E-Commerce in Russia - Russian Search Marketing · Chief editor’s note 3 CROSS-BORDER SALES TO...

E-Commerce in RussiaWhat brands, entrepreneurs and investors need to know

to succeed in one of the world’s hottest markets

CROSS-BORDER SALES

TO RUSSIA What international merchants, service providers and entrepreneurs

must know to succeed in one of the world’s hottest markets

PRESENT

EXECUTIVE SUMMARY – NOVEMBER 2014

Merchant Risk

Council

National Mail Ordering

Association (NAMO)

This short, ad-funded version contains excerpts from a comprehensive research

study created by East-West Digital News, the international resource for Russia’s

digital industries, in partnership with Yandex and RussianSearchMarketing.com.

The research was conducted in cooperation with leading consultants and

universities, and based on interviews with over 50 industry players and experts.

To order a copy of the full version (8 chapters, 150 pages – see table of contents

at the end of this document) please email us at [email protected].

East-West Digital News is the first international information company dedicated to

Russian digital industries. Its website EWDN.COM provides news, market data,

business analysis and updates pertaining to the Internet, e-commerce, mobile

and telecom industries, digital TV and satellite systems, software and hardware

innovation, as well as to related investment activity and legal developments.

A consulting branch, East-West Digital Consulting, provides international players

with business development assistance in Russia and advises Russian companies

on their international strategies.

For more information, please contact us at [email protected]

To inquire about advertising and sponsorship opportunities, or if your would like

to get involved in the distribution of this study, please contact us at

[email protected].

About this study

About the publisher

Advertising, sponsorship

and distribution opportunities

2

CROSS-BORDER SALES TO RUSSIA

Chief editor’s note

3


In spite of the international turmoil, the Russian e-commerce market is still

growing – and many players across the globe continue serving an ever increasing

number of online shoppers from this country.

However, in a market that had so far almost doubled every year, the present

troubled times have brought new difficulties and opportunities.

For the first time, this research project sheds full light on this market and its fast-

changing environment. It is based on exchanges with more than 50 market

players and experts and includes a set of reliable data with short- and medium-

term forecasts.

Much credit for this breakthrough is due to Russia’s National Mail Ordering

Association (NAMO) and its president Alexander Ivanov, who have patiently

collected information from the Russian Post and key market players – be it officially

or from insider sources.

Yet this document is, above all, a practical guide. In the full version, more than

100 pages are dedicated to analysis of, and recommendations for, each of the key

operational hurdles confronting international online retailers willing to sell to

Russian customers – from shipment, to customs clearance, to cross-border

marketing and payments, to legal requirements.

Finally, our special gratitude goes to the sponsors and advertisers behind this

study, who provided us with the support necessary for a pioneering, in-depth

investigation.

We hope you enjoy this groundbreaking collaborative effort and wish you every

success in your e-commerce projects.

Adrien Henni is co-founder and chief editor of East-West Digital News

4


Foreword

by Elena Orlova

With cross-border sales to Russian e-shoppers nearly doubling this year, the

Russian online retail market is still full of opportunities for international players.

PayU, which started operations in Russia several years ago, has achieved a

leading position in managing payments for online stores of all kinds and all sizes.

In particular, we are offering our expertise to international companies operating in

Russia or considering doing so. We provide a comprehensive range of solutions for

launching an online business in Russia and managing payments, bringing the

highest international standards and the newest technologies to the Russian

market.

We are glad to associate ourselves with the publication of this study, the first ever

to bring full clarity to the Russian cross-border e-commerce market, making it more

accessible to international companies.

Please feel free to contact our team. We will be happy to help you seize the great

opportunities of this market in full payment security.

Elena Orlova is CEO of PayU Russia

Participating organizations

5


ONLINE RETAILERS

SERVICE PROVIDERS

RESEARCH PARTNERS

National Association of

Mail Order and Distance

Selling (NAMO)

MEDIA PARTNERS

Merchant Risk

Council

Key numbers 7

Executive summary 8

1. The Russian Internet market 11

1.1. Internet penetration 11

1.2. Regional contrasts 13

1.3. Russian audience world-wide 13

2. The domestic online retail market 14

2.1. Market size 14

2.2. Current situation and growth forecasts 15

2.3. Number of users; user profiles and behavior 17

2.4. International comparisons 18

3. Cross-border sales 20

3.1. Market figures and trends 21

3.2. Why Russians buy abroad 23

3.3. What Russian consumers like – and fear 25

3.3. Customs clearance and shipment issues 25

3.4. From cross-border sales to market entry 26

Interviews & Analysis 27

PayU Russia General Manager Elena Orlova: “Russia is very

different in terms of user preferences to make payments” 28

Arvato Russia GM Michael Poetschke: “The effect

of the international tensions might also be positive” 32

Alex Vasiliev of SPSR: “Even a sharp increase in taxes would not be

a problem if at the same time procedures are being simplified” 36

Alibaba PM Guzel Galeeva: Why we launched a social network

for Russian cross-border shoppers 38

Merchant Risk Council: “Russian consumers are not all fraudsters” 41

Case studies 45

eBay: Cross-border leader sees Russia as priority market but feels

threatened by troubled international relations 46

Shoes of Prey: Tailor-made Australian shoes for stylish Russians 50

About the full version 55

Key industry events 66

Table of contentsof this free summary

Download the free summaries of EWDN’s report on Russian e-commerce

PART 1: The domestic e-commerce market: http://www.ewdn.com/e-commerce/summary-part1.pdf

PART 2: Cross-border sales: http://www.ewdn.com/e-commerce/summary-part2.pdf

6


http://www.ewdn.com/e-commerce/summary-part1.pdf

http://www.ewdn.com/e-commerce/summary-part2.pdf

+75%

15 million

Russians shop

in foreign online stores

CROSS-BORDER SALES 2014

KEY NUMBERS

(PHYSICAL GOODS ONLY)

Approximately

$5bn

Total

market

size:

generating more than 50 million orders

About

Up from 2013

in value

Source : Eas t -W es t Dig i ta l News unless s ta ted othe rwise

7

Key numbers


Of

of which Chinese retailers

generate around

In value

In volume of

fulfilled orders

8

Current trends


C R O S S - B O R D E R S A L E S T O R U S S I A

C U R R E N T T R E N D S

The market is still growing fast, but some

segments are negatively affected by

macroeconomic factors.

1

3

4

While e-commerce flows from China are

reaching new heights, many Western online

retailers are facing difficulties due to increased

competition and the ruble’s fall.

4

2

Russian e-shoppers are looking for larger

assortment and lower prices – even though

foreign online stores do not always have price

advantage.

Local payment methods are required because

many Russian online shoppers are reluctant to

use bank cards.

Delivery via postal operators may take weeks

or even months, but service is improving

slowly. A new generation of Russian carriers

offers quicker service at competitive prices.

While most shipments are currently tax-free,

the expected changes should be extremely

mild. Customs procedures are being simplfied

progressively.

5

46

To receive the full version of EWDN’s report on cross-border

sales to Russia (8 chapters, 285 pages) or inquire

about other EWDN reports, please contact us at:

[email protected]

CROSS -BORDER

SALES TO RUSSIA

E X E C U T I V E

S U M M A R Y

10

mailto:[email protected]

1. The Russian Internet market

1.1. Internet penetration

In the spring of 2014, 61% of the adult population, or 71 million people, were connected on

a monthly basis, according to the Public Opinion Foundation (FOM). Of them, 58 million

people – 50% of the adult population – used the Internet daily.

The Internet became popular in Russia much later than in advanced European countries,

with a mere 10% of the adult population connected in 2003 and just 20% in 2007.

Today, Russia still lags behind most other European countries in terms of penetration, with

roughly half of the adult population connected. Russia is catching up quickly however, with

average annual growth in Internet users exceeding 10% over the last few years. In

September 2011, Russia overtook Germany as the market with the largest number of

unique Internet users in Europe.

If growth continues at its current rate, it will take Russia less than a decade to reach the

current levels of Europe's most connected countries.

0%

10%

20%

30%

40%

50%

60%

Spring2003

Spring2004

Spring2005

Spring2006

Spring2007

Spring2008

Spring2009

Spring2010

Spring2011

Spring2012

Spring2013

Daily users Weekly users Monthly users

Source: Public Opinion Foundation (FOM)

Internet penetration rate in Russia (2003-2013)

Executive Summary

11


Executive Summary

28%

19.3 M

11%

7.6 M

19%

13.3 M

15%

10 M

9%

6.3 M

14%

9.3 M

4%

3 M

South

North-West

Volga

Urals

Siberia

Far East

Source: FOM

Distribution of Internet users by federal district

(winter 2013-14)

Centerincl.

Moscow

Nationwide – 100% (68.7 million unique users)

International comparison: Internet user engagement across Europe (average hours per visitor 15+, April 2014)

Source: comScore MMX

European average: 23h

39

37

36

33

28

26

24

23

22

18

17

17

16

16

16

15

13

12

Turkey

Russia

Netherlands

UK

France

Spain

Italy

Poland

Finland

Norway

Germany

Portugal

Sweden

Belgium

Ireland

Denmark

Austria

Switzerland

12


1.2. Regional contrasts

Internet penetration in Russia is still uneven. There is a nearly two-fold difference in the

percentage of monthly Internet users between the capitals, Moscow and St. Petersburg,

which have over 75% Internet penetration, compared to 45% in Dagestan and 42% in

Mordovia, according to a FOM report from February 2013. The average penetration across

Russia was 58%. Among the key factors driving these regional contrasts are differences in

the standard of living, purchasing power and development of broadband and wireless

Internet access, as well as computer and Internet literacy.

As of Summer 2013, just 11% of Russian Internet users lived in Moscow, 4% in St.

Petersburg and 9% in cities with more than 1 million inhabitants, while 20% lived in rural

areas. Almost three quarters of all Russian Internet users live in the European part of Russia.

1.3. Russian audience world-wide

The Russian-speaking internet audience numbers in the range of 90 million users, including

an approximate 20 million Russian speaking users in the former Soviet republics, Western

Europe, Israel and North America.

Executive Summary

A D V E R T I S E M E N T

13


2. The domestic online retail market

2.1. Market size

In 2013, according to Data Insight, the Russian online retail market neared ($16.5 billion),

up 28% from the previous year. This volume includes online sales of both physical and

digital goods, as well as ticket sales (airline, train and entertainment tickets) – but not hotel

bookings ($2 billion), sales to corporations ($3 million), and cross-border sales of physical

goods (approximately $3 billion).

Thus in total the Russian online retail market reached about ($25 billion). On a yearly

basis, in 2013, 30 million Russians bought physical goods online.

Source: InSales

Turnover by segment in Russian domestic online retail

(2013, in billion rubles)

Segments 2013 Growth/2012

Household appliances & electronics 107 34%

Clothing, footwear 76 34%

Computer, notebooks, computer parts 56 23%

Car parts 26 43%

Mobile phones 26 32%

Children’s goods 24 29%

Home items 22 97%

Furniture 20 36%

B2B equipment 19 55%

Construction materials 15 40%

Sports, tourism, leisure 14 42%

Groceries 13 -1%

Office appliances 12 30%

Cosmetics, perfumes 9 31%

Accessories 7 37%

Books 6 3%

Gifts 5 50%

Medicine 3,5 63%

Pet goods 3 95%

Flowers 3 31%

Executive Summary

14


Executive Summary

15


2.2. Current situation and growth forecasts

Due to the current economic slowdown, it is unlikely that market growth will be maintained

in 2014 and 2015 at the same rates (around 25%) as in the past years. In this context,

some e-commerce companies have seen their sales volume stagnate or even decrease in

2014 – for example, several internationally-oriented fashion sites are recording poor results

due to the deteriorating macroeconomic conditions and to a shift in the behavior of

patriotically-minded consumers.

However, the full potential of the Russian e-commerce market is far from being tapped.

Growth is still likely to continue, fuelled by such structural factors as:

• The growing Internet and e-commerce penetration in Russia’s regions;

• E-signature and online payments becoming more popular: mass demand for

non- material products such as insurance and tour package offers.

• Fulfillment infrastructure reaching maturity: With reduced delivery costs, the

scope of e-commerce will extend to cheaper product categories and be made

available even to small cities and remote areas.

The Russian e-commerce could thus reach or exceed the $100 billion mark within 10 to 15

years.

Domestic sales of physical and digital goods, including tickets but not hotel bookings, B2B sales and coupons.

The calculations are based on a moderate 10% to 20% yearly growth rate between 2014 and 2025

Source: EWDN

Russian e-commerce market growth forecast

2.3. Number of users; user profiles and behavior

Online shopping has already become a common method of consumption for active Russian

Internet users, particularly those with upper middle and high income levels living in

Moscow, St. Petersburg and large Russian cities. This is why online shopping penetration

in Russia, which is still weak compared to some Western European countries, is expected

to eventually catch up with the most connected countries like the UK, where up to 85% of

Internet users are involved in online shopping.

According to Data Insight, the Russian online retail market could well involve 44 million

shoppers in 2015 (doubling from 2012) and tens of millions more by the end of the decade.1

Significant differences regarding online purchasing can be observed between different

population groups. For example, men tend to spend more online than women; they more

actively purchase car parts, mobile phones and computers, while women are more likely to

purchase from such categories as clothing and children’s goods. Generally speaking,

people from younger age groups, with middle to upper class salaries, who have completed

higher education, tend to consume more online than those from the opposite groups.

1. Three groups drive this growth in the number of online shoppers: individuals in the regions, especially in small

towns, individuals with low incomes and individuals newly connected to the Internet.

Executive Summary


17


According to various surveys, online shoppers most appreciate lower prices, easier

comparisons and convenient delivery. Variations can occur depending on socio-geographic

criteria. For example, more so than others, inhabitants of the capitals and the largest cities

appreciate the time saving aspect of online shopping and the higher service level offered by

online retailers, when it comes to delivery questions.

Symmetrically, users are very sensitive to price and product information on the website,

while pricing and delivery conditions are common causes of dissatisfaction. Trust is a key

issue, with at least 30% of Russian Internet users declaring they never shop online versus

10% to 20% in most Western countries.

2.4. International comparisons

In 2012, the sales volume of online retail in Russia was similar to that of Brazil, while

significantly behind the USA and Western Europe. The share of online retail to total retail

amounted to approximately 2%, compared to between 5% and 10% in the USA and most

West European countries. In the UK, this share reaches 13%.

Research by PwC in 2012 found that only 43% of Russian Internet users made frequent

purchases online, meaning one or more purchases per month, compared to the

international average of 60%.

Nevertheless, the low penetration of e-commerce in Russia is primarily due to the relatively

low level of Internet penetration. If judging by the number of Internet users shopping online,

the share of online retail sales in Russia is more or less comparable with the situation in

Italy, Greece and the new EU members from Central Europe and the Baltic states.

Executive Summary

Online retail in Russia and other markets in 2013(physical and virtual goods, not including games, in billion USD)

Estimates of Data Insight (Russia), eMarketer (other countries)

Market size

Yearly growth

18


3. Cross-border sales

Foreign retailers’ online sales of physical goods to Russia have grown considerably over

the last few years. They could reach about $5 billion in 2014, up from $3 billion in 2013,

with Chinese players capturing the better part of recent market growth. Russian consumers

appreciate foreign retailers’ diversified assortment and enjoy the virtually tax-free

purchases.

The following picture has emerged from our inquiry:

• International giants eBay and Amazon, as well as a number of Western fashion

brands in the clothing segment, enjoy high trust and popularity among Russian

customers, but Chinese retailers are currently gaining an even stronger traction,

although in different product categories.

• Apparel and accessories, consumer electronics and gadgets, as well as

automobile parts are the most in demand product categories.

• Besides common localization, marketing, and customer service issues, foreign e-

merchants run into three key difficulties: customs clearance, delivery to the

consumer, and payment process.

Executive Summary


20


3.1. Market figures and trends

With 38 million packages and parcels delivered in 2013 (up from 22 million in 2012,

according to the NAMO association), the market is developing fast and challenging the

country’s transport and customs infrastructure. In the spring of 2013, Moscow airports were

congested with up to 500 tons of parcels and packages backed up at customs check points.

A few months later, the Federal Customs Service pledged to add hundreds of new

employees to help deal with the growing influx of parcels. In 2014, the Russian and the

Chinese postal operators expanded their partnership to enhance deliveries.

Executive Summary

Source: Higher School of Economics

Average order value: Russian and foreign e-merchants compared (Q3 2013)

Clothing:

Russian online

stores

Clothing:

Foreign online

stores

Electronics:

Russian online

stores

Electronics:

Foreign online

stores

$115 $105 $455 $180

Sources: NAMO (Rutaobao, eBay, Aliexpress), Dostami.ru

Average order value from some significant cross-border retailers (2013)

Dostami.ru(ex-BayRu)

Rutaobao eBay Aliexpress

> $400 $160 ~$40 $24

21


Source: EWDN

Estimated Russian cross-border sales volume (2012-2016)

33% 28%

54%55%

13% 17%

45,001-60,000 rubles

15,001-45,000 rubles

5,000-15,000 rubles

Executive Summary

22

Russian audience for AliExpress and eBay (Sept. 2013 – Aug. 2014)

CHART

2-1

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Source: Gemius

AliExpress and eBay audience share by income (August 2014)1CHART

2-2

At 2014 average exchange rate: 5,000-15,000 rubles = $141-$423;

15,001-45,000 rubles = $423-$1,271; 45,001-60,000 rubles = $1,271-$1,695


The full version of this study includes a full set of data on the Russian audience of five top cross-border

sites over the past two years, in partnership with research company Gemius.

Market growth benefits major international online retailers – first of all, Alibaba’s subsidiary

Aliexpress and eBay – as well as many sites selling small quantities in niche segments.

Some of them report their sales volume and order size from Russian customers are

significantly larger than with any other country.

However, since late 2013, many Western online stores have seen their sales to Russia

grow more slowly – or even stagnate or decrease in specific cases – while sales from China

reached ever higher levels.1

3.2. Why Russians buy abroad

Even taking into account delivery costs, many products are still cheaper if bought abroad

than on the domestic market. Price differences may be even more considerable with some

rare items.2

One reason for the price advantage in some categories is that orders received by

inhabitants of the Customs Union (including Russia) are not subject to customs taxation if

they do not exceed 31 kg in weight and 1,000 euros in value per month, for each recipient.3

However, foreign Internet stores do not always have a price advantage over Russian ones,

and often the advantage will not carry across all products the retailer offers. In the

electronics segment foreign online stores, especially in China and Germany, offer more

favorable prices for cameras, but have no clear price advantage for smartphones. Russian

online stores show a wide range of prices for clothing and footwear and foreign stores are

located within this price range.

Executive Summary

1. In July 2014, AliExpress became Russia’s most visited e-commerce platform and one of the country’s top 10

most visited website. http://www.ewdn.com/2014/09/09/chinas-aliexpress-breaches-russias-rankings/

2. A bolo tie aficionado interviewed by EWDN says there can be ten-fold price difference between a local

Russian shop and a foreign online retailer.

3. If weight or value do exceed these numbers, customs duty amounts to 30% of the value of the part in excess,

with a minimum tax fare of 4 euros per kg. Russian authorities are expected to switch to a less liberal customs

regime before the end of 2014.

23

Reasons for shopping in Russian vs. foreign online stores (2013)

Clothing:

Favor Russian

online stores

Clothing:

Favor foreign

online stores

Electronics:

Favor Russian

online stores

Electronics:

Favor foreign

online stores

Faster delivery

(49.2%)

Ease of returns and

exchanges (21.7%)

Less risk of

package loss (23%).

Can purchase

products not available

in Russia (63.3%)

Price differences

(46.6%)

Wider assortment

(39.3%)

Higher quality

products (35.8%).

Faster delivery

(54.8%)

Ease of returns and

exchanges (28.1%)

Less risk of package

loss (27.8%)

Product guarantees

(27.8%)

Can purchase

products not available

in Russia (61.4%)

Price differences

(48.5%)

Source: Higher School of Economics


http://www.ewdn.com/2014/09/09/chinas-aliexpress-breaches-russias-rankings/

Executive Summary

Additionally, a number of products are simply not available, or are hard to find, on the

domestic market. This concerns not only obscure collectables, but other items such as a

number of spare automobile parts and accessories, which when related to rare or little

known car brands are virtually nonexistent in Russia, especially in the regions. BayRu has

built its assortment of car parts by identifying the products that were most lacking on

existing Russian online resources and offline shops.

3.3. What Russian consumers like – and fear

Russian consumers have unique qualities that often necessitate specific merchandizing

strategies to attract purchases. A website marketing template that successfully caters to

Western audiences would not be as effective if simply transferred to the Russian

marketplace. Local consumers require more guarantees and conviction in display content

pre-purchase. Among their fears and expectations are the following:

•Russian consumers are more distrustful of retailers and fearful of artificially high

pricing. They must be certain a product is worth paying for, whether this is based on

quality, warranty, brand recognition etc..

•Unlike Western consumers, Russians are anxious in regards to international delivery

and fearful of unscrupulous suppliers. High visibility and display of postage conditions is

vital. For example, retailer Net-a-porter.com has a permanent banner and link across all its

Russian-version site pages stating “Express delivery to Russia,” while the UK’s Next retail

store assures customers of “quick and reliable” delivery on its homepage.

•Russians love promotional offers and activities, especially those linked to their cultural

and social habits. Frequent and catchy promotions and discounts are important to

sustaining local consumer loyalty. However, Russian consumers also respond better to

clearly stated links or “buttons”, which describe the promo in detail. For example, in May

2014 ASOS.com focused on the traditional May holidays in Russia with an offer on its

Russian-version site that touched on the “dacha” (second home in the countryside). The

promo read “20% sales + free express-delivery with promo code Dacha20”.

3.4. Customs clearance and shipment issues

Occasional slowdowns at customs checkpoints and the slow service of the Russian Post

create serious obstacles. However, a new generation of Russian and international delivery

providers and cross-border operators are emerging, thus offering more choices to

international players. Meanwhile, the Russian Post is progressively enhancing its capacities

while the customs service is introducing simplified and faster procedures.

25


Executive Summary

3.5. From cross-border sales to market entry

Some foreigners assume that they can start selling significant volumes to Russian

consumers by simply extending their existing businesses. This is possible, as shown by the

experience of eBay, Aliexpress, Amazon, Asos and a number of other e-merchants.

However, cross-border sales in large volumes are possible only if the foreign e-store or

brand is perceived by local consumers as having significant and distinctive advantages (in

terms of price and product assortment in particular) and adapted to the specifics of the

Russian market and the expectations of local consumers.

At a certain stage, a stronger local presence – or full market entry – may be required to tap

the Russian market’s true potential. On the domestic e-commerce scene, four foreign

companies – or Russian companies with foreign shareholders and management – are

among the top 10 players (Otto Group, Ozon, Lamoda and KupiVIP). These cases show

that foreign retailers can succeed on the local market at a significant scale when relying on

a strong local team and taking into account local specificities – including, in certain cases,

the development of their own local fulfillment capacities.

26






[email protected]

27

CROSS -BORDER

SALES TO RUSSIA

I N T E R V I E W S

& A N A L Y S I S


Interview | Elena Orlova (PayU Russia)

PayU Russia General Manager Elena Orlova:

“Russia is very different in terms of user

preferences to make payments”

Since its launch in 2011, PayU Russia, a division of international PSP PayU and a part of the

Allegro Group, has asserted itself on the local market as a leading payment aggregator.

General Manager Elena Orlova shares her views on the specifics of the Russian payment

scene, the recent and expected changes in legislation and their impact on market players in a

cross-border perspective.

– Is Russia really specific in terms of payments and why?

Russia is very different in terms of user preferences to make payments when purchasing

goods in online stores. This difference stems from history: at the end of the 1990s, when e-

commerce just started developing in Russia, the payment industry was not sufficiently

developed. At that time, bank cards were seen as a privilege and a kind of distinction rather

than a mass product. On the other hand, stores had to collect payments, so they had to adapt

to the customers, who than knew nothing else but cash payments.

Payments in cash continue to dominate Russian e-commerce, reaching over 90% share

compared to other payment methods for some businesses. It all depends on the store and

how it is engaged in the promotion of non-cash payment methods.

The Russian market of electronic payments is also unique due to the strong development of

electronic currencies. Originally, e-wallets were used as a means of private payment, via P2P

transfers, and the practice of using them to pay for goods from e-commerce stores was not as

established as it is today.

Cash-in kiosks, also called “payment terminals,” have grown as a response to Russia’s cash

economy. These terminals, which are very common and thus convenient, allow consumers to

deposit cash directly into a machine and use it to pay for goods and services electronically.

Although originally used primarily as a means of paying for mobile services, payment

terminals have become a popular e-commerce payment tool.

– Will these specificities be maintained or rather disappear in the future?

Efforts are constantly being undertaken both by market participants and the state to change

the predominance of cash in the economy, though with little result.

28



29


Once the law on electronic payments came into force [in 2011],1 e-wallets moved from an

unregulated field to becoming a much more tightly regulated industry similar the banking

segment. This loss of flexibility has likely cost the e-payments market as it was a strong factor

in differentiating it from bank cards for consumers.

Merchants remain uncomfortable without pre-payment, as they take on all the risk. Therefore,

market players are thinking of how to change the situation gradually. They may require partial

pre-payment, which can at least cover delivery costs.

– In light of the recent events with Visa and MasterCard, do you think one can speak

about "Russian isolationism" in the field of payment systems? If so, what is the

concrete impact on e-commerce?

I don’t think it is a case of “isolationism,” but rather a response by Russian legislators to

external factors and threats that Russia has had to face over the past few months. The

sanctions against Russian banks, which left some customers without the ability to use their

Visa and MasterCard cards abroad, could not be ignored. Russia's decision to implement the

National System of Payment Cards in spring 2014 was to be expected.

The decision to implement the law on company servers having to keep personal data on

Russian territory is just the desire of the state to protect its citizens against loss or illegal use

of their data, in my opinion. These measures will offer added protection to online shoppers.

There is certainly logic in ensuring that details on a payee in a domestic transaction are

stored and processed on Russian territory, and domestic buyers will not be severely

impacted. However, buyers in cross-border transactions will likely require both a card from the

National Payment System and an international card to make purchases abroad.

– What will the impact be on players as a result of these changes?

Among the recently adopted laws, the most important one is the law on the protection of

personal data. A number of its provisions will come into force in 2016, requiring market

players to invest in infrastructure and the creation of datacenters in preparation for its

implementation.

For international companies, it is a relatively large restructuration of all processes, though

they have some time to get ready.

This is a significant issue for PayU as well (who is licensed as a Non-Banking Credit

Institution by the Central Bank of Russia). We are studying what kind of investments will be

needed and what processes we will have to review to be optimal in terms of pricing. We have

to remain competitive compared to our rivals but at the same time meet all the requirements

imposed by the regulators.

1. http://www.ewdn.com/?p=4643



http://www.ewdn.com/?p=4643




30


– What about the new rules on user identification in the field of electronic payments?

There have been several shifts in this space. The first stage occurred with the entry into force

of Law No. 161-FZ in 2012, which made illegal non-identifiable payments (payments with

electronic money or virtual cards) exceeding 15,000 rubles.4 This restriction immediately

affected services with a higher average order value, such as airplane tickets or electronic

appliances.

In spring 2014, lawmakers introduced a second wave of changes. Anonymous electronic

payments remained possible for individual transactions under 15,000 rubles with a monthly

limit of 40,000 rubles5 – but not for payments to foreign e-merchants, where users are now

required to identify themselves under a specific procedure.6 The legislator has, however,

increased the threshold for electronic payments that pass the identification procedure.

These changes do not affect bank cards, as the card – as long as it is not a virtual one7 – is

an identifiable method of payment tied to a passport.

Companies can benefit from a certain flexibility in the way the identification procedure is

carried out. For example, we expect that government-authorized bodies, such as pension

funds, will become involved in providing a convenient online service for remote identification.

(October 2014)

4. Around $375 as of October 2014

5. Around $1,000 as of October 2014

6. Users must provide their mobile phone number, their passport number, and a secondary identification number

– either their tax payer number, individual insurance number or medical insurance number. Under this "simplified

procedure," individual transactions can be made for amounts of up to 60,000 rubles ($1,500), with a monthly limit

of 200,000 rubles ($5,000 as of October 2014). See more details in Part 8 of the full version of this research.

7. See Appendix "Virtual payment cards: A new generation of payment method in Russia."

Interview | Michael Poetschke (Arvato Russia)

Arvato Russia GM Michael Poetschke:

“Some Western players have suspended

their e-commerce plans for Russia, but the

effect of the international tensions might

also be positive”

After more than 15 years on the market, Bertelsmann subsidiary Arvato Russia has asserted

itself as one of the main fulfillment providers in Russia, both for traditional distance selling and

for e-commerce operations. In this exclusive interview, CEO Michael Poetschke — who

arrived in Russia almost 20 years ago — talks about the opportunities and the difficulties of

entering the Russian market for foreign e-commerce companies. He also comments on

Arvato’s recent acquisition of Netrada and on the restructuring process within the group.

– How does the logistical chain work for e-commerce companies selling to Russian

consumers from abroad?

The logistical chain works most efficiently for customers of Arvato in Germany or other

countries in Europe, where we service their e-commerce businesses. This is because it is the

same warehouse where their goods are stored and picked, packed and dispatched to

different countries. For many Arvato customers, we service the whole value chain, including

running the online stores, carrying out e-marketing, order management, customer care,

payment processing and more.

The cut in our value chain happens when we have to hand over the prepared parcels to a

carrier delivering them to the final clients. We cooperate with the Russian Post, DHL and

other international carriers. Originally, one obstacle was that clients had to prepay their orders

by bank cards. Now solutions work that allow cash-on-delivery as well. The biggest remaining

problem is the procedure to return orders fully or partially. It is quite costly and very slow. This

is one serious disadvantage of cross-border online sales and concerns potential clients a lot.

– Is Russia very specific in this regard compared to other countries in terms of

processes, costs, etc.?

Russia is specific in many ways. What separates Russia from many other countries is that

there is a border, in terms of geography, but more importantly in terms of customs

procedures, bureaucracy and cost. Cross-border online trade is actually a loophole to reach

consumers in Russia. The sellers don’t have to certify all the goods they are selling compared

to the usual trade channels and nobody has to pay customs duties for the goods within

certain limits.

32



33


– Do you feel an actual or potential impact of the current international tensions on

cross-border sales to Russia?

Yes, there may be an impact from that. Even though the market, far from politics, continues to

grow, some Western players have postponed or suspended their plans to set up or enhance

their online sales channels to Russian consumers.

But the effect might also be positive. Already now usual wholesalers feel a credit shortage

due to Western sanctions and the rising interest rate of Russia’s central bank. Some Western

manufacturers or sellers observe declining sales to Russia through the usual retail channels.

But there are clients in Russia who want to buy products and still have the purchasing power,

be it apparel, electronic equipment or other goods being bought on a regular basis. They may

turn to cross-border offerings more actively now.

– Recently Arvato acquired Netrada. How is the new group shaped as a result globally,

and what is the importance of e-commerce services within it?

Arvato has become the largest provider of services for e-commerce in Europe by acquiring

Netrada in the beginning of the year. We didn’t take over Netrada North America and Netrada

China.

Presently, we have almost integrated this company, its very professional employees and its

customers into the Arvato organization and merged them with the e-commerce division, which

already existed within Arvato. Now we are launching the biggest and most advanced

warehouse for e-commerce fulfillment – near Hanover in Germany – with a capacity of

dispatching more than 200,000 orders per day. E-Commerce fulfillment services have

become therefore one of the absolute core business directions of Arvato in general.

– The group is currently reorganizing its activities and management in Russia. Please

explain.

There has been going on a restructuring process within the Arvato group for one year now to

rearrange companies, bundle solutions requested by our customers and to become more

innovative and international. The 200+ companies belonging to the Arvato group are now

rearranged into seven so-called solution groups, one of them being the SCM solution group.

All three Russian Arvato companies based in Yaroslavl are part of this group.

Therefore, it was decided to merge them into one entity – Arvato Russia. This process was

started in April 2014. It will have very positive effects for our employees, the service portfolio

we can offer to our customers, our flexibility and the potential to grow with increased support

from the whole Arvato group. Together we are better positioned, prepared and capable to

tackle the challenges ahead.


34


– What is your strategy for further development in Russia: in general, and regarding e-

commerce services in particular?

Against the background of the overall strategy review of Arvato in general and our

strengthened position in Russia, we have clearly identified our priorities for the next 5-10

years. They lie in e-commerce services, B2B services for global companies, after-sales

services, financial and loyalty operations for Western brands operating in Russia, as well as

distribution, replication and printing offerings for software and publishing companies.

The extension of our e-commerce services portfolio and capacities stands out due to the

growth we expect in this area during the years ahead. Presently, we are building a new

modern warehouse with a total usable space of 24,000 sq. m, which becomes operational in

early 2015. In addition, we are in the process of acquiring 16 ha of real estate to facilitate the

future growth of our customers.

The extension of our e-commerce services portfolio and capacities stands out due to the

growth we expect in this area during the years ahead. Presently, we are building a new

modern warehouse with a total usable space of 24,000 sq. m, which becomes operational in

early 2015. In addition, we are in the process of acquiring 16 ha of real estate to facilitate the

future growth of our customers.

– How do you envision future developments on the Russian e-commerce logistics

scene? Do you still feel an important growth in demand? Have recent investments in

this field been sufficient to address the demand?

I expect the usual development – where there is demand, there will be an offer. As e-

commerce continues to grow in Russia more fulfillment capacities will evolve and more cost-

effective and faster delivery solutions will be proposed. We are noticing an increasing

competition and new offerings in this area over the last two years, which is very healthy and

the consumer wins. This development has finally even woke up the Russian Post, which is

also very much welcome.

Russia is such a vast country by geography that all kinds of distance-selling businesses have

an enormous potential to cover it and to reach consumers in all regions, towns and villages in

the long run. I expect online businesses to tap into this potential even more intensively in the

near future.

(October 2014)

Interview | Alex Vasiliev (SPSR)

Alex Vasiliev of SPSR: “Even a sharp

increase in taxes would not be a problem

if at the same time procedures are being

simplified”

Responsible for the international activities and business development of Russian delivery

service company SPSR, 32-year-old Alex Vasiliev personifies Russia’s new generation of

internationally-oriented retail and logistics professionals. Before joining SPSR in 2011, he

served Turkish companies operating in Russia in the bank card and logistics industries.

In this interview with East-West Digital News, Vasiliev describes SPSR’s thriving e-commerce

shipment business and shares his views on market prospects in the field of cross-border

sales.

– To begin with, please briefly introduce SPSR

SPSR Express is the leading privately-owned Russian express delivery company, with more

than 13 years of experience in the Russian market. It is second only to the Russian Post in

terms of coverage, delivering to more than 6,000 cities, towns and villages across the country.

We are the only express delivery company in Russia operating exclusively through its own

network – which ensures better security and control over delivery routes. With more than

3,900 employees, there are no third parties involved in our operations.

– What about your e-commerce cross-border shipment business?

When we launched this activity in 2012, practically all cross-border shipments were handled

by the Russian Post and its subsidiary EMS, leaving alternative providers – at the time mostly

international companies – a negligible share of this market. However, there was growing

demand for services superior to that of the Post. [Editor’s note: Mr Vasiliev is hinting at the

slow and unreliable service of the national postal operator when it deals with e-commerce

parcels.]

On our side, we had strong assets – including customs expertise and a customs broker’s

license – to launch such a business. This is how we became the first Russian alternative

provider serving large foreign online retailers.

We are still a pioneer on the market. We were the first to introduce an electronic customs

declaration system two years ago. Today, Russian customs officials have introduced such

forms largely inspired by us. It even became a template for some of our partners, like

wnDirect, who used it as a model for other countries.

36


Our international operations are managed and developed by a dedicated team of 30

professionals. The company’s couriers, meanwhile, operate with no distinction between

domestic and international shipments.

– Do you offer any services besides shipment itself?

Sure. We have introduced a cash-on-delivery service for foreign retailers – once again

pioneering the market. Returns may jump from less than 1% to 7-8% – but sales can double.

We also position ourselves as a solution provider with a consulting offer for payment or

marketing issues. Thus we have introduced some of our clients to Qiwi Wallet, and to banks

for joint marketing actions, etc.

– How does the cross-border shipment business look in terms of volume?

The Russian Post still accounts for more than 90% of e-commerce shipments to Russia. For

the remaining fraction, SPSR has established itself as a key alternative provider and the clear

leader among Russian companies.

In 2013, we handled about one million packages and parcels, and expect that figure to double

this year. Existing clients account for one half of this growth, while new clients account for the

other. To date we serve more than 200 foreign online retailers – compared with 300 Russian

e-merchants for domestic operations.

We’re especially strong in the UK market with a near monopoly there. It was the first market

where we landed important companies like ASOS and Next as our key clients.

Now the UK accounts for approximately 40% of our activity. Another 40% is generated by US

clients and 20% by other countries. We’re developing actively in Germany, France and Italy.

We are more cautious about the Chinese market, where dubious practices with customs

declarations are still widespread, not to mention the potential quality and legal issues with

some of the products coming from there.

If we take the market in general – putting aside SPSR’s activity – the split is a bit different. We

estimate that US e-merchants account for about 40% of cross-border sales to Russia, with

Chinese companies representing another 40%. At most 8% comes from the UK.

– To what extent could the more restrictive customs rules – with the threshold of tax-

free shipments lowered – affect cross-border e-commerce?

It is hard to predict, as the new rules have not yet been adopted. However, since 76% of our

packages and parcels have a value of less than 150 euros, it seems that a significant portion

of cross-border shipments will remain unaffected.

Even a sharp increase in taxes would not be a problem if at the same time processes and

procedures are being simplified. This is why we support and trust the state’s efforts to make

cross-border sales transparent and simple. The introduction of electronic forms was an

important step, and we believe the general trend is positive.


37


One of the remaining difficulties lies in the fact that national postal services and alternative

operators are subject to different customs rules and processes – and it is not always easy for

online retailers to navigate between them. For example when we started working with ASOS

they had to introduce specific standards for Russia, which was rather unusual for them.

– How does your offer compete with the Russian Post, on the one hand, and with an

international shipment company like DHL, for example, on the other?

Our standard delivery time for shipments from the UK ranges from five to seven days, versus

about 2-3 weeks via the postal service. In terms of tariffs, we are about twice as expensive as

the Post for parcels larger than 2kg– with an even bigger premium for small packages.

However, we are going to launch a budget offer called “Deferred Solution”, which will be

much closer to the Post’s rates.

In terms of delivery time, our offer for cross-border B2C shipments is more or less comparable

to what DHL Express offers to global Internet stores selling on the Russian market. Regarding

rates, we are significantly more affordable.

– Some international shipment providers are very selective when delivering to Russia

and certain other countries. Does SPSR have any selection criteria when working with

online retailers?

We prefer to work on an exclusive basis via partners like WN Direct in the UK or Borderfree in

the US, who handle the first-mile operations, even though we still maintain direct contracts

with online retailers as well.

We welcome collaboration with everyone under two conditions: transparent processes and a

rigorous approach to business.

– Do you believe that cross-border e-commerce could suffer from the current

international turmoil?

I don’t think there’s any direct impact. Over the last few months people have actually bought

more than we forecast. A potential concern, however, is the ruble’s fall [editor’s note: by up to

25% in one year]. This could affect demand, though we haven’t noticed any consequences

yet.

(May 2014)


38


Interview | Guzel Galeeva (Alibabab.com)

Alibaba project manager Guzel Galeeva:

Why we launched a social network for

Russian cross-border shoppers

In May 2014, China’s Alibaba Group launched the iTao project for Russian e-shoppers. The

service is a mixture of social networks Pinterest and Instagram, with users able to share

photos of their purchases and discuss them. CPU talked with representatives of service in

Russia and learned about future plans iTao. In an interview given to Russian tech publication

Siliconrus.com, project manager Guzel Galeeva explains the present strategy and future

direction of the project.1

– What is the vision of the project, aside from its likeness to Pinterest and Instagram?

iTao is a social network for shopaholics, in the best sense of the word. It is a platform where

people can share photograps of goods purchased in various online stores, especially from

foreign retailers. Not everyone is ready to purchase something online, especially from

overseas. On iTao users share successful and unsuccessful shopping experiences, post

product information (size, quality, and so on), as well as share tips with each other.

1. http://siliconrus.com/2014/07/itao/

40


http://siliconrus.com/2014/07/itao/

– How do you plan to develop the platform further?

The future for the site is to create an innovative network of live communications using a

mature network of buyers across online stores worldwide. Visitors will have the opportunity to

subscribe to their favorite authors, by products by photos, discuss the intricacies of buying

abroad and even resell goods that did not fit. Furthermore, friends will be able to organize

interest groups, as well as improve the photographing skills of end-users.

– What are some of the key benefits that make you think the project will take off on the

Russian market?

The main one is maintaining communication through our mobile application, which we will

begin to market and launch in August 2014. The most important advantage though is the

huge user base of Alibaba Group.

– Do you have any competitors on the market?

There are no direct competitors on the Russian Internet. Of course, in terms of content

someone might can compare iTao with Pin.me, while Kakao Talk is similar to us in the field of

mobile apps. Perhaps, smaller sites that mimic the idea of our site are opening up regularly

too. We did not want to take the path of banal imitation, but to deliver to the demands of

Russian-speaking users. We noticed that they are already using social networks to publish

their "khvastov" (Russian variation on the phrase "bragging rights") and exchange

information, and decided to give them a more convenient platform to do so.

– What are your goals for the end of 2014?

We are very modest and at the end of the year we want to attract one million visitors a day to

this new platform.

(May 2014)

Interview | Guzel Galeeva (Alibabab.com)


41


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Expert analysis | S. Manduro and N. Vedrenne:

Russian consumers are not all fraudsters


By Steven Mandurano, Global Lead Marketing Communications & PR,

and Nicolas Vedrenne, Managing Director, Merchant Risk Council

Europe

Russian consumers are known to be unique in their purchasing patterns, especially online.

Considering that Russian payments and fraud processes are geared specifically towards the

Russian consumer, there are many risks that an outsider must understand.

Many Russian consumers prefer the usage of localized payments, such as making an online

payment in-person at a local cash-in kiosk, or through cash-on-delivery (COD) options. The

Russian market is full of exuberance and Russian consumers are willing to spend. However,

the Russian people, on a whole, are skeptical of Western companies and extremely private

with their online credentials. These actions present e-commerce professionals with a number

of issues when dealing with fraudulent behavior.

The Russian market is full of endless possibility. However, the main priority for any non-

Russian company looking to penetrate the market is the ability to localize. Do not go at it

alone; be sure to have an ally who is already established within the Russian market. They will

be able to introduce you to the right connections and show you the ins and outs of Russian

commerce.

In the USA or the majority of European countries, it is easy to call a customer and ask if

certain purchases were made; solving many suspicious acts right there on the spot. However,

do not attempt to contact a Russian consumer, especially if the person in the call center does

not speak the language, to ask for any credentials on purchases made online. Russian fraud

trends, although similar to those appearing within Europe and the Americas, need a little

more attention.

Although Russia saw a 35% increase in fraud attacks in 2012 from 2011, according to FICO,

the fraud pressure rate is not listed as specifically higher than in other key markets. Card risks

are limited for the merchant as 3DS is the accepted norm and expectation for online shoppers

in Russia. Fraud issues have previously emerged where a customer’s credentials have

conflicting information.

No matter where in the world a company stands, there will always be payment refusals. In

spite of widespread opinon, the Russian market is not that different than any other market

when it comes to the card payments main indicators (risk, decline rate etc.).

Foreign merchants testing the Russian market should turn on 3DSecure, which will give them

a liability shift. The abandon rate with 3DSecure is 10%. This is significant, but not the highest

compared with some other countries.

1. In France for example, cross border transactions suffer a high decline rate: when French card issuing banks

see a cross-border transaction, they prefer to decline it.

43


After the initial test period, some merchants switch 3DSecure off. “We used to have 3DS on

for all Russian payments but when we turned this off we experienced an increase in the

success rate (approved transactions divided by total attempts) of about 10%, which for us is

quite significant,” commented an MRC merchant. “Also, Russian transactions have an above-

average success rate for us and perform well overall (with a global acquiring option). We

have very high success rates on initial payments. However, recurring payment success rates

can be significantly lower in comparison.”2

With its events and publications, MRC is a platform for industry players to discuss

globalization and the best ways to partake in Russian e-commerce, among other topics. It is

vital to not go at it alone; collaboration is the main way to succeed within the Russian market.

Expert analysis | S. Manduro and N. Vedrenne:



2. Usually, the rate of returning customers using the same card is high. Strangely, this is not the case in Russia.

There are several potential explanations for this (which most often merchants cannot see). It could be because

of shorter expiration dates, frequent change of limits by banks or low limits, consumers changing often of credit

card or banks, consumers having a very irregular source of incomes and therefore with a lot of variations in their

account balance, consumers "burning" their card limit every month, etc.

44





[email protected]

CROSS -BORDER

SALES TO RUSSIA

C A S E S T U D I E S

45


Case study | eBay

eBay: Cross-border leader sees Russia as

priority market but feels threatened by

troubled international relations

Since it launched its first Russian version in 2010, eBay has asserted itself as a dominant

player on the Russian cross-border e-commerce scene, with only one player – China’s

Aliexpress – matching its sales volumes with an approximate 40% market share for each of

the two giants.

In a market almost doubling each year, the platform generated no less than $400 million in

sales to Russia in 2012.1 By late 2013, the company was sending 90,000 packages and

parcels into Russia daily, eclipsing all other western retailers, as it reached the mark of one

million active buyersi the country.2 Some press sources have cited eBay as among the six

largest Internet retailers in Russia, with average monthly turnover of around $63 million as of

early 2014.

Success is explained by eBay’s trustful brand, wide product range, low-cost offerings

(especially by a growing number of Chinese retailers),3 continued site localization efforts, and

close ties with Russia-focused mail forwarders.

Yet there is still a feeling eBay is only beginning to unlock the potential of the Russian cross-

border market. Company revenues exceeded $16 billion in 2013, of which around half

originated outside of the USA. According to the Russian office of research firm IDC, Russia

amounts to no more than 5% of eBay’s global audience and is not among the leading revenue-

generating markets for the marketplace.4

Growing focus on new services and local logistical partnerships

Having decided to localize, eBay has been busy throughout 2014 developing new services for

Russian consumers – an approach stemming from eBay’s strategic drive to increase presence

in emerging markets.5

After rolling out a Russia-based social network for eBay users, called "eBay Social," in July

2014 the company offered to provide local users with cash bonuses for recommending

products on the network to members of the community.6

1. The company has not disclosed its 2013 figures.

2. Defined as making at least one purchase in the previous 365 days

3. These could represent up to a third of eBay trade to Russia, according to Head of NAMO Alexander Ivanov

4. http://www.kommersant.ru/doc/2530206

5. As stated in eBay’s Q2 2014 report: “The growth of Internet users is accelerating in some countries and

regions where we do not have a significant presence (e.g., Brazil/Latin America, Russia, China and certain other

countries in which we do not have a meaningful (or, in some cases, any) domestic business). If we are unable to

establish our businesses and drive adoption of our services in such markets, our future growth would be

negatively impacted. New users in such markets exhibit different behaviors than those from our more developed

markets; including fewer interactions, lower levels of engagement, lower conversion and/or lower values of each

interaction or conversion.”

6. http://lenta.ru/news/2014/07/18/ebay/

46


http://www.kommersant.ru/doc/2530206

http://lenta.ru/news/2014/07/18/ebay/

The strategy is focused on taking advantage of Russia’s strong social media scene, following

the social media marketing operations of Chinese marketplace AliExpress – in particular, the

iTao social content platform launched by AliExpress’ parent company Alibaba in May 2014

(see interview below).

Another service introduced by eBay in the summer of 2014 was titled "Collections." This

software tool helps classify goods by categories, giving consumers the opportunity to create a

selection of products united by one idea or theme that is then available on their eBay

homepage.7 Having already been launched in Western markets in 2013, the implementation

of the service in Russia demonstrates the growing desire by eBay to integrate Russian

consumers with its global offerings.

On the logistics side, the online marketplace signed a memorandum of cooperation with the

Russian Post in July 2014 in a bid to reduce the time of delivery of goods to Russia from the

company's major markets.8 With the national postal operator responsible for nearly 95% of e-

Bay’s shipment to Russia – and long delivery times one of the biggest complaints of Russian

cross-border consumers – the partnership is an important step in improving service quality.

The first joint project, christened ePaket, was set to be launch in August 2014, with customers

able to send a parcel through eBay at an accelerated rate. The company will provide the

operator with the necessary parcel information and the Russian Post’s database will be

integrated with other systems used by eBay, such as Bitrix and CNS, with which the company

has also signed partnership agreements.

Ruble devaluation and Ukraine crisis providing obstacles to operations

There is certainly plenty of motivation for eBay’s continued activity in Russia. Domestic e-

commerce is expanding at a yearly average rate of 30%, while cross-border volume has

almost doubled every year.

However, the lucrative Russian market also offers significant challenges for the US giant.

The ruble has lost up to one fifth of its value compared to the US dollar from early 2013 to

early 2014, making foreign purchases for Russian consumers increasingly more expensive.9

eBay has responded with a campaign to offset the ruble’s fall, offering its Russian customers

to return to the exchange rate of September 2013, which was more favorable to them.

An issue that might be more difficult to circumvent is the political and regulatory fallout of the

Ukraine crisis. The political standoff between the US and Russian governments has led to

sanctions and measures that threaten to undermine the international payment processing

capabilities of Russian consumers.

7. http://oborot.ru/news/14559/10

8. http://www.ewdn.com/2014/07/25/ebay-and-russian-post-agree-to-accelerate-cross-border-deliveries-to-russia/

9. eBay’s 2Q 2014 report cites currency fluctuations as significant threat to its business model: “Our cross-border

trade is also subject to, and may be impacted by, currency exchange rate fluctuations. To the extent the U.S. dollar

strengthens against the Euro, the British pound, the Australian dollar or other currencies, cross-border trade related

to purchases of dollar-denominated goods (or goods from those Asia-Pacific countries whose currencies tend to

follow the dollar) by non-U.S. purchasers will likely decrease, and that decrease will likely not be offset by a

corresponding increase in cross-border trade involving purchases by U.S. buyers of goods denominated in other

currencies. Even if cross-border trade is not reduced, if more sellers who accept PayPal begin to offer their goods or

services in multiple currencies, and to arrange for withdrawal of balances to local bank accounts in multiple

countries, this could reduce PayPal’s revenues from foreign exchange fees.”

Case study | eBay

47


http://oborot.ru/news/14559/10

http://www.ewdn.com/2014/07/25/ebay-and-russian-post-agree-to-accelerate-cross-border-deliveries-to-russia/

Case study | eBay

With US payment operators Visa and MasterCard under pressure to suspend services to

some Russian banks, President Vladimir Putin has signed a law obliging international bank

card processing operators to pay a large security deposit to continue operations in the

country. As of summer 2014, while Visa and MasterCard where still in discussion with the

Russian authorities, the future of their activities in Russia still seemed uncertain.

eBay harbors significant concerns that further international sanctions against Russia over its

policy in Ukraine could result in major legal changes for international payment systems

operating in Russia, which would have a sizable impact on eBay’s cross-border sales.

The company, nevertheless, is reaffirming its strong commitment to Russia. "We said three

years ago that the Russian marketplace is eBay's top priority in emerging markets. It was true

then and it is true now," eBay Deputy Head Wendy Jones told a news conference10 following

the release of eBay’s quarterly report.

Something drastic would have to occur for eBay to re-evaluate its cross-border presence in

Russia, where the company is investing in a sustainable relationship with consumers.

10. http://www.themoscowtimes.com/business/article/russia-still-top-priority-for-ebay-in-emerging-markets/503916.html


48


http://www.themoscowtimes.com/business/article/russia-still-top-priority-for-ebay-in-emerging-markets/503916.html

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Case study | Shoes of Prey

Shoes of Prey:

Tailor-made Australian shoes

for stylish Russians

Shoes of Prey, the world’s first online designer of women's shoes, provides "shoe-designing

bliss" to customers with "the most vivid imagination." The site's artisans use "a suite of divine

raw materials, including the softest leathers, snakeskin, fishskin, Italian silk and more in an

array of candy store colours" to design unique, made-to-order pairs of shoes that they will

ship anywhere in the world.

The company launched in Australia in October 2009 with a mere $50,000 in capital; but in

June, 2012, it raised $3 million from US venture capitalist Bill Tai, Silicon Valley

blogger/investor Michael Arrington's Crunch Fund and Mike Cannon-Brookes, co-founder of

the Australian-based global enterprise software powerhouse Atlassian. The company initially

addressed only English-speaking markets. Later, they expanded by offering localized sites in

Japan, Russia, and the Netherlands.

50



51


How Shoes of Prey localized in Russia

In February 2010, Shoes of Prey was featured as the Site of the Day on Rambler.ru, a major

Russian Internet portal. That generated a lot of traffic from Russia but very few

conversions. At that time, Shoes of Prey offered only an English language website and

accepted only payments by bank cards or via PayPal (which is still the case in all markets

other than Russia).

"This level of interest demonstrated the potential of the Russian market as well as the need

for a local presence," says Leighton Peter Prabhu, head of Interstice Consulting Russia,

which organized the company's localization.

The Russian version of the website launched in October 2010, with local online payment

solutions enabled in the spring of 2011.

Shoes of Prey also has a local team and office. Moscow-based customers can visit the office

and try on shoes, see finished examples, and examine all the materials. This unique

localized service – Shoes of Prey does not offer it in other countries of the world – "has

made our business in Russia a lot more personal and consultative with customers," Prabhu

notes. "We often meet with them individually, which is rare even in our Sydney head

office. »

Localizing the business did not cost a significant amount, according to Prabhu. "There are few

hard assets in Russia, mainly staff, office expenses plus event expenses. All supplier

relations and fulfillment are handled by Sydney, and their technology team takes care of all

Russian website hosting and functionality – we merely provide the translated text and

multimedia content. Marketing expenses have been rather moderate since our online

campaigns are very targeted and a large part of our promotion strategy takes the form of

PR. »

However, the company understands the challenges of the Russian market. Speaking to

EWDN, Prabhu said “Increasingly, the company's overriding priority is to significantly grow

sales by focusing on developed markets in the USA and Europe, which have shown higher

volume potential compared to Russia.”

The company understood that, while the profit margins for Russian sales have always

outpaced other international markets, the overall sales volume was not as strong. Partly,

this is due to the fact that the company does not have suitable products for much of the

year (they do not offer boots or other cold-weather footwear). Additionally, this has to do

with Russia being an emerging market, with the reality that average incomes are still not

on par with the USA and Europe.

The company ceased support for a full Russian-language website and separate Russian blog.

The site is now offered to Russian customers is in English, except for a lengthy but solitary

Russian-language FAQ page. This was done primarily due to the need to re-prioritize

limited technical resources (the site does not have a user-accessible content management

system and all content updates require developer resources)


Since the online designer is quite visual, the decision to stop a full Russian site did not have

an immense impact on conversions. In fact, it was an opportunity to emphasize the

opportunity for Russian customers to interact more personally with the Russian team, through

telephone, Skype and in-person consultations. In the summer 2012, the Moscow office of

Shoes of Prey moved into a larger and more comfortable showroom space and this has had a

positive impact on conversions.

However, as a result of Shoes of Prey Australia's focus on developed markets, the paid

marketing budget for Russia has been eliminated. The focus is now on earned media and

other BTL marketing initiatives. Shoes of Prey Russia continues to be regularly featured in

leading Russian media, including television.

The company is also building partnership relationships with local communities and

companies. Some recent new partners include the International Women's Club in Moscow

and the Expat in Russia Club. The firm runs events, such as the arranging shoe design

master-classes to familiarise potential customers with online designer technology (in early

2014), cooperation with fashion designers such as the Jesofa design studio for the Estet

fashion week in Moscow in April 2014, and supporting charity events.

Organizing cross-border operations

•Delivery: Currently, there is no price differential to Russia; the pricing for shoes is the same

in Russia as in other countries. Shipping costs though depend on the country. International

delivery to Russia is more expensive and takes longer, so Shoes of Prey started by managing

expectations, especially for customers in the regions. In general, the company ships by DHL

from its overseas workshop to Moscow, then uses a Russian courier within the country. This

combination was chosen because DHL takes just a couple of days to deliver to Moscow,

compared to as long as a couple of weeks with EMS, the subsidiary of the Russian Post

specializing in international delivery. There are exceptions, however: if a customer lives in

Vladivostok, EMS would handle the parcel from the workshop to the customer directly, without

the involvement of the Shoes of Prey Moscow office, as the internal courier expense is

prohibitive.

•Payments: Initially, most customers were paying by cash. Generally, the site’s Russian

customers have bank cards; the issue was more a lack of trust in divulging bank card data to

a new company. "Now that we are more established, we see a trend where more of our

Russian clients are paying online with bank cards," says Prabhu. "The evolution of payment

methods continues, with recent experience showing roughly 80% of customers choosing to

pay online via credit cards.”

•Returns: Shoes of Prey offers the same return policies in Russia as internationally: "100%

satisfaction, or we remake the shoes or refund the money." This guarantee is valid for 365

days, as long as the shoes are unworn. The retailer's return rate in Russia is lower than its

global return rate, because many Russian customers come into the Moscow office to make

certain of their size and to see the quality of the final product.

52


CROSS-BORDER E-COMMERCE THROUGHOUT EUROPE:

The freshest figures and facts

by the leading market experts

To receive your free copy,

please contact [email protected] or go to

http://www.thepaypers.com/cross-border-ecommerce


http://www.thepaypers.com/cross-border-ecommerce

CROSS -BORDER

SALES TO RUSSIA

A B O U T T H E

F U L L V E R S I O N




[email protected]

55


About the full version

8 C H A P T E R S

2 8 5 PA G E S

1 5 C A S E S T U D I E S

& I N T E R V I E W S

50 PARTICIPATING

C O M P A N I E S

• The latest market evolutions: How the market skyrocketed in 2013, why

Western e-merchants are recording slower growth or decrease in 2014,

and what to expect next;

• Russian consumers’ preferences and fears, how to inspire their trust

and turn them into loyal consumers;

• The opportunities for international online retailers in Russian SEO,

contextual advertising, online marketplaces, SMM, email marketing,

offline campaigns, and other channels;

• Why and how international online stores and PSPs should integrate

localized payment methods;

• How to optimize shipments to Russia and get through the Russian

customs seamlessly;

• How to fight fraud, and how to increase payment acceptance rates

when working with Russian card holders;

• How to comply with the Russian legislation – from forbidden goods, to

IP protection requirements, to personal data collection, storage and use.

Preparing or beginning operations on the Russian e-commerce market

Developing and optimizing an existing business

Preparing or fine-tuning a business plan

Defining a fulfillment strategy or optimizing an existing fulfillment approach

Preparing marketing campaigns and optimizing related costs

Choosing and managing payment solutions and providers

Adapting to Russian legal requirements (including legislation on personal data,

marketing practices, and consumer rights)

Analyzing the market, setting benchmarks and international comparisons

THIS REPORT IS MOST USEFUL WHEN:

Intended for practical use by online retailers

and service providers, this research study –

the first of its kind – sheds full light on cross-

border sales to Russia.

Based on interviews with 50 top market

players and experts, this study provides

fascinating data and insights about:


56

57

Contentsof the full version of this research study

About the full version | Contents


Introduction: Cross-border sales throughout Europe

By E-Commerce Facts Chief Editor Janine Nöthlichs

Part 1: The domestic e-commerce scene

1.1. Europe’s largest Internet market

1.2. The Russian online retail market: Key facts, figures and trends

1.3. Segment analysis

1.4. Market growth forecasts

1.5. International comparisons

Part 2: Figures and trends

2.1. Market overview – Exclusive data from key market players

2.1.1. Overall volume

2.1.2. Countries of origin

China – Expands dominance in parcel deliveries

USA & Europe – Market still growing, but competition hardens

2.1.3. Product categories

Clothing

Electronics

Auto parts

Toys and games

2.1.4. Average order value – Cross-border merchants’ AOVs compared

2.2. Market forecast

2.2.1. Optimistic growth outlook

General e-commerce growth drivers

Specific cross-border drivers – improved customs, postage and competition

2.2.2. Pessimistic growth outlook

Impact of new legislations

Economic and political risks

2.2.3. Extreme scenarios: Death of the market or accelerated growth

Special insight: Is market growth coming to an end?

Why some Western e-merchants have recorded slower growth in 2014, and what to expect next

Analysis: Chinese giants make their move into Russia

Part 3: Cross-border consumers

3.1. Number of e-shoppers

3.2. Where do they live?

Internet connectivity

The capitals vs. the regions

3.3. Implications for online retailers

A mature market in the capitals

Lucrative opportunities in the regions

3.4. Who are they?

3.4.1. Segmentation by gender

3.4.2. Segmentation by age

3.5. Why do they abroad?

3.5.1. Assortments – In-demand luxury, plus-size clothing and maternity markets reviewed

3.5.2 Looking for better prices?

An especially key factor in Chinese purchases

The favorable impact of tax-free conditions

However, cost is not always the priority for consumers

Interviews:

-Five Russian e-shoppers share their experience with Western and Chinese sites

-E-merchant interviews about Chinese cross-border B2B

Part 4: Merchants

4.1. How many players

4.2. Foreign vs. Russian players: Key competition points

Price and assortments

Language barrier

Payment options

Tax and legislations

Brand awareness

4.3. Notable cross-border players

Case studies:

-How AliExpress became the number one e-commerce site in Russia

-Affordable fashions from the UK – ASOS comes to Russia

-eBay – cross-border leader sees Russia as important market but with some caution

-iMall.eu – bringing European luxury to Russia effortlessly

-Sendmebox, the making of a next-gen cross-border marketplace

-Shopotam – from selling notebooks on eBay to an international mail-forwarding network

Part 5: Customs clearance and shipment

5.1. Shipment and delivery

5.1.1. Delivery via postal operators

The Russian postal service

EMS, the Russian Post’s subsidiary for express delivery

Russia-oriented offers from foreign postal services

5.1.2. Alternative carriers

Western operators

Russian carriers

First-mile operators

5.1.3. New service features

5.2. Customs duties and clearance .

5.2.1. Customs duties

5.2.2. Customs clearance: Procedures explained and recommendations provided

5.3. From cross-border sales to market entry

Interviews:

-Aarnio Heli, Itella Senior E-Commerce Development Manager: "We aim to keep market leadership in

both Finland and Russia”

-Stuart Hill, wnDirect Managing Director and Co-Founder: "Customer satisfaction is intrinsically linked to

successful delivery and returns”

-Michael Poetschke, Arvato Russia General Manager: “Some Western players have suspended their e-

commerce plans for Russia, but the effect of the international tensions might also be positive”

-Alexander Stsekotin, Omniva International Post Coordinator: "We provide a full solution to Russia – from

logistics and shipment, to customs, payment and accounting”

-Alex Vasiliev, SPSR International Development Director: “Even a sharp increase in taxes would not be a

problem if at the same time procedures are being simplified”

-Three questions to Karen van de Weijer, TNT Post Market & Communications Coordinator for

international parcels

58



Part 6: Payments

6.1. Payment methods used by Russian online consumers

6.1.1. Bank cards

The Russian bank card scene

Bank cards are used more for cross-border than domestic transactions

6.1.2. Electronic currencies

International e-currencies

Russian e-currencies

6.1.3. Cash payments

Pre-payment by cash

Cash on delivery

6.1.4. Other payment methods

Online purchase on credit

Recurring and one-click payments

Mobile payments

Internet banking

6.2. How international online stores address Russia’s payment specifics

6.2.1. Local payment offers are still rarely offered

6.2.3. International PSPs and local aggregators

6.3. Fraud and refusal issues

6.3.1. Fraud

6.3.2. Failed transactions

6.3.3. Anti-fraud systems from PSPs

Special insights:

-Exclusive data on the use of local and international payment methods in cross-border transactions and

their evolutions in 2013-2014

-Virtual payment cards: A new generation of payment method in Russia

Interview: Elena Orlova, PayU Russia General Manager: “Russia is very different in terms of user

preferences to make payments”

Expert analysis

-“Russian consumers are not all fraudsters,” by Stephan Manduro and Nicolas Vedrenne of the Merchant

Risk Council

-"Fighting against fraud – A few facts and recomendations," by the PayU expert team

Part 7: Marketing & sales channels

7.1. Site localization

7.1.1. Translating into Russian

Why translating into Russian is necessary to serve the Russian market

Exceptions to the rule

7.1.2. Other aspects of localization

7.2. Russian online marketing specifics

7.2.1. Inventory: The domination of local players

7.2.2. Some marketing instruments are less mature or less used in Russia

7.2.3. User perceptions and responsiveness can also differ

7.2.4. Price hikes are distorting the market

7.2.5. Local and foreign agencies

7.3. Marketing tools and sales channels

7.3.1. Search engine optimization

7.3.2. Contextual advertising

7.3.4. Display advertising

Display advertising networks

Performance-based affiliate networks

59



7.3.5. Marketplaces and offer aggregators

International platforms

Russia-focused cross-border platforms

Russian domestic platforms

7.3.6. Social networks

Social networks as a communication tool

Social networks as a customer care center

Social networks as a sales channel

7.3.7. Email marketing

Email marketing for customer acquisition

Email marketing for customer relationship management

7.3.8. Other tools

Shopping clubs

Cash-back platforms

Mobile channels

Offline marketing

Customer relationship management

Interviews:

-Guzel Galeeva, Project Manager of Alibaba’s iTao social network: “Why we launched a social network

for Russian cross-border shoppers”

-KAYAK Russia GM Andrew Verbitsky: “Now we have 9 million keywords and nearly a thousand ad

campaigns”

Case studies:

-Shoes of Prey – Tailor-made Australian shoes for Stylish Russians

-How a Chinese tea company resolved market entry challenges

Expert analysis:

-"Yandex.Direct and Google AdWords compared," by Alexander Egorov of Alytics

-“Translations in Russia e-commerce,” by Maggie Little of TranslateMedia

Part 8: Legal aspects of cross-border sales

Guidelines for compliance with Russia’s personal data legislations

Products affected by legal restrictions in cross-border retail operations

Intellectual property issues that affect cross-border sales to Russia

New rules on user identification in cross-border payments from Russia

This section was prepared in partnership with Ernst & Young Russia and Borenius-Attorney at Law

10 Dos and Don'ts for foreign e-retailers selling to Russia

This section was prepared by market entry consultant Leighton Peter Prabhu

60



Lead authors


About the full version | Authors & contributors

61

Adrienne Down Coulson

General Manager

Ebates

Vladimir Dolgov

General Manager

eBay Russia

Alexander Egorov

Performance marketing expert

Alytics

Sergey Fedorov

Senior Associate

Borenius Russia

Bas Godska

International e-marketing expert

Founder & CEO

Acrobator

Maria Gracheva

General Manager

Yandex Money

Vladimir Grankin

President

Ocean Bank

Aarnio Heli

Senior E-Commerce Development

Manager

Itella

Stuart Hill

CEO

wnDirect

Maxim Abakumov

CEO

DM Forwarding

Maxim Andryukhin

Head of Russia & CIS

Dostami.ru

Martin Avetisyan

CEO

iMall.eu

Jean-Stéphane Bagoëe

CEO

Intelligent Emails

Mark Batty

Territorial manager for Russia and

new markets

ASOS

Vladimir Вelugin

Marketing director

eTargeting

Aaron Block

CEO

Dostami.ru

Aurore Charbonneau

Analyst

East-West Digital News

Mikhail Chentsov

Head of the Business legal support

division of the Legal Dpt.

Otto Group Russia

Contributors

& participating experts



62

Andrei Lyamin

Marketing Director

Shopotam.ru

Daria Morozova Lupinacci

Russia country manager

Shopbop.com

Stanislav Meshcheryakov

CEO

Sendmebox

Anastasia Mukhina

Head of External Communications

RBK Money

Steven Mandurano

Global Lead Marketing

Communications & PR

Merchant Risk Council Europe

Igor Nevzorov

Senior Manager of tax and legal

services

Ernst & Young Russia

Elena Orlova

General Manager

PayU Russia

Sergey Podkin

International shipment dpt.

Boxberry

Michael Poetschke

CEO

Arvato Russia

(Bertelsmann Distribution Center)

Maximilien Jacquet

Со-founder

eStore Agency

Tatiana Kalinina

Head of international sales

Yandex

Svetlana Kotlovskaya

International Business Development

Director

CDEK

Sergei Kvon

Head of Retail industry dpt.

Google Russia

Svetlana Kotlovskaya

International Business Development

Director

CDEK

Sergei Kvon

Head of Retail industry dpt.

Google Russia

Anastasia Lazareva

Fashion graduate

Nottingham Trent University

Maggie Little

Head of Retail and E-commerce

TranslateMedia

Olga Lomko

Marketing director

Kupinatao

Contributors




63

Daniil Tkachev

Russian marketing expert

Elodie Trichet

Senior Strategic Partnerships Manager

Adyen

Alex Vasiliev

International Development Director

SPSR

Nicolas Vedrenne

Managing Director

Merchant Risk Council Europe

Ed White

Director of international business

Overstock.com

Yuri Popolitov

Development Director

Shopotam

Leighton Peter Prabhu

General Manager

Interstice Consulting Russia

Arkady Sandler

Founder

Essential Commerce

Petr Sharapov

Business development managers

Shopfans

Alexander Stsekotin

International Post Coordinator

Omniva

Igor Subow

National Mail Ordering and Distance

Selling Association (NAMO)

Contributors




64

" E-commerce in Russia –

The Domest ic Scene" The " Bible" of Russian e-commerce – What

retailers, entrepreneurs and investors need to

know to succeed in the Russian e-commerce

market.

• 10 chapters, 430 pages, updated quarterly • Available in English and Russian languages

A series of in-depth reports on

e-commerce in Eastern Europe

To receive these reports or executive summaries at no charge, please contact us at [email protected]

" E-commerce in Russia –

Cross-border Sales" A full set of market data with concrete advice

on how to seize the opportunit ies of a market

that grows by 75% annually.

• 8 chapters, 285 pages, updated quarterly

• Available in English language

" E-commerce in Ukraine" The first-ever report on Ukraine’s online retail

market, in partnership with the Ukrainian

Direct Market ing Associat ion (UADM)

• Scheduled for release in Q1 2015

• Available in Russian and English languages

CROSS -BORDER

E - C O M M E R C E

K E Y I N D U S T R Y

E V E N T S

67

RECOMMENDED BY

68

KEY INDUSTRY EVENTS

E-Commerce & Omni-Channel: Supply Chain

& Fulfilment Congress 2015

London, Jan. 28-29, 2015

http://www.ecommerce-supply-chain.com

Merchant Risk Council European Congress

Brussels, May 20-22, 2015

https://www.merchantriskcouncil.org/Events

eDays – The International Conference of

Russia’s E-Commerce leaders (organizer: EWDN)

Moscow, June 4, 2015

http://edays-russia.com

Global E-Commerce Summit

Barcelona, June 8-9-10, 2015

http://www.e-commercesummit.com

eTail E-Commerce & Retail Events

Denmark, Germany, France, Singapore, UK,

North America, Latin America, Asia

www.wbresearch.com

http://www.ecommerce-supply-chain.com

https://www.merchantriskcouncil.org/Events

http://edays-russia.com

http://www.e-commercesummit.com

http://www.wbresearch.com

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