The Russian ecommerce market is a strong performer, and with an expected annual growth rate of 7.5%, is estimated to be worth US$27.1 billion by 2023. The number of ecommerce users is expected to increase from 98.1 million in 2019 to 105.8 million by 2023, with the average revenue per user (ARPU) expected to increase from US$189.67 to $234.95 in the same time period. Cross-border ecommerce amounts to $5.5 billion in 2018, accounting for 23% of total online orders from Russian consumers, up 34% from 20171.
However, there are obstacles to successfully entering the Russian market. From the language to logistics, the Russian market has many unique intricacies that cross-border ecommerce brands must master to be successful. This guide to Russia dives deep into the ecommerce market, the opportunities, the obstacles and how to overcome them.
THE RUSSIAN FEDERATION IS THE LARGEST COUNTRY IN THE WORLD BY LAND AREA AND HAS A POPULATION OF APPROXIMATELY 146 MILLION PEOPLE. THE LARGEST CITY IS THE CAPITAL MOSCOW WITH 12.615 MILLION RESIDENTS, AND THE SECOND LARGEST IS ST PETERSBURG WITH 5.383 MILLION.
Russia has one of the fastest-growing online shopping markets in the world with 81% of the population making an online purchase at least once a month. The retail ecommerce market is worth US$21.6 billion in 20202 and estimated to reach US$28.2 billion by 2024.
Economy in Russia
Russia has the fifth-largest economy in Europe and the eleventh-largest GDP in the world, and while the economy suffered a significant recession in 2014, it has been steadily recovering since. The country’s GDP was US$1637.89 billion3 in 2019 and is estimated to increase to US$1,940 billion by 2024.
Ecommerce Market in Russia
Russia’s physical ecommerce (excluding cross-border sales) amounts to only 5% of total retail sales countrywide (but up to 18% in larger cities). With an ecommerce penetration rate of 46% in 2020, predicted to rise to 60% by 2023, it is clear there is a significant and largely untapped opportunity for both domestic and international ecommerce retailers to capitalize on.1
RUSSIA: RETAIL E-COMMERCE REVENUE FORECAST FROM 2017 TO 2024 (IN BILLION U.S. DOLLARS)
COVID-19 impact on Russia
ONLINE SPENDING INTENTIONS IN THE NEXT SIX MONTHS IN RUSSIA AS OF APRIL 2020, BY CHANNEL
COVID-19 has affected Russia in much the same way as other countries, with widespread redundancies and/or unpaid vacation, which has negatively impacted the economy. Given Russia’s somewhat depressed economy, consumer sentiment has been low, with one survey5 anticipating this to continue into Q4 2020.
Russia has the 9th largest population in the world at 145.9 million in 2020, predicted to decline to 145.74 by 2024 due to an ageing population and slowing population growth6. The population skews female with 53% women to 47% men. The largest portion of Russia’s age demographic are Gen Z and Millennials.
24%OF THE POPULATION LIVES IN MOSCOW ANDNEARLY 70% LIVES IN THE WESTERN REGIONS OF RUSSIA. JUST 4% LIVE IN THE ‘FAR EAST’ OF RUSSIA.
DOMESTIC VS CROSS-BORDER ECOMMERCE IN RUSSIA (2018)
Russians generally enjoy shopping with 30% surveyed saying they ‘enjoy traditional shopping and would go to a store even if they do not need anything in particular’ and 40% saying they enjoy traditional shopping but only go to the store if they need something in particular.7
Domestic online shopping is becoming increasingly popular, with 75 million users in 2018 in a market worth 1150 billion Russian rubles (approximately US$18.3 billion), an increase of 19% from 2017. 1
DOMESTIC RUSSIAN ECOMMERCE MARKET GROWTH FORECAST
MARKET VOLUME IN MILLIONS OF RUBLES; PENETRATION IN % OF TOTAL DOMESTIC RETAIL
Russian shoppers are also keen cross-border consumers with 49% of shoppers preferring shopping foreign brands.9 A PayPal DataInsight survey reports that around 15% of Russian online shoppers shop exclusively on foreign sites.1
City and rural shopping
There is a distinct difference in shopper behaviour between urban and rural Russia. Shoppers in Russia’s larger cities are more likely to shop online and purchase more frequently too. Moscow and St Petersburg and their surrounding regions account for almost 46% of the Russian ecommerce market.1
Factors for increasing internet penetration
Online retail is increasing in part due to the increase in internet penetration across all age groups from 2015 to 2019 with 92% of 18-24-year olds using the internet daily in November 2019. Eighty-three percent of 25-39-year olds use the internet daily with almost 60% of 40-54-year olds also using it daily. 1
There are several factors contributing to the growth of online shopping in Russia – from saving time, to saving money, as well as the option of price and product comparison. Russian shoppers like to have both multiple delivery options and multiple payment options with cash on delivery still a popular payment option there.
KEY INFLUENCING FACTORS FOR SHOPPING ONLINE INRUSSIA 2018
Other options influencing whether Russians shop online include free delivery (40%), detailed product description (36%), credit card payment options (19%) and free returns (18%).11 Brands considering selling into the market can see that providing these options to their Russian shoppers will greatly improve their chance of success in the region.
Russian shoppers are known to be brand loyal, so retailers who prove to be trustworthy and good value will attract and retain the Russian consumer.
Breakdown of online shopper demographics
The largest online shopping demographic is Millennials, with 80% shopping online monthly. Online shopping has become increasingly popular in Russia, primarily driven by millennials with disposable income. This demographic are responsible for changes in shopping behavior with more shoppers shopping on mobile, expecting traceable deliveries and a network of lockers and pick up points.10
Internet traffic breakdown
Smartphone usage isn’t as high in Russia as it is in the rest of the world, with most internet traffic coming from desktop as of 2018. Smartphone ownership stands at 62% in 2018 predicted to rise to 79% by 202512, meaning that retailers that develop mobile apps and omnichannel methods will be better placed to attract these shoppers in coming years.
DESPITE THE LOWER RATE OF SMARTPHONE OWNERSHIP, RUSSIAN SHOPPERS USE SMARTPHONES TO PURCHASE MORE THAN DESKTOP OR TABLETS.
A survey by PayPal and Data Insight shows that those who shop using the brand or retailers’ apps buy and spend more and show higher loyalty and conversion rates. Shoppers who use mobile web browsers convert less and have lower AOVs.2
M-commerce is on the increase, in line with the increased smartphone ownership, with m-commerce sales predicted to be worth US$19.47 billion by 2023. They currently stand at US$11.69 billion in 2020 – up 23.5% in one year.13 Additionally, 40% of online cross-border purchases were made from a mobile in 2018, up from 23% in 2017 and 18% in 2016.1
Localizing Content for Russian Shoppers
Russia has one of the lowest English language proficiency levels in Europe14 and shoppers are very wary of scams so localizing website content across all stages of the shopper journey including post-sales support is important to convert and retain shoppers and increase brand loyalty.
Russian shoppers are keen to have their shopping experience personalised with retailers seeing higher rates of conversion (averaging 10%) when using personalization such as displaying similar products based on previous purchases, personalized shopping cart pages and creating offers for personalized best-selling products.10
Gartner predicts that digital businesses will see a 15% growth in profits by 2020 driven by smart personalisation engines that can ‘recognise customer intent’.15
Personalization is a key traffic driver for online retailers as it aids shoppers to find exactly what they are looking for quickly and efficiently. To improve a shopper’s experience, data is essential to help analyse customer behaviour such as search queries, purchase history and other information that can help the retailer segment their shoppers and provide a better and more personalised experience.
WHAT IS THE IMPACT, IF ANY, OF PERSONALIZATION ON ADVANCING CUSTOMER RELATIONSHIPS?
According to a PWC consumer insight report on Russia, ‘Around 39% of Russian consumers believe personalized advertising is the most influential: they like to interact with a single click and receive personal compilations and product suggestions.’10
Social media is very popular in Russia, reaching 57% of the population currently and predicted to grow in reach to almost 60% by 2023.16 VKontakte, known as VK, is an equivalent of Facebook and had 81.1 million users as of December 2017. There are 13 million users of Facebook in Russia, and 9.91 million using Twitter.17
Social media marketing is important – and its reach is passing that of television, with 89.4% respondents in an eMarketer survey using social sites or apps in the previous month, slightly higher than the 88.1% who watched television. Consumption of social media was round 2.33 hours per day, with television at 2.21 hours per day. The survey included YouTube as social media, which tends to raise the reach and time spent on social media.18
Social media advertising for ecommerce retailers
MOST INFLUENTIAL TYPES OF ADVERTISEMENTS, %, 2018
As such, social media advertising is a key investment consideration, as Russian shoppers are just as influenced by social media marketing as shoppers in other markets. In fact, 94% of Russian customers use social media, with 50% of those aged 23-26 being influenced to buy a product after reading positive reviews on social media. Similarly, 52% of Russian customers are sure that social media influenced their purchase decisions in clothing and footwear categories.10
Marketing and Promotion
Younger generations (young Millennials) prefer innovative and interactive social media ads with Generation Z showing a preference for being able to buy products with a phone by hovering over an ad. This generation also tend to make product choices based on a company’s reputation and are influenced by product placement in films, tv shows and other media.10
Ecommerce retailers selling to Russia will need to use a mix of traditional and ‘new’ media to capture a wide age range of shoppers as they are highly influenced by both. As can be seen from the chart above, digital ad spending is increasing year on year and predicted to continue growing to almost 1.5 times the spend from 2020 to 2024, showing the importance and impact of digital ads for Russian retailers and consumers.
Russian consumers are very family-focused with over half shopping for their entire family regularly9, so brands that focus on families in their marketing strategies are seeing results.
BREAKDOWN OF THE CROSS-BORDER AND DOMESTIC ONLINE SHOPPING MARKET IN RUSSIA FROM 2010 TO 2019
Russian shoppers like to have a variety of payment methods available to them when shopping online, including the option of payment on delivery. In addition to credit/debit card, PayPal, cash on delivery, there are others that are somewhat unique to Russia, such as a ‘Try and Buy’ service where final mile carriers deliver a package then wait 15 minutes for the shopper to decide to keep the items. If they keep them, they pay for them, if not they return them to the carrier who returns the goods to the retailer.
In a 2018 survey of Russian consumers who shop online, 81% payed using electronic means of payment. Of that number, 57% used bank cards, 37% used eWallets, 36% used mobile banking. After that, internet banking was at 29% and paying by SMS was 25%.19
Conor Walsh, Head of Payments at eShopWorld, said about the Russian market and its scope for ecommerce retailers:
PAYMENT METHODS’ AFFINITY-INDEX OF RUSSIANS IN 2020, BY AGE GROUP
BUY NOW PAY LATER
Buy now, pay later options are popular on Yandex.Checkout, a Russian market place similar to Amazon, with the company claiming 8,000 businesses use the ‘Payments in Installments’ service, where e-merchants can ‘parametrize the duration of the loan (from 3 months to 12 months) and grace period (from 30 days to 120 days)’. Repayments are made through the Yandex.Money e-wallet.1
PAYMENT/CASH ON DELIVERY
Cash on delivery – when shoppers pay by credit card or cash once they receive the goods – is still popular for domestic purchases, but for cross-border shopping online prepayment tends to be the rule.19 However Russian shoppers do like to have the ability to order online and pay by card on delivery.
78% of urban Russians aged 12-55 use eWallets for online payments of goods and services. It’s even more popular among 25-34 year olds, of whom 82% use the method countrywide in 201920. Globally digital wallets account for 26% of total online payments in 2018, and Russia accounts for nearly 25% of that figure.21
MIR was launched by the Central Bank of Russia in 2014 as the national payment scheme to lessen Russia’s dependence on international payment systems such as Mastercard and Visa19. The card is successful, accounting for 15% of online purchases in Russia. The card is mandatory for state employees and military staff and Russia’s National Card Payment System (NSPK) is looking to expand the card into foreign markets where Russian nationals live and travel.22
DUTIES AND TAXES
As of January 2020, Russia has reduced its duty threshold for cross-border shopping from €500 per shopper per month, to €200 per shopper per shipment. The weight limit per shipment remains at 31kg, but this may also be subject to change in the future. For business to consumer shipments, a combined duty and tax of 15% will be calculated on any amount above the €200 threshold for any given shipment.
If duties and taxes are payable, the shopper pays these upon clearance of goods, which means that retailers need to engage a broker to manage this process when shipping goods into the country. Russia is looking at the possibility of collecting duty and taxes to be paid on checkout.
Additionally, Russia requires ID collection upon delivery of goods, which can be done by the broker or final mile carrier. The retailer would need to work with a broker again to facilitate this. eShopWorld collects ID in the checkout to ensure this process is seamless.
Russia is also looking to implement a traceability program to ensure goods entering the country are not fake. It will be based on bar code requirement for all products that enter.
Russian shoppers are influenced by brand, quality and longevity of products – with price the next determinant. Approximately 75% of Russian shoppers are interested in trying new products, with 25% purchasing for an immediate need. 57% of shoppers will visit several outlets to find the best deals.23 In fact, 93% of respondents to a recent survey are in favour of discounts and sell-offs, and 40% plan their purchasing around sales.24
Holidays in Russia
WHAT PAYMENT METHODS ARE YOU PLANNING TO USE FOR YOUR IN-STORE AND ONLINE HOLIDAY SHOPPING?
Russian shoppers often use sales events to make purchases at a discounted price and there are a number of holidays in Russia that are particularly popular and which Russians tend to do a lot of spending on. These include:
VALENTINE’S DAY (FEBRUARY)
DAY OF THE DEFENDER OF THE FATHERLAND
Its objective is to honour all men and women currently serving in the Russian army. It also serves as an unofficial Men’s Day when women traditionally give small presents to the male ‘beloveds’.25
INTERNATIONAL WOMEN’S DAY (MARCH 8TH)
International Women’s Day is celebrated like a combination of Valentine’s Day and Mother’s Day with men and women celebrating important women in their lives by giving them flowers and gifts.
BLACK FRIDAY (NOVEMBER)
Russian shoppers, who are already keen cross-border and discount-savvy shoppers, purchase more during Black Friday than the average European shopper.
Black Friday has been adopted as a shopping day by Russia with 40% of Russian shoppers spending up to 30% of their ‘holiday budget’ on the day in 2019. 14% of shoppers said they would spend over 50% of their holiday budget on the day.
Supply chain and delivery
DELIVERY PRACTICE IN RUSSIA BY CITY SIZE (2018)
ACCEPTABLE DELIVERY TIME FOR ONLINE PURCHASES (2018)
Russian online shoppers tend to prefer self pick-up where possible (at 40% in 2018) and 26% preferred non-express courier delivery. Expectations vary between urban and rural areas for delivery times and Russian shoppers expect cross-border shipments to take up to three weeks before they consider there to be a problem or delivery time is too long.
DELIVERY OPTIONS FOR RUSSIAN SHOPPERS
Russian shoppers like to have variety in their delivery options, including:
BOPIS – Buy online pick up in store
Pick up Drop off – Delivery locker – popular option in Russia where shoppers have parcels delivered to a locker to pick up at their convenience.
Try and Buy – allow the shopper 15 minutes to try on garments before completing purchase. Pay with cash or card on receipt of items, or send back without paying.
IMPORTANCE OF OMNICHANNEL IN RUSSIA
Omnichannel options are becoming increasingly important to Russian retailers as internet penetration increases and Russian shoppers’ shopping habits continue to change and evolve. Some of Russia’s biggest retailers have implemented omnichannel options to great success, such as Russia’s fourth-largest food retailer, Auchon, which claims the company’s online activities are now “one step ahead of other countries” if judging by “the wide range of needs [addressed by the online store] and the number of SKUs in a variety of non-food segments.”10
Food retailers in Russia seem to be at the forefront of embracing omnichannel, although IKEA, which opened its first online store in Russia in April 2017, and a children’s goods retailer, Detsky Mir, are also seeing great results from implementing online options and combining them with different pick up or delivery methods.10
Russian consumers traditionally make daily trips to nearby stores but increased online shopping means that an omnichannel experience is important to Russian shoppers as they value customization, easy payment options and helpful assistants.10
Russian shoppers tend to like to try something on in a brick and mortar store before ordering it online via the website, which means that omnichannel is an important consideration for retailers new to the market to embrace.26
Russia is an exciting opportunity for cross-border ecommerce retailers that are willing to provide the necessary accommodations required by Russian shoppers such as website translation and localized content. Internet penetration is still relatively low but increasing rapidly which means there’s even greater scope for Russian shoppers. As a nation already primed and often preferring to shop cross-border, international retailers will find that they are in an excellent position when entering the market.
While the low proficiency in English may require more work on the retailer’s part to translate and maintain the website and all communications in Russian, Russian shoppers are loyal to brands that they value and providing this service and facility will no doubt help retailers attract and retain shoppers.