How to benefit from 25 million Russian online shoppers Anna Vetrova, Finpro Russia & Kazakhstan

27 October 2015

Russian Market

Total potential market 100 million people

© Finpro3

25 %shop online

7 % shoppedonline

42 % online, do not shop

23 % are offline

Potential for Growth

11,1 13,016,6

21,227,0

34,3

43,6

2014 2015 2016 2017 2018 2019 2020

Forecast of domestic online sales, billion euros

Source: Data Insight www.datainsight.ru

Ecommerce market Russia: volume & value

© Finpro4

Online sales,RUB billion (2014)

Direct B2C cross-border

Number of orders

Value of ordersrate 50,5

China 35 million 900 million €

Other countries’ e-retailers

15 million 800 million €

1,7 bln €(13 %)

CROSS-BORDER

DOMESTIC50%

50%USA: mainly electronics, average purchase 100-150 $

Europe: mainly clothing, leaders are brands from Italy (yoox.com) and casual from the UK (asos.com) with average purchase of 200-250 €.

Source: Data Insight www.datainsight.ru

Ecommerce Russia: 5 Key Trends

1. Cross border: growing share of Chinese online stores

2. Availability: faster delivery + decrease of the shipping costs

3. Commonness: growing share of inexpensive orders, including FMCG segment

4. Mobility: growing number of orders submitted on mobile devices

5. Brands and loyalty: growing # of repeat purchases, growing importance of retailers’ brands

5 © Finpro

Product categories

Growth leaders and potential

Fastest growing product categories*

– Food & beverage +55 %

– Furniture +35 %

– Pet supplies +30 %

– Medicines, medical supplies 20-25 %

– DIY supplies 20-25 %

– Sporting goods 20-25 %

– Consumer electronics 20-25 %

– Books 20-25 &

– Tickets to events 20-25 %

* (growth of traffic in 1H 2015/1H 2014; median across the stores in TOP-1000 list)

The market growth is expected in the categories with

– low share of online sales at the moment

– high buying frequency (FMCG)

The following categories meet the criteria:

– Low share of online sales at the moment

– Food & beverage

– Pet supplies and detergents

– Household goods

7 © Finpro

Customers in Russia

Operates in RU-NET (Russian Internet)

© Finpro9

Search traffic, web-sites in the category products and services

62 %

31 %

5 %2 %

Yandex

Google

Search.mail.ru

others

Socialize in VkontakteПо-русскиLargest social media and the most visited site in Eastern Europe. Vkontakte audience: • 270+ million accounts • 62+ million average daily

users

Source: Data Insight www.datainsight.ru

High loyalty to shops but fierce competition

© Finpro10

44 %

4 %

25 %

27 %

competition of stores

loyalty purchases

Knew in advance at which particular store they would make a purchase

Did not plan this purchase -online store offered/ recommended this product

Choose from several shops’ offering

Did not know where to buy the product (price competition between shops)

Source: Data Insight www.datainsight.ru

150 000 internet shops in Russian Internet

Only 4000 receive more than 10 orders daily

Great service and usability required

© Finpro11

Fast delivery with various options: courier, sales agent with try-on option, pick-up at various locations, postamat, delivery service, Russian post

Payment options:• Cash on delivery (still 50-60 %)• Card on delivery• Card pre-payment• E-money• Offline prepayment

Return management: • Majority is not executed orders (yet

unpaid) • Pre-paid orders returns <3%

Customer-centric approach Client service & support

Quick adoption and progress

• Online payments are getting more common: Yandex.Money, Kiwi, PayPal, bank cards, loyalty programs with payment options

• Mobile purchases: driven by women 20-30 with kids (can buy online from smartphone) => responsible for 2/3 of household purchases

• Cross-border shopping via middle-man companies warehousing in USA & EU, deliver from Amazon, Ebay, Taobao, etc

• BRINGO: online platform to distribute couriers. Delivery via a “bringer” – new approach

© Finpro12

Russia is much more than St. Petersburg

Online sales is the most popular in Moscow and St. Petersburg:

– 44% of residents (aged 18-65) buy goods online as compared to the national average of 26%

85% of all sales concentrated in European part of Russia (2000 km around Moscow). 18 cities with more than 1 million citizens are growing their share in ecommerce together with smaller towns.

© Finpro13

Source: Data Insight www.datainsight.ru

How to get on board

How you can get to the Russian market

© Finpro17

Your ExpensesSelling

B2C cross-border

Contractinge-retailers in

Russia

Establishing presence in Russia

Marketing in Russia

Managed by e-retailer

for a fee up to 25%

Customer service & support

Payments

Deliveries & returns

Customs Applies to receiver>1000 €

Legal issues (personal data law)

Not applicable Not applicable You are in charge

Risk Medium Low High

Personnel required None or few None or few Team

Potential sales volume

Food for thought

1. Almost all cross-border purchases are 100% pre-paid. Returns are <3%.

2. Private citizen of Russia can import up to 1000 € per month with no duty.

3. High-end and luxury goods are in demand and Finland is known for high quality goods. Such demand is concentrated in Moscow.

4. Contracting local e-retailer is the easiest way to penetrate the market.

5. Numerous service providers for everything are looking forward to partners.

© Finpro18