the total sales volumes on the part of western retailers stopped or started to decrease, depending on market segments and the strategy of different players. The current Russian market is characterized by the following trends:
• International online giants eBay and Amazon, as well as a number of western fashion brands. still enjoy trust and popularity from Russian customers, with Chinese retailers gaining momentum, even though they are active in different categories of products and price segments.
• Clothing and accessories, household electronics and gadgets, and auto parts are the most in-demand product categories.
• Besides general problems with localization, marketing, and serving customers, foreign online retailers also face three key difficulties in the Russian market: customs clearance, delivery, and payment processing.
According to AITC, the key factors in the growth of cross-border trade include the 12-fold growth of the daily Internet audience in 10 years: for comparison, in 2005 this was 5.7 million people, and in 2015 it increased to 61.5 million people. In addition, the range of products in remote Russian regions is less than in large cities. Cross-border trade offers a wide range and availability of exclusive products and low prices.
The share of the local market is gradually falling for the following reasons:
1. Unequal competitive conditions between Russian and foreign players in terms of the tax burden result in the prices at foreign stores being on average 20% cheaper.
2. For personal products imported from any country, the import VAT is 0%, and if the cost of the parcel is less than 1,000 euros, no duty is paid. If products are exported from Russia to China, for instance, VAT may amount to 13–17%, the duty – 9.5%. These measures come into effect if VAT and the duty exceed 7 euros in total.
3. Active Internet trade development in Russian regions. For regional shoppers, the terms of delivery from abroad and from other Russian cities are the same, while the prices in foreign stores are lower than in the Russian ones.
4. Free delivery from foreign websites.
One more sign of the increased level of competitive struggle was the entrance of Yandex.Market on the cross-border market: consumers have recently gained the ability to look for products only in foreign stores (currently in three categories: Clothing, Children's Products, and Cosmetics and Perfumes). Thus, this Russian marketplace has turned into a dangerous competitor for AliExpress and Russian online retailers.
1. The Russian e-commerce market is still on the rise (+35% in rubles in 2014, +15% in US dollars), but the changing economic situation has seriously affected some segments (for instance, household electronics).
2. Despite the fact that the e-commerce sphere is becoming more mature and competitive and the macroeconomic environment is becoming less favorable, the industry is currently entering a period of optimization and consolidation.
3. While purely online players face financial hardships and some are even going bankrupt, the majority of large offline retailers and manufacturers continue to invest in e-commerce. Traditional retailers are going online, and many companies are experimenting with hybrid models.
4. Since mid-2014, venture investment activity in e-commerce has reduced considerably, but some investors continue to actively operate.
5. The regions are quickly gaining momentum, and some trailblazing retail companies are already generating over two-thirds of their online sales volume in the regions.
6. The majority of large and medium sized cities are served by corporate carriers satisfactorily, while Russian Post is carrying out reforms to improve its quality of service.
7. Cash on delivery is still the rule for delivery of tangible goods and is likely to remain so for a long time, though the volume and geographic range of electronic payments is gradually growing.
8. The absence of qualified personnel seems to be one of the worst problems preventing the development of the online industry as a whole.
9. The volume of cross-border sales is sharply increasing, especially from China, but foreign online stores still have to carefully localize their websites, adapt their marketing approaches, and deal with customs clearance and delivery issues. However, the withdrawal of small players from the market and the arrival of Chinese colleagues did not influence the industry on the whole as their customers turned out to be divided between large Russian players and Chinese Internet malls.
10. The industry entered a period of consolidation due to many players' chronic operation at a loss and deterioration of the economic environment.
11. Large stores are expanding in order to present a wider product range, while the smaller ones either turn into boutiques or disappear.
12. Huge prospects for Russian players' growth: compared to foreign online stores, even the largest Russian ones have meager turnover figures.
13. Creation of marketplaces: more than ten large players wish to use or have already started working on or are preparing to work using this model (Yandex, Ozon.ru, KupiVIP, Ulmart, Russian Post). According to research by the E-Commerce Fund, retailers expect global players such as Amazon and Alibaba to own 39% of the global online trade market by 2020.
14. Despite offline retail domination, many experts believe the future of retail trade lies with the strategy of omnichannel sales, and one of the key elements of its successful realization is the use of integrated technological solutions.
1. Despite a slowdown in growth, the Russian e-commerce market remains one of the least affected by the economic crisis, which has been proven by ongoing interest in it on the part of offline retail players and Russian investors from traditional industries. The potential of this market development for mid- and long-term prospects is far from exhausted. According to moderate estimates and considering the consequences of the crisis, the volume of the Russian e-commerce market may reach USD 40¬–50 billion by 2020 (7% of the total volume of the Russian retail market).
2. The number of online shoppers will continue to grow, while the frequency of online purchases will fall. The total number of orders will remain at the 2014 level, while an average receipt amount will grow, although to a lesser degree than the dollar to ruble exchange rate.
3. In 2015, the market will continue to grow, but the pace of growth will be lower considering the economic situation.
4. The market is growing and will continue to grow primarily because of the regions.
Analyzing the situation that is being shaped in online retail trade, some experts believe that in this case Russian business has found itself in a position where its support should move from a stage of wishful thinking and intentions to action, including at the state level, for instance, by reducing the threshold for duty-free product exports as quickly as possible, without expecting the decision to be made by the Customs Union (however, this may increase the flow of shadow exports). In this respect, it seems necessary and promising to adopt a law on VAT payment according to the location where profit is generated (it should be noted in this context that the Federal Law "On Personal Data", which prescribes storage of personal data of Russian customers within Russia shall also play its positive role by prompting foreign players to localize their storage).
Remember that the directive on VAT payment according to the place of profit took effect in the European Union on January 1, 2015, and during the first stage its provisions will be effective with regard to movies, music, e-books, apps, software and other digital content distributed online. In addition, new rules will touch upon any paid online services as well as online casinos. According to the directive's authors, innovations should do away with competitive inequality between foreign and European (national) digital content sellers. Against this backdrop, many experts consider it appropriate to work out a mechanism that would require foreign online stores to pay taxes in Russia when products are sold to Russian consumers.
Volume of mobile commerce market
Active development of smartphones and growing penetration of mobile Internet is the foundation for development of mobile payments. According to a Euromonitor International study, the share of mobile Internet penetration among subscribers in Russia reached 45% in 2014, which had a clearly positive influence on the development of mobile commerce, which includes payment for products and services using smartphones and tablets. Also according this study, the global growth of mobile commerce in 2014 was 94% in monetary terms in current prices, and in Russia this indicator was 30%.
According to Criteo, the mobile commerce market in Russia continues to actively develop. The share of mobile transactions remains stable and at a high level. In Q2 2015, mobile sales made up 18.7% of total e-commerce transactions. The share of mobile transactions in the top quartile of retailers was 32.4% in Q2.
According to mobile conversion indicators (the number of user operations after becoming familiar with the brand through mobile devices, including sales), Russia is third only to Japan and South Korea. Criteo's report considered the indicators of the largest market, the USA, as 100%. Compared to it, mobile conversion in Russia is 40% higher, while it is 110% higher in South Korea and 225% higher in Japan.
The mobile market's growth is driven by the increasing number of gadgets owned by Russians. According to IDC experts, the volume of the Russian smartphone market reached 27.4 million in units and 6.3 billion dollars in monetary value in 2014. A year earlier, these indicators were 18.8 million units and 5.4 billion dollars in turnover, respectively.
Mobile Internet consumption is growing along with the increasing number of gadgets: according to TNS Russia, following the Q1 2015, 60 million Russians use the Internet on a daily basis, and half of them use mobile Internet. The mobile segment's growth was 22% a year, which considerably exceeds the indicators for desktops and laptops.
Mobile payments continue its active development in Russia and worldwide. According to Euromonitor International forecasts, the absolute global growth of mobile payments from 2015-2020 will be over 200% and will reach about USD 2 trillion in 2020. The Russian market will quadruple in size by the end of 2020 and will reach a volume of about USD 9 billion.
More than 30% of transactions in the household goods category were made using mobile devices. Such categories as Health & Beauty, Tourism, and Sporting Goods show stable growth with an increase in the number of smartphone users. The tourism category has historically developed more slowly, and now it is showing stable growth.
The category Fashion & Luxury Products showed a decline in the Q2 2015, but this does not show the average sales figures entirely correctly. Q1 2015 encompassed the New Year holidays, a traditional time for gift buying.*** On a global scale, m-commerce is dominated by such product segments as fashion, luxury, and tourism, where each third transaction is made on a mobile device.
Bank and retailer mobile apps
According to Euromonitor International, the first introduction between financial institutions and mobile-literate users often takes place through mobile banking applications. Mobile banking apps for smartphones are offered by the majority of Russian banks, including Tinkoff, Alfa-Bank, Sberbank, VTB24, and many others. Sberbank is one of the most successful examples. The number of active users of the Sberbank Online mobile app for Android exceeded 2 million in July 2015. Using Sberbank Online, users can pay for the services of more than 30,000 suppliers as well as transfer money to other banks and to Sberbank customers using their phone or card number.
According to Criteo, retailers that set working with their mobile apps as the highest priority and the key source of profit also notice a considerable increase in the share of transactions via apps. The apps of such retailers ensure a share of 47% of all mobile sales. Websites optimized for mobile devices have a 3.4% higher conversion indicator than non-optimized websites, whose conversion is only 1.6%.
According to Criteo, there are four main trends today:
• m-commerce growth will not stop despite the new economic reality. By the end of the year, the mobile share of e-commerce transactions will reach 40% worldwide.
• Smartphones will continue to oust slowly developing tablets on account of the availability of large screens. Apple is gaining momentum in its competition with Android, but both companies win over desktops.
• Apps will become the next frontier: advertisers will start making significant investments in their mobile apps as a way to receive a high level of conversion compared to desktop computers and attract loyal customers.
• Work with cross-platform consumer behavior is the greatest challenge and opportunity for market players in 2015. Taking into account 40% of cross-platform sales, market players have to "talk" to users rather than to devices.
Source: Retail & Loyalty